Account Authorizations: Trusts, Corporations, and Entities

An individual signs for themselves. An entity account (a trust, corporation, partnership, or unincorporated association) needs documentation proving that the person placing the trade is legally authorized to do so. The broker-dealer (BD) has to collect and keep that documentation, and has to refuse trades that exceed the entity's granted authority.

What documentation is required to open a trust account?

What Documents Does the Firm Need for a Trust Account?

To open a trust account, the firm must obtain:

• A copy of the trust document: the full trust agreement, or a certificate of trust (also called a "trust certification") that summarizes the trustee's authority and the grantor's identity without revealing private trust terms
• Identification of each trustee: Customer Identification Program (CIP) and Know Your Customer (KYC) apply to every trustee who can transact on the account
• Tax ID:
  • Revocable (living) trust: generally uses the grantor's Social Security Number (SSN) while the grantor is alive
  • Irrevocable trust: must have its own Employer Identification Number (EIN)

What Authority Does the Trustee Have?

• The trustee must act in accordance with the terms of the trust
• The trustee may trade only as authorized by the trust document (for example, some trusts prohibit margin, options, or certain asset classes)

What Are the Trust Types?

Exam Tip: Gotchas

• A certificate of trust (trust certification) may substitute for the full trust agreement in many states. It summarizes trustee authority without revealing private trust terms. Firms may still request the full agreement in questionable cases.

What documentation is required to open a corporate brokerage account?

What Documents Does the Firm Need for a Corporate Account?

• Corporate resolution: the formal board authorization that identifies:
  • The account being opened
  • The authorized signers (officers permitted to trade the account)
  • The scope of trading authority (for example, cash only, margin, options)
  • Whether the account may withdraw funds or securities
• Corporate charter or articles of incorporation (and bylaws, if the firm requests them)
• Beneficial ownership information under FinCEN's Customer Due Diligence (CDD) Rule: individuals owning 25% or more of the entity, plus a designated control person

What Authorization Does Margin or Options Trading Require?

If the corporation wants to trade on margin or in options, the corporate charter and resolution must specifically authorize those activities. A general-purpose cash-account resolution is not sufficient.

Who May Transact on a Corporate Account?

• Only the persons named in the resolution may transact
• Changes in authorized signers require an updated resolution, not an informal handoff

Exam Tip: Gotchas

• For a corporate margin or options account, the firm needs explicit authorization in the corporate resolution and charter. A general cash-account resolution is not sufficient to permit margin or options trading.

What documentation is required for partnership and unincorporated association accounts?

What Documentation Do Partnership Accounts Require?

Required documentation:

• Partnership agreement
• Partnership resolution naming the authorized partners (partners permitted to transact)

Events affecting a partnership account:

• Death of a general partner typically requires the account to be frozen until the partnership is reconstituted (new general partner admitted under the partnership agreement) or dissolved and wound up

What Documentation Do Unincorporated Associations Require?

Required documentation for an unincorporated association (for example, an investment club, a social club):

• Organizational documents (bylaws, charter, founding minutes)
• Designation of authorized signers

These accounts are less standardized than corporate accounts; firms treat them on a case-by-case basis and require clear authority before any trading.

Exam Tip: Gotchas

• An investment club account is an unincorporated association. The firm needs organizational documents plus a list of authorized signers, not a corporate resolution.

What are the key documentation requirements for entity accounts?

What are the most tested entity account documentation rules?

Exam Tip: Gotchas

• Irrevocable trust = EIN, not the grantor's SSN. Revocable trust typically uses the grantor's SSN while the grantor is alive.
• Corporate margin or options requires specific authorization in the charter and resolution.
• Death of a general partner freezes the partnership account pending reconstitution or dissolution.
• Beneficial ownership under FinCEN's CDD Rule applies at the 25% ownership threshold plus a control person.

What Should You Check on Exam Day?

• Can you state that a revocable trust typically uses the grantor's Social Security Number, while an irrevocable trust must have its own EIN?
• Do you know a corporate resolution must name the authorized signers and specifically authorize margin or options trading, since a general cash resolution is not enough?
• Can you explain that beneficial ownership rules require identifying individuals who own 25% or more of the entity, plus a control person?
• Do you know death of a general partner freezes a partnership account until it is reconstituted or dissolved?
• Can you state what documentation an unincorporated association, such as an investment club, needs instead of a corporate resolution?