Commercial accounts, by their very nature, require an additional level of expertise from credit union staff. Commercial accounts include corporations, Limited Liability Corporations, Partnerships, Sole Proprietorships, and accounts for unincorporated organizations. From the compliance standpoint, most traditional consumer protection regulations, such as Regulation J Truth in Savings and Regulation E, the Electronic Funds Transfer Act, do not apply to commercial accounts. However, from the risk management standpoint, it is imperative to do your due diligence when opening accounts to ensure that you are opening an account for a legitimate, established business.
Here are the most common types of businesses:
Sole Proprietor – A sole proprietorship is the primary business account – one person owning a business. The business may be one store or office, or it may be many stores and offices. The main point of interest is that there is one owner and usually one authorized signature. This entity type is usually owned and managed by one person or sometimes a married couple. Additional documents to be familiar with that a sole proprietor may provide might include:
- Social Security number: For tax identification and reporting
- Employer identification number (EIN)
- Individual taxpayer identification number (ITIN)
- Business formation documents
- Ownership agreements
- Business License
- Date business was established
- Country and state of legal formation
- Country and state of primary business operation
- Personal information: For everyone on the application, including those with at least 25% or more ownership and the controlling manager of the business
Partnership – The business is generally owned and managed by two or more partners. Each partner’s responsibility and the extent of liability of each partner is usually outlined in a Partnership or Limited Partnership Agreement. A Limited Partnership must also file a Limited Partnership Certificate with the Tennessee Secretary of State. Copies of such agreement(s) must be obtained for the Credit Union’s records.
Limited Liability Partnership (LLP)— An LLP is similar to a General Partnership, except a partner does not have personal liability for the negligence of another partner. This business structure is most commonly used by professionals such as accountants and attorneys. One or more individuals form an LLP through a special written agreement.
Corporation – A Corporation is a separate legal entity, distinct from the individuals who make it up. The Secretary of State issues Articles of Incorporation. Officers are elected and listed in the Board of Directors meeting minutes. Opening an account and borrowing, adding, and deleting signatures from an account are authorized by the corporation’s Board and documented by the corporate secretary. Copies of the Articles of Incorporation and the official document or meeting minutes authorizing the business transactions with the Credit Union and designating the authorized signers are required. A corporation may have as few as one shareholder. It is governed by a board of directors who, in turn, appoint officers to manage the corporation. A typical list of officers includes the president, Vice President, Secretary, and Treasurer.
Limited Liability Company – Business owners are called members. This type of company may have as few as one member. An LLC is formed by one or more individuals or entities through a special written operating agreement that details the organization of the LLC. Copies of the operating agreement must be obtained.
Organization – An organizational account is an association or club account for the non-profit benefit of a group of people eligible for Credit Union membership. Some examples include but are not limited to: Sunday schools, reunions, red-hat societies, flower funds, softball teams or any sports team. Non-profit organizations can be formed in many ways, including incorporation. A thorough investigation is needed to determine the required documentation before opening an organizational account. An organization or association type of account could include the local swim team, a bowling club, PTA, or an employee fund. Generally, an organization will be governed by some form of board of directors, but not always. This type of account is the hardest to validate because the organization is generally small and usually does not register with the state.
Commercial Accounts and the USA PATRIOT Act
The USA PATRIOT Act Customer Identification Program (CIP) specifically addresses commercial accounts from a risk management standpoint. There are four key minimum regulatory requirements a credit union must meet before opening an account for a business. The CIP requirements for a business are:
Name – Obtain the legal name of the business.
Identification number – The EIN, or a Federal Tax Identification Number, must be obtained. A sole proprietor may operate under their social security number depending on the structure of the business.
Address – When opening an account, the business must provide a physical address. The address can be either the principal place of business or another location.
Identification of Business – The credit union must obtain documents evidencing the validity and existence of the business. Examples include a copy of the business license, articles of incorporation registered with the state, or tax returns.
Finally, always remember that credit unions must check the Office of Foreign Asset Control List (OFAC) list for anyone your credit union does business business with.
