Section 9.2 – Accounts for Organizations

  • Overview

    • Accounts for organizations work similarly to individual accounts, but the owner is a legal entity (like a corporation or partnership) rather than a person.

    • Each type of organization has different documentation and authority requirements.

Sole Proprietorship:

  • Definition: A business owned by one individual.

  • Ownership: The individual and the business are the same for legal and tax purposes.

  • Account Name:

    • The account can include both the individual’s name and the business name.

    • Often listed as a “d/b/a” (doing business as) account.

  • Checks:

    • May be made payable to either the individual or the business.

  • Example:

    • John Baker d/b/a The Baker’s Corner Confection Store

    • Checks payable to “John Baker” or “The Baker’s Corner Confection Store” can both be deposited into the account.

Partnership Accounts:

  • Definition: An association of two or more individuals who share profits and losses of a business.

  • Required Documentation:

    1. A written partnership agreement.

    2. A signed authorization from the partners stating which partners are allowed to trade on behalf of the account.

  • Margin Accounts:

    • The partnership agreement must not prohibit margin trading if the firm wants to open a margin account.

Corporate Accounts:

  • Definition: A corporation is a separate legal entity created by filing incorporation documents with a state.

  • Governance:

    • Managed by a board of directors who make major decisions on behalf of shareholders.

  • Required Documentation for Brokerage Accounts:

    1. Corporate Charter:

      • Filed with the state and confirms that the corporation legally exists.

    2. Corporate Resolution:

      • A document approved by the board of directors that:

        • Authorizes the opening of the investment account.

        • States who is authorized to act on behalf of the company (to place trades, withdraw funds, etc.).

        • Lists any limitations on account activity (e.g., which types of securities can be traded).

Accounts

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Accounts 〰️

Key Takeaways

Type of Account / Ownership / Documents / Notes

  • Sole Proprietorship / Individual owner / Business name (optional) / “d/b/a” name may appear on account

  • Partnership / 2+ partners / Partnership agreement + authorization / Margin trading allowed only if not prohibited

  • Corporation / Legal entity / Corporate charter + corporate resolution / Must identify authorized individuals

Next Section

✺ Review questions ✺

  • A. The business itself
    B. The individual owner
    C. The board of directors
    D. The state where it’s registered

    ✅ Answer: B – The business and owner are legally the same person.

  • A. Direct business authorization
    B. Doing business as
    C. Daily business account
    D. Depository business account

    ✅ Answer: B – It stands for “Doing Business As.”

  • A. Partnership agreement and trading authorization
    B. Corporate resolution
    C. Stockholder registry
    D. Bank approval

    ✅ Answer: A – The firm must have the partnership agreement and authorization indicating which partners can trade.

  • A. Corporate charter and corporate resolution
    B. Articles of partnership
    C. Sole proprietor’s license
    D. Shareholder agreement

    ✅ Answer: A – These two documents establish the corporation’s existence and authorized representatives.

  • A. The business’s legal right to open an account
    B. The names of authorized individuals
    C. Limitations on investment activity
    D. The company’s stock dividend history

    ✅ Answer: D – Stock dividend history is not part of a corporate resolution.