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Question

Difficulty: MediumCustomer Account Types and Ownership Structures

A registered representative is opening a corporate brokerage account for a newly formed business entity, Apex Logistics Inc. The corporate officer submitting the account paperwork requests margin trading privileges and wishes to designate the company's Chief Financial Officer as the sole authorized trader. Which of the following statements regarding the required documentation and account controls for this entity are correct?

  1. A corporate resolution passed by the board of directors must be obtained to specify the individuals authorized to execute trades on behalf of the entity.Answer
  2. B
    Margin trading is automatically permitted for all corporate accounts upon opening without verifying the corporate charter or resolution.
  3. A copy of the corporate charter (articles of incorporation) must be filed to prove the legal existence of the corporation and verify its authority to trade securities.Answer
  4. D
    If an authorized corporate officer passes away, their trading privileges in the account automatically transfer to the deceased officer's personal estate heirs.

Answer

Opening a corporate brokerage account requires both a corporate resolution identifying authorized traders and a copy of the corporate charter verifying the entity's legal authority to trade securities.
Opening a corporate account requires specific legal documentation: the corporate charter to prove the business's existence and authority to trade securities, and a corporate resolution approved by the board of directors to empower specific officers to execute trades.

Step-by-Step Solution

1
Identify the documentation requirements for opening a corporate account.
Corporations must provide their corporate charter (articles of incorporation) to establish legal entity existence and verify trading permission.
Broker-dealers must confirm the business is legally formed and allowed to engage in securities transactions.
2
Determine who holds trading authority in a corporate account.
The board of directors passes a corporate resolution explicitly naming authorized individuals (such as the CFO).
Corporate officers do not automatically hold trading rights without explicit board authorization.
3
Evaluate rules regarding margin authorization and officer trading rights termination.
Margin trading requires charter verification to ensure it is not forbidden, and corporate trading authority terminates upon an officer's death rather than passing to personal estate heirs.
Corporate roles and assets are legally separate from an individual officer's personal estate or survivorship rights.

Key Concept

Corporate Account Opening Documentation and Trading Controls
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Topics

Customer Account Types and Ownership Structures