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Difficulty: Very hardCustomer Account Types and Ownership Structures

A registered representative opens a corporate cash account for Zenith Logistics Inc. The corporate resolution on file explicitly names the Chief Executive Officer as the sole authorized individual permitted to trade on behalf of the corporation. Six months later, the Chief Financial Officer presents the representative with a Limited Power of Attorney (LPOA) signed by the Chief Executive Officer, which attempts to grant an independent investment adviser trading authority over the account and requests that account cash dividends be systematically wired directly to the adviser's bank account. Which of the following statements correctly describes the regulatory and operational requirement for processing these requests?

  1. Neither request can be processed as submitted, because third-party trading authority on a corporate account requires an updated corporate resolution approved by the board of directors, and a Limited Power of Attorney does not permit third-party cash disbursements.Answer
  2. B
    The trading authority may be granted immediately under the Limited Power of Attorney signed by the Chief Executive Officer, but the dividend transfer request must be denied unless a Full Power of Attorney is executed.
  3. C
    Both requests may be executed as submitted, provided the Chief Financial Officer submits a written statement affirming that the board of directors verbally approved the delegation and transfer instructions.
  4. D
    The dividend transfer request is valid under the Limited Power of Attorney, but third-party trading authorization is strictly prohibited on corporate accounts under FINRA rules.

Answer

Neither request can be processed as submitted, because third-party trading authority on a corporate account requires an updated corporate resolution approved by the board of directors, and a Limited Power of Attorney does not permit third-party cash disbursements.
The correct response identifies two fundamental account rules: first, corporate account trading privileges are established and modified solely through a Corporate Resolution adopted by the Board of Directors, meaning an officer cannot independently grant third-party trading authority. Second, a Limited Power of Attorney strictly restricts third-party actions to trading securities (buying and selling) and does not permit the withdrawal or third-party transfer of cash or securities.

Step-by-Step Solution

1
Analyze corporate account authorization requirements
Trading authority on a corporate brokerage account is established exclusively by the Corporate Resolution passed by the corporation's Board of Directors. Individual officers cannot delegate trading authority to an outside party without formal board approval documented in a resolution.
Broker-dealers require a corporate resolution to verify which individuals possess legal authority to act on behalf of the entity.
2
Evaluate the scope of a Limited Power of Attorney (LPOA)
An LPOA permits the designated third party to enter buy and sell orders only. It explicitly prohibits withdrawing cash, transferring securities, or disbursing funds to third-party accounts.
Asset disbursements require a Full Power of Attorney (FPOA) and explicit authorization from the account owner.
3
Synthesize the resolution requirement and POA limitation
Both requests fail: the trading authority lacks the necessary board resolution, and the dividend disbursement exceeds the legal boundary of an LPOA.
The firm must reject both requests until a proper corporate resolution is passed and correct power-of-attorney documents are executed.

Key Concept

Corporate Account Documentation & Power of Attorney Limitations
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Topics

Customer Account Types and Ownership Structures