Starting a business can be challenging. If you’ve ever thought about creating your own business, there are three crucial things you should always keep in mind to help provide the foundation for your business. First, you will need to establish a business plan. Next, you will need to determine a target audience. Last, you will need to assess your finances to determine profitability. Assessing your finances can help you determine whether or not you need to borrow or raise capital. When accessing your finances, it is important to create separate bank accounts that clearly separate your personal income and your business income.
Creating a business bank account can limit an entrepreneur’s personal liability because it keeps the entrepreneur’s business and personal finances separate. Having separate accounts can help provide the protection of your legal entity, make your accounting easier, and provide more services. When establishing separate bank accounts, it is important to designate authorized signatories. In this article, we will specifically discuss the importance of having signatories for your business bank accounts.
WHAT IS AN AUTHORIZED SIGNATORY?
An authorized signatory is a person who’s been given the legal right to sign documents on behalf of the authorizing do not need to get permission before signing off on a legally binding document or contract, as the employer has already entrusted them with that. They're expected to make smart decisions based on the company's behalf that will serve to benefit the company and its employees in the future. organization. Within a company, a signatory may take on many roles. These roles include:
Signing and delivering official documents and agreements with third parties and serving as a company’s agent
Signing/authorizing goods/product orders
Signing/authorizing permits, passes, or timesheets
Giving any notices
Executing any specific undertakings and approvals
AUTHORIZED SIGNATORY FOR BANK ACCOUNTS
When establishing a business bank account, it is important to designate individuals that you trust to manage your account. These individuals will also be known as “authorized signatories.” Authorized signatories are able to do basic functions such as signing checks on the company’s behalf, making deposits, or even doing basic online banking.
Authorized signatories typically have the same amount of access to the bank account as the account holder, which is why it is crucial to only choose individuals that you trust as authorized signatories for your business bank accounts. The most common types of permissions that are held by authorized signatories are:
The ability to close the account
The ability to sign checks
Access to transactions history
Access to the account balance
The ability to cancel payments on checks
AUTHORIZED SIGNATORIES FOR LLC(S) AND CORPORATIONS
A Corporation or LLC is an entirely separate entity from the actual business owner, and the entity itself is the owner of the business bank account. Signature authority can be given by an LLC to one or more individuals for all legal and financial documents or rights can be approved for only certain accounts or transactions. It is important to be careful who you are choosing as your authorized signatory because banks are not required to verify the underlying purpose of a given transaction. As long as the authorized signer is “on the record” as being authorized, they can complete the transaction.
When choosing your authorized signatory, be clear about what type of access you want authorized signatories to have. If you have more than one signatory, you can require them to access your accounts together.
ADDING AN AUTHORIZED SIGNATORY TO YOUR BANK ACCOUNT
A bank mandate is a document that lets a bank know who is authorized to access an account. Adding a new authorized signatory can be fairly easy. Typically, only the business owner or an authorized signer can add an additional signatory to a company account. In order to add a signatory to the account, a business owner must:
1. Call your bank to ask about their requirements for adding a signatory.
2. Fill out the information the bank requires.
3. Have all relevant parties sign the forms.
Authorized signatories do not need to get permission before signing off on a legally binding document or contract, as the employer has already entrusted them with that. They're expected to make smart decisions based on the company's behalf that will serve to benefit the company and its employees in the future.
The bank must always act in accordance with the mandate. If there are unauthorized transactions, a bank is responsible for any resulting loss. If it can be established that a transaction in breach of mandate benefited the account holder, then generally there is no loss. Sometimes, a bank will not be responsible for all of a loss if a customer has contributed in some way to the breach or failure to mitigate the loss.
CONCLUSION
When starting a business, it is important to separate your business accounts from your personal accounts to limit liability. When establishing separate bank accounts, it is important to designate authorized signatories. Authorized signatories are able to do basic functions such as signing checks on the company’s behalf, making deposits, or even doing basic online banking. You can determine how much authority the signatory has and include that in the bank mandate.
Be sure to always choose a highly trust individual as your authorized signatory.
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