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Question

Difficulty: HardCustomer Account Types and Ownership Structures

A registered representative is opening a new cash brokerage account for a business entity, Zenith Logistics Corp. During the account onboarding process, the compliance department reviews the required documentation and corporate governance authorization rules. Which of the following statements regarding the documentation and operational rules for corporate brokerage accounts are correct?

  1. The broker-dealer must obtain a corporate resolution approved by the board of directors to identify which specific individuals are authorized to trade on behalf of the corporation.Answer
  2. The broker-dealer must examine the corporate charter to verify that trading securities is not explicitly restricted or prohibited by the entity's foundational documents.Answer
  3. C
    A corporate officer may grant discretionary authority over the account to a third party by executing a standard individual Power of Attorney without board authorization.
  4. D
    If an authorized corporate officer passes away, the securities held in the corporate account automatically pass to that officer's personal estate under Tenants in Common (TIC) survivorship provisions.

Answer

The correct statements are that the broker-dealer must obtain a corporate resolution designating authorized traders and must review the corporate charter to verify that securities trading is permissible for the corporation.
Opening a corporate brokerage account requires proving the corporation's legal authority to trade securities via its corporate charter and establishing who has trading authority via a board-approved corporate resolution.

Step-by-Step Solution

1
Analyze corporate entity account documentation requirements.
Confirm that a corporate resolution is necessary to establish authorized traders on the account.
Because a corporation is a distinct legal entity, the board of directors must officially designate who has authority to trade on its behalf.
2
Verify corporate charter validation requirements.
Confirm that the corporate charter must be checked for restrictions on trading securities.
Broker-dealers must ensure that investing activities do not violate the legal scope of business defined in the articles of incorporation.
3
Evaluate third-party discretionary rules and individual officer limitations.
Recognize that individual officers cannot grant third-party authority without board resolution approval, and corporate assets do not pass to an officer's estate.
Corporate accounts are owned by the business entity rather than individuals, so personal estate laws like Tenants in Common do not apply upon an officer's death.

Key Concept

Corporate Brokerage Account Opening and Authorization Requirements
Estimated Time:2m 0s
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Topics

Customer Account Types and Ownership Structures