Key Takeaways:

  • Definition: An authorized signer on a business account is a designated individual who can manage financial transactions on behalf of a company but does not own the account.
  • Responsibilities & Powers: Authorized signers can write checks, access account balances, make deposits/withdrawals, and even close accounts, depending on the agreement with the financial institution.
  • Choosing an Authorized Signer: Businesses should carefully select trusted individuals who understand the financial and legal responsibilities tied to account access.
  • Risks & Liabilities: Business owners remain liable for any financial decisions made by the authorized signer, and safeguards should be put in place to prevent misuse.
  • Adding & Removing Signers: Banks have specific procedures for adding and revoking authorized signers, requiring proper documentation and verification.
  • Impact on Credit & Liability: Authorized signers do not have ownership over the account but may still be involved in liability issues, particularly in cases of fraud or mismanagement.

Authorized signers on business bank accounts are people who are legally permitted to spend or commit monies from that account. Limited liability companies are always legally separate from their owners. Therefore, in terms of a business bank account, the owner is stated as the limited liability company.

Authorized Signer for Checking Account

Normally, persons authorized to withdraw or deposit money and sign checks do not have to receive permission from the owner. All transactions completed by an authorized signer will be made for you as the account owner. However, authorized signers do not have rights to any financial assets unless they are listed as beneficiaries in the event of the account owner’s death.

An authorized signer should never write checks for the account if they are aware that funds are unavailable. However, unless there is a contract that states otherwise, that individual will not be responsible for any fees that result from an overdraft.

In the event that an authorized signer uses company funds for anything that does not benefit the owner, than a personal lawsuit may be warranted. That individual may be taken to court in order to reclaim the money. Remember that as an owner you are still legally responsible for any charges or fees incurred by any authorized signers.

It is not the bank's responsibility to monitor the purpose of withdrawals from any authorized signer. This is because an authorized signer has the same access to the business bank account as the company owner. According to the Uniform Commercial Code, an authorized signer has certain rights to a business account, including:

  • The ability to sign checks
  • Access to an account's balance
  • The right to view transactions
  • The ability to stop payments on checks
  • The option to close the account

The only way to avoid any conflict is to have the accessibility rights of a business account clearly documented in writing.

When adding an individual to a company account, it is necessary to take the person to the bank that is affiliated with the business. At this time, the authorized signer must complete an application and sign any necessary contracts. Each person will need to provide photo identification and their Social Security card. Some companies may choose to use an online bank for their financial institution. Be sure to follow the appropriate measures to add an authorized signer to an online account.

Procedures to revoke the rights of an authorized signer vary among banks. In most cases, the financial institution will require the notification to be documented in writing. It is up to the owner to destroy any debit cards or checks associated with the account. Until the bank officially makes the changes, the owner is responsible for any charges. This process may take up to 24 hours to complete.

Benefits and Risks of an Authorized Signer

An authorized signer can help streamline business banking operations, but their role comes with both benefits and risks.

Benefits:

  • Operational Efficiency: Business owners can delegate financial tasks, allowing for smoother daily transactions.
  • Flexibility: A trusted individual can handle banking matters even when the owner is unavailable.
  • Improved Cash Flow Management: Timely payments and check signings can help maintain financial stability.

Risks:

  • Mismanagement of Funds: If an authorized signer misuses their access, the business could suffer financial loss.
  • Legal Liabilities: Business owners remain responsible for all transactions, even fraudulent or unauthorized ones.
  • Difficulty in Revoking Access: While signers can be removed, the process might take time, leaving potential security risks.

To mitigate risks, businesses should set clear limits on signer authority and conduct regular account reviews.

How to Choose the Right Authorized Signer

Selecting the right person as an authorized signer is crucial to protecting a business’s financial health. Consider the following factors:

  • Trustworthiness: The signer should be reliable and have a history of financial responsibility.
  • Experience and Knowledge: They should understand banking processes, financial management, and business operations.
  • Legal Awareness: Authorized signers should be aware of their legal and ethical obligations when managing a business account.
  • Clear Agreement on Responsibilities: Business owners should set precise expectations regarding transaction limits and responsibilities.

Many businesses opt for a CFO, a trusted manager, or a long-term employee for this role.

Second Authorized Signer on an LLC Business Bank Account

Authorized signers on business bank accounts are able to legally perform transactions on behalf of limited liability companies (LLCs). The LLC retains ownership of the bank account.

To clarify, the LLC has all the rights and responsibilities associated with the entity’s bank account, but an authorized signer is allowed to do business in the same way as the owner. However, an authorized signer does not have the same legal responsibilities as an owner. This means that a highly trusted individual should be the second authorized signer on an LLC business bank account. By law, an authorized signer is permitted to make financial transactions from the account, such as spending or committing company funds.

Signature authority can be granted by an LLC to one or more individuals for all legal and financial documents or permission can be authorized for only specific accounts or transactions. Additionally, sometimes different positions have the authority to sign off on specific paperwork. For example, a managing member or LLC president may be the authorized signer for the following records:

  • Loan documents
  • Partnership agreements
  • Contracts

Whereas, the chief director of the LLC may have the authority to sign off on other documents, such as:

  • Loans
  • Checks
  • Any other finance-related paperwork

How to Add an Authorized Signer to a Business Bank Account

Adding an authorized signer involves a structured process with specific bank requirements. The steps typically include:

  1. Determine Eligibility: Confirm with your bank which individuals qualify as authorized signers.
  2. Gather Documentation: Commonly required documents include:
    • Business registration or incorporation papers
    • A government-issued ID for the authorized signer
    • Employer Identification Number (EIN) or Social Security Number (SSN)
    • Bank account information
  3. Visit the Bank in Person or Online: Many banks require in-person verification, though some offer online processing.
  4. Sign an Agreement: The signer must complete a signature card and any necessary authorization forms.
  5. Confirm Approval and Access: Once processed, the signer can manage the account as outlined in the agreement.

How to Remove an Authorized Signer

If a business needs to revoke an authorized signer’s access, follow these steps:

  1. Notify the Bank in Writing: Submit a formal request to remove the individual from the account.
  2. Retrieve Access Credentials: Collect and deactivate any debit cards, checks, or account login details associated with the signer.
  3. Update Business Banking Records: Ensure internal records reflect the change to prevent unauthorized access.
  4. Monitor Account Activity: Regularly check for any unauthorized transactions following the removal.

Most banks process removal requests within 24 to 48 hours.

Frequently Asked Questions

  1. What is the difference between an authorized signer and an account owner?
    An authorized signer has permission to conduct transactions but does not own the account. The owner retains full legal responsibility and control.
  2. Can an authorized signer be held personally liable for overdrafts?
    In most cases, no. Unless they knowingly misuse the account, the business owner remains responsible for overdrafts.
  3. How do I limit an authorized signer’s power?
    You can work with your bank to set specific restrictions, such as transaction limits or requiring dual signatures for large withdrawals.
  4. Does adding an authorized signer impact their credit?
    No, being an authorized signer does not affect their personal credit since they do not own the account.
  5. Can I remove an authorized signer at any time?
    Yes, but banks require formal notification and may have specific procedures to follow before the removal is effective.

If you need help with authorized signers on business bank accounts, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.