When One Account Owner Wants the Other One Off

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Question:

This is a strange situation. We have a business account that we can not find resolutions for. From looking at the signature cards, it would appear that person A opened the account and added person B four months later. At some point in this business relationship, it went sour between person A and Person B. Person B came in and requested we remove person A from the account. We told person B that we had no authorization to remove person A based on person B's request alone. (got this?) We told both of them that they needed to resolve the situation and one possiblilty was to close the account reopen another with the sole person on it. What happened, however, was Person A withdrew funds while Person B wrote checks causing the account to go into overdraft. NOW person A wants to be removed. We say no, not until the account is brought back to zero. Please explain what procedures and/or regulations pertain to removal of names from a business account!

Answer:

Answer by: Ken Golliher

As for "laws and regulations" that could provide instructions in this area, I do not know of any. The critical issue is the form of business organization and understanding how each works. Since the form of this business is not indicated, this needs to be a generic response.

If this is a sole proprietorship, the sole proprietor and the business are one and the same. He or she can add or remove people at will. Some banks document those decisions with a form labeled as a "resolution," but all that is really involved is documenting a decision of the owner.

If the business is a corporation, partnership or LLC, the term "resolution" means an official decision made by the governing body and documented in its minutes. Signatories can only be added or removed by a resolution. Banks protect themselves by requiring the appropriate officer, member or partners to certify a written memorial of the resolution indicating the decision was made by the governing body at an appropriately called meeting.

Answer:

Answer by: Mary Beth Guard, BOL Gurus

FYI The law which would have allowed one of the individuals to close the account (as you suggested to them) is the Uniform Commercial Code. See Section 4403.

First published on BankersOnline.com 7/1/02