What’s with All this Paperwork, Part VI: Authorization Forms

Today’s Draw the Law will be simple, as I am working to get my enewsletter out as well.  Interested in finding out what my practice is about or what else I am up to?  Send me a message and I will add you to the subscription list.  Even if you ever get tired of my newsletter you can always unsubscribe as the service I use is CAN-SPAM Act compliant.  Anyway, let’s get to it. In last week’s post I discussed notice, minutes, and written consent.  This week I will talk about authorization forms.  This is another piece of paper you will find in a situation with multiple shareholders and officers.  Notice a trend about corporate formality and recordkeeping?

What is an Authorization Form?

This question and this post would be better put into context if I discuss today’s paper in the terms of an “Authorization of Treasurer to Open and Use Accounts” form, which might be called something else depending on who is doing the drafting, but for all effect it authorizes the person who is the treasurer to open bank accounts on behalf of the business as well as other types of financial accounts.

There is no single correct form as this all depends on what the agreement among the board was on what powers were granted in the treasurer.  The authorization can be as wide or as narrow as the corporate body wants to make it.   The point is remember long ago when I discussed agents acting on behalf of the principal.  In this case, the treasurer is an agent of the corporation, who is the principal.  We all know that corporation is a legal person, but as it is not living person it must act through its agents, namely the officers and directors.

Generally, most financial institutions dealing with your corporation’s treasurer will want to see an authorization form and to have it on record as does your corporation’s owners.  Why?  Accountability.  Typically, in these authorization forms some kind of power is being granted.  In the case of the treasurer, it tends to be able to not only open bank accounts, but to also use the money in them.  Therefore, take a look at today’s “Practical Last Word” for addressing this issue.

How Specific Can These Forms Be?

They can be very specific.  In many ways, you can consider them an instruction to how the officers, directors, employees, and other agents of the corporation are to behave. Once again using the issue of the treasurer and bank account.  Instead of a general authority to open and use banks may be you have it so that other officers, employees, and agents can endorse checks (and other instruments) for deposit purposes only.  However, when the corporation has to pay out may be the treasurer can sign out checks that under $5,000.00, but for anything over it requires both the president’s and the treasure’s signatures.  May be the account is a checking account, may be it is for petty cash.  Bottom line: choices need to be made about how you want your organization to look like and operate, but you also need to work with professionals, such as financiers, accountants, attorneys, bank employees to make sure that what you decide on the inside is matched by conduct with outside third parties.

Practical Last Word

In theory, a written agreement should give you a right of recovery against the bad treasurer who abuses their authority.  However, typically the bad treasurer has run off with your corporation’s funds and you cannot find them.  So once again, an attorney can draft safeguards and protocols into your bylaws, employee agreements, etc . . . but it is up to you to enforce them and to watch out who you partner with.  In addition, work with your fellow founders to create checks and balances on the authorities granted when divvying up duties.  Finally, you may want to ask yourself can you trust this person with the money?  If you find yourself trying to have your attorney draft as many safety measures of accounting for the money, multiple signatures needed, and that the treasurer is only allowed to open a bank account with a small amount of money do you really want to be working with that person?

*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.