New Accounts: Do you Need an Affidavit of Sole Proprietorship?

by Mary Beth Guard, BOL Guru
Guru BIOS

Question: When an individual opens a sole proprietorship account is it recommended the Bank receive an Affidavit of Sole Proprietorship? For a Affidavit of Sole Proprietorship, the individual is attesting that the Sole Proprietorship is proper.

Answer: Yes, or the bank should require the filing of a trade name or fictitious name certificate. What the bank needs to try to do is guard against the possibility that the sole proprietorship is a sham. Example (names changed to protect privacy): A guy worked for Rumble Cattle Agency. He went to a bank about an hour or two away and opened an account for a sole proprietorship -- his name, dba RCA. He stole checks sent in to Rumble Cattle Agency where the lazy checkwriters had written them to RCA, and deposited them into his sole proprietorship account. The scheme was discovered after about several thousand dollars worth of checks had been deposited. Inevitably, the bank gets sued in a deal like that (because the wrongdoer has already spent the money and has none left). They allege the bank was negligent. The bank then tries to show it did everything it could to try to avoid fraud, including getting a sworn statement from the person opening the account attesting to the fact that this is a legitimate sole proprietorship and its name is not confusingly similar to any other business, etc., or by insisting that the customer file a trade name certificate or fictitious name certificate with the proper governmental authority.

The original version appeared in the July/August 2004 edition of the Oklahoma Bankers Association Compliance Informer.

First published on BankersOnline.com 2/14/05