Cashing Checks Payable to a Non-Natural Person (business)
Sometimes people present check cashers with checks payable to a business. Can or should an MSB cash checks presented by customers where the payee is a business? The short answer to “can” is yes; the answer to “should” is a bit more complicated. Protecting your business from loss begins with some questions. Is the business a sole proprietorship, a corporation, an LLC or a partnership? How do you know?
Because a business is a distinct legal entity separate and apart from its owner(s), you shouldn’t ever make assumptions that the person presenting a check is authorized to cash it on behalf of the business. The only way to prevent loss is to know in advance that the person is authorized and be able to prove it
If the business is a sole proprietorship and it is the sole proprietor presenting the check, the best course of action is to confirm the entities status as a sole proprietorship and maintain a copy of the current business license. Obtain signed documentation from the sole proprietor if he or she is to authorize anyone else to cash business checks on his/her behalf. A sole proprietor might have a number of legitimate reasons for cashing a check, e.g. immediate cash availability to pay workers, sub-contractors or suppliers versus waiting on the item to clear at a bank.
In the case of a Corporation, LLC or partnership, recall that such entities confer power by passing resolutions and naming people to act on their behalf. Different people may be assigned different powers and responsibilities by the entity. Has the person presenting a check for the entity been authorized by the company? It is unlikely that any corporation will adopt such a resolution. First, corporations are less likely to have legitimate needs for cashing checks outside of the traditional banking system; and, second, if the corporation is ever audited such a resolution could potentially lead to an expanded audit as it might lead down a path to prove theft or income tax evasion.
If your company diverted funds from a true owner by cashing a check payable to John Doe to Suzy Que, you would expect to be found liable those monies. So too, you should not cash checks payable to a business without proof that the presenter is authorized to act on behalf of the company. Cashing checks for the owner of a sole proprietorship is common with proof of company status. Cashing checks for a corporation, LLC or partnership is much riskier and shouldn’t be done without taking appropriate steps to manage the risk.
Remember too that you are never under any obligation to cash a check. Don’t accept risks that are unacceptable to you and take steps to minimize the risks you do choose to take.