You would think this is obvious. Some of us can still remember our first school savings account with the State Bank, pink piggybank and all… But when you start involving companies, trusts and partnerships, things can get a little more complicated.
First, you need to identify the ‘legal entity’ that is opening the account.
Opening an account in your own name
For individuals and sole traders, this will be you, in your own name. To open an account you will need sufficient identification to prove to the bank that you exist (and that you are who you say you are).
You may think that opening a bank account as an individual could not get any more complicated – but it can…
If you want to accept and make payments in a business name, then you will also need to show the bank a copy of the business name registration – which ties you as an individual to the business you are running, and possibly your ABN details. If you do not register a business name and provide evidence to the bank, then when you receive a cheque (or other payment) in your business’ name, you will not be able to cash it…
But that’s not all.
You can operate a business or hold an asset in one of two ‘capacities’ – as an individual in your own right, or as ‘trustee’ for a trust. If you are acting as trustee for a trust, then you may wish to notify the bank of this fact. If you do, then the bank will require a copy of the ‘trust deed’ that shows you are the trustee of the trust. The bank will then usually make a ‘designation’ on the account that says the account is operated by you on behalf of the trust. This can help at tax-time, when you want to prove that you have actually been operating the business or holding the asset through the trust (rather than in your own name). But note, technically you do not need to tell the bank about the trust – it is just a good idea.
Finally, if you open an account in your own name you can also add one or more ‘operators’ for the account. An operator is someone who officially has your permission to do certain things with the account, i.e. approve payments, get transaction details, etc. Each operator will also need to identify themselves with the bank.
Keep in mind that you cannot ‘transfer’ a bank account between individuals. If you want to give an account to another person, or bring them on as a joint owner (not just an operator), you will need to close the account and open a new one – with a new number, and all the hassle that brings.
Opening a bank account for a company
A ‘company’ is treated like a living person for legal purposes. This means that a company can hold a bank account in its own name, i.e. when you open an account for a company, it is the company that holds the account with the bank. But as you know, a company can’t do much without the help of a real human.
There are two sorts of humans who can deal with a bank on behalf of a company.
First there are the directors. A director is a person recognised by law (the Corporations Act) as authorised to manage the affairs of the company. If there is more than one director, then the directors must pass a resolution to set up and operate a bank account. Usually the resolution puts in place a ‘policy’ according to which the account will be operated over time – rather than requiring a separate resolution each time something is done on the account.
To set up an account for a company, the bank will want to see:
- The Certificate of Registration of the company – which is like a birth certificate that proves the company exists;
- A copy of an ASIC report – showing who the directors and shareholders are;
- A copy of the resolution of the directors authorising one or more directors to set up and operate the bank account; and
- Identification of each of the directors of the company – as per above about individuals.
Secondly, a bank account owned by a company can have one or more ‘operators’. These are people who are authorised by the company to operate the account. This can include the directors, but can also extend to other company executives and employees. The directors decide when someone is nominated or removed as an operator on the bank account.
Technically, if the directors have passed a resolution to set up an account and give a director authority to operate the account, then the bank must recognise that authority. However, this can all get very complicated when a dispute breaks out among the directors, or when a director is removed from office. The approach that most banks take when they have notice of a dispute like this is to ‘freeze’ the account until everyone agrees what can be done, or a court makes an order.
As with individuals, a company can act in one of two ‘capacities’, i.e. in its own right (i.e. as the company itself), or it can act as a trustee for a trust. If the company is acting as trustee, then the bank will once again want to see a copy of the ‘trust deed’ which proves that the company is the trustee and has the capacity to operate a bank account.
Opening a partnership or joint bank account
Then we have partnerships and ‘joint’ accounts. The first step is to identify the ‘partners’, as they will be the people who open the account. A partner can be either an individual (i.e. you), or a company (see above). Further, you or the company can be a partner in your own right, or in the capacity of trustee for a trust. (Hanging in there?)
Opening an account in the name of a partnership (or joint account holders) will require:
- Each partner to identify themselves to the bank (as above);
- If a partner is a company, then the directors of the company will also need to identify themselves (as above);
- If the bank has notice of any partner acting as trustee for a trust, then the bank will also want to see the trust deed for each trust; and
- If the bank has notice of the partnership, then it may also want to see a copy of the Partnership Agreement and a resolution of the partners to set up the account and appoint the operators.
Finally, if the partnership operates under a business name that does not consist of all of the partners’ names, then the bank will want to see a copy of the Certificate of Registration for the business name and ABN details.
Legally, each partner has ostensible authority to operate the bank account. However, this authority can be limited by resolution of the partners. The bank will usually not want to get involved in these deliberations, and if it gets wind of any dispute among the partners it will likely ‘freeze’ the account until a resolution is reached and joint instructions are given (or a court order made).
As with individuals and companies, a partnership account can have one or more additional ‘operators’ with such authority as the partners decide to confer on them.
As governments around the world have cracked down on money laundering, they have stepped up their ‘KYC’ (Know Your Client) procedures around trusts. This can make setting up a bank account for a trust – or for another entity that involves a trust (such as a partnership) – more difficult. In Australia most banks now have settled procedures to deal with trusts, but not all bank employees know what they are doing. Setting up an account with an overseas bank can be a nightmare if they get wind of a trust…
One thing banks are asking more often is the identity of the ‘controllers’ and ‘beneficiaries’ of the trust. (They are also asking similar questions to identify the shareholders of a company before opening a company bank account – and often a company is owned by one or more trusts…) The concept of a ‘controller’ is a slippery one, and depends on the type to trust. If the trust is a ‘fixed trust’ with discrete owners (like a unit trust), then answering these questions is easier. However, if the trust is non-fixed with ‘discretionary’ interests (like a family trust), the questions can become a lot harder to answer. Similar considerations apply when it is necessary to identify the ‘beneficiaries’ of a trust.
In short, when you get involved with a trust you should ask your lawyer what sort of trust you are getting and be prepared to answer these key bank enquiries regarding the trust. Most banks now have a practice of requiring a lawyer to sign a letter confirming certain key information about your trust before an account is opened (and particularly if any borrowing is involved).
One type of trust worth noting is a self-managed super fund (or SMSF). This is a very highly regulated trust, which will require an annual audit to comply with our super and tax laws. The trustees of the SMSF must open and operate the account. The trustees can be the individual members, or a company having the members as directors. The bank will also want to see the SMSF trust deed.
Attorneys and deceased people
And the fun doesn’t end there… both individuals and companies can appoint an ‘attorney’ or ‘enduring attorney’ to act on their behalf, including opening, operating and closing bank accounts.
Banks are legally obliged to recognise the authority of an attorney, but often this is harder than you think.
To start with, the bank will need to see the original or a certified copy of the document appointing the attorney. They will also need to properly identify the attorney. In the case of an enduring power of attorney, the bank may require evidence of the individual’s loss of capacity, e.g a letter from their doctor. If there are any other conditions imposed on the attorney’s authority, the bank will want evidence that these conditions have been complied with. For example, we have seen documents that appoint an attorney ‘while I am overseas’, and then the attorney needs to prove the person is out of the country… not easy!
All banks have their own policies regarding what they require to recognise an attorney. You should sort this out well before you anticipate your attorney having to operate your account.
When you die your executor will need to operate and ultimately close your bank accounts. In most circumstances, they can’t do this until they get a grant of probate or letters of administration. This can takes months – during which time the account will be ‘dormant’ or effectively frozen. Banks have policies that allow them to release small amounts of money to the person named as the executor in your Will to cover certain immediate and expected expenses (such as your funeral). But don’t rely on this without first checking!
Borrowing from a bank…
Things go to another level when you want to get a loan from a bank, but that’s a topic for another day.