Making Business Principals Liable on Account

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Question:

If I open a business checking account for a corporation is there any form that can be signed by the principal holding them personally responsible, as well as the corporation, for any possible losses? Also, if there are no forms, could our bank draft one and use it?

Answer:

Sure, you could develop a form where an individual serves as guarantor for the corporation. The concept is common in lending, but outside my experience on the deposit side.

In drafting it, you would have to think carefully about what it is you are trying to protect the bank from. That is the part that escapes me here. If your concern is about being reimbursed for overdrafts created by checks written against insufficient funds, the simplest way to handle that is establish a revolving line of credit for the corporation.

If the corporation is not creditworthy, plan B would be to simply bounce NSF checks written against the account. If your concern is about the return of checks deposited to the account, the guaranty may make sense. However, remember, loans generate direct revenues - it is easier to justify the expenses invovled in developing and enforcing guaranty agreements. A deposit relationship that requires this much structure may not be worth having.

First published on BankersOnline.com 2/2/04