Forums: Discussions for entrepreneurs and small business.

I have recently formed an LLC. It consists of three members, and the principal assets are several rental properties. My question: Is it possible to give check writing authorization to our property management agent if they are not members of the LLC?

Thanks in advance for your help.

borkduck

I assume that you mean check signing authorization.

You can grant that authorization to anyone that you like. There is no requirement that they be members of the LLC. Obviously the signer(s) should be people that you trust.

If you decide that you want to put restriction on the person’s ability to sign check, e.g., authorized to sign checks up to $1000. You still need to look at your cancelled checks. I’ve seen check get cleared by banks that don’t have a signature at all. You still have to be diligent about reviewing checks.

There are certain tasks that you should separate. The person responsible for balancing the bank statements with your books and records should not be an authorized signer. The check signer should be able to review the invoices that the checks are paying. They will want to make sure that the checks are being issued for the correct amounts.

The list can go on and on, but I just wanted to hit a few of the key ones.

I hope this helps.

Ed Baloga, CPA / MBA
Principal CFO
Baloga Associates
ebaloga@baloga-associates.com
www.twitter.com/edbaloga

Thanks very much for your response. It’s much appreciated.

My bank (BofA) is telling me that the only way to give check signing authorization to someone (i.e. my property management agent) is to make them an ‘Authorized representative.’ They also say that this can only be done with a co-owner of the account. In addition they tell me that there is no way I can limit the amount a check may be written for by an ‘authorized representative’ and account co-owner.

Of’ course, they’re also telling me that this will make the ‘authorized representative’ a de facto member of the LLC, so you can see the quality of their financial expertise.

 Unfortunately, I’m stuck with them for the time being.

Thanks again for your prompt response, Ed.

borkduck

I apologize as my initial response may not have addressed all of the issues that the bank raises.

The only way to add or remove someone as a check signer is for someone who is an existing check signer to fill out a new signature card. If you and I were partners in the LLC and you were the authorized signer, the only way to add me as a signer would be for you to complete a new authorized signer form that adds me to the account. Just because I’m a member of the LLC doesn’t mean I have an automatic right to sign checks.

In terms of limiting the amount of a check that someone can sign, you should be able to accomplish that by requiring the use of two signatures on a check for amounts in excess of $XXX. You can also have that printed on your checks. The drawback is it will limit your ability to sign checks. The instructions on the account may say that for checks in excess of $10,000 two signatures required. In cases like this, you will need more than two authorized signers on the account, e.g., one of the check signers is hospitalized or on vacation, you still may need the ability to issue checks in excess of the limits you set up.

Their comment about an authorized representative on the account being a de facto member of the LLC may be referring to a legal term called apparent authority. This is when a principal takes some action with respect to an agent, employee, etc. that may lead a third party to believe that the agent, etc. has authority to bind the principal. For example, you sell products to retailers and use a manufacturer’s rep for the selling process. You give the rep business cards from your company that lists their name and a title of VP of Sales. To a third party, it would appear that your rep is an officer of your company and able to bind your company to agreements with third parties. If the rep created a card on their own without your knowledge and pretended to be an officer of your company, it would not necessarily bind you to an agreement since you did not initiate the action that caused the confusion.

As to this type of situation being created because someone is an authorized signer on your bank account, I would tend to think not. BUT, I am not a lawyer and would yield to the attorneys on the forum to comment.