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Difficulty: Very hardCustomer Account Types and Ownership Structures

A registered representative is reviewing the account setup and authorization documentation for two new customer relationships:

1. Apex Ventures Inc., a corporation opening a cash trading account. The firm receives a corporate resolution designating the Chief Executive Officer (CEO) as the authorized trader. Subsequently, the Chief Financial Officer (CFO) signs a Limited Power of Attorney (LPOA) purporting to grant third-party trading authority to an external investment advisor.
2. A Tenants in Common (TIC) brokerage account established by three business partners—Partner X (50% share), Partner Y (30% share), and Partner Z (20% share). Partner X requests that trading proceeds be disbursed via check made out solely to Partner X.

Which of the following statements regarding the legal documentation, trading privileges, and disbursement rules for these accounts are CORRECT?

  1. Any check disbursements from the Tenants in Common account must be made payable jointly to all three account owners, regardless of individual ownership percentages or trading authorization.Answer
  2. The Limited Power of Attorney granted to the external advisor is ineffective unless backed by a corporate resolution specifically granting authority to delegate trading control to a third party.Answer
  3. C
    Upon the death of Partner Z, Partner Z's 20% equity interest in the TIC account automatically transfers to Partner X and Partner Y in proportion to their existing ownership stakes.
  4. D
    The corporate resolution granting trading authority to the Chief Executive Officer inherently empowers the officer to withdraw account funds to third-party bank accounts.

Answer

The statement requiring check disbursements to be payable jointly to all account owners and the statement requiring a corporate resolution to validate an officer's delegation of trading power via LPOA are both correct.
For joint accounts, including Tenants in Common (TIC), checks drawn on the account must be made payable to all named account owners jointly, regardless of proportion of ownership. Furthermore, corporate accounts require a corporate resolution passed by the board of directors to empower individuals to trade or delegate authority; an officer cannot independently execute a valid Limited Power of Attorney without board resolution backing.

Step-by-Step Solution

1
Analyze joint account disbursement rules for the Tenants in Common (TIC) account.
Disbursements must always be issued in the name of all registered account owners co-jointly, regardless of individual ownership shares or trading privileges.
Broker-dealers enforce strict co-payable disbursement rules on joint accounts to satisfy FINRA customer protection rules and prevent asset conversion.
2
Analyze corporate account documentation and power of attorney requirements.
An officer cannot unilaterally delegate trading authority; third-party power of attorney requires corporate resolution backing.
The corporate resolution represents official board approval, establishing who holds authority to act for or delegate authority on behalf of the legal entity.
3
Evaluate survivorship rules for Tenants in Common vs. JTWROS.
Deceased TIC owner's interest passes to their estate, not surviving owners.
Automatic transfer to surviving tenants is a defining feature of Joint Tenancy with Rights of Survivorship (JTWROS), not Tenants in Common (TIC).

Key Concept

Corporate resolution authority delegation and Tenants in Common (TIC) joint account operational controls
Estimated Time:3m 0s
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Topics

Customer Account Types and Ownership Structures