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Can One Business Partner Lock the Other Out of a Bank Account?
Running a business often involves partnerships where multiple individuals come together to manage operations and finances. In such scenarios, bank accounts serve as crucial conduits for financial transactions. However, disputes and conflicts between business partners can arise, leading to questions about the authority and control over shared bank accounts. One common concern is whether one business partner can lock the other out of a joint bank account. In this article, we will explore the dynamics of shared business accounts and shed light on the rights and limitations of business partners in accessing and controlling bank accounts.
Understanding Business Partnerships and Bank Accounts
Business partnerships typically operate through joint accounts that allow partners to pool their resources and manage the financial aspects of the venture collectively. These accounts can be opened in the name of the partnership or in the names of all the partners involved. The specific arrangements and agreements governing the partnership, as outlined in legal documents such as partnership agreements or articles of incorporation, play a vital role in determining the rights and responsibilities of each partner regarding the bank account.
Partners’ Authority and Control Over Bank Accounts
In general, the authority and control over a shared business bank account depend on the partnership agreement and applicable laws. If the partnership agreement does not specify how the bank account should be managed, partners usually have equal rights and access to the account, with each partner being able to make withdrawals, deposits, and other financial transactions.
However, situations can arise where one partner attempts to lock the other out of the bank account. This can occur if a partner unilaterally decides to change account access credentials, such as passwords or account signatories, without the consent or knowledge of the other partner. In such cases, it’s important to consider the legal and contractual obligations that govern the partnership.
Legal Recourse and Options
When a business partner locks the other out of a joint bank account, it may be regarded as a breach of fiduciary duty or a violation of the partnership agreement. The aggrieved partner may seek legal recourse through civil litigation to enforce their rights and restore access to the account. The specific legal remedies available will depend on the jurisdiction and the terms of the partnership agreement.
To minimize the potential for such conflicts, it is advisable for business partners to establish clear guidelines regarding bank account access, withdrawals, and management in the partnership agreement. This agreement should outline the procedures for any changes to account access and ensure transparency and accountability among partners.
Additional Preventive Measures
In addition to a comprehensive partnership agreement, there are several preventive measures that business partners can consider to minimize the risk of being locked out of a shared bank account:
- Regular Communication: Maintaining open and transparent lines of communication among partners is crucial. Regular meetings can help address any concerns or issues promptly and prevent misunderstandings.
- Dual Control and Signatories: Implementing a system that requires dual control for significant transactions or changes to account access can provide an additional layer of protection. This ensures that decisions involving the bank account are made jointly by all partners.
- Clear Account Documentation: Maintaining accurate and up-to-date documentation related to the bank account, including account numbers, signatory details, and access credentials, can be helpful if any disputes arise.
Conclusion
While business partnerships involve shared responsibility, conflicts between partners can sometimes lead to attempts to lock one partner out of a joint bank account. The rights and limitations of business partners regarding bank account access are determined by the partnership agreement and applicable laws. In cases where one partner is locked out, legal recourse may be available. However, prevention is key, and establishing clear guidelines, open communication, and preventive measures can help minimize the likelihood of such conflicts and maintain a healthy and productive partnership.
Video Transcript
Can One Business Partner Lock the Other Out of a Bank Account?
It is quite frustrating for business partners to have a breakdown in trust and in the relationship. And often, I have seen when trust between business partners breaks down, one of them cuts the other off from the bank account. And the question then is, is that proper? Well, the one cutting off the other often says, “I cut them off because I didn’t want them to do something improper with the bank funds.” And then, the business owner who gets cut off is angry and says, “I don’t trust what the other person is doing. I have always had access. I have never done anything wrong. I believe the other business owners are doing something nefarious or selfish, and that is why I have been cut off.”
Here is what the law says. Business owners have a right to all of the important financial information in the company. Both are business owners. So you have a right to that information, but that doesn’t mean a right to transfer funds to the account. If a business owner’s job or performance of the business requires transactions in the account, then it is improper to shut off that business owner from making those transactions because you would be preventing the business owner from carrying out the duties of the business.
But let’s say, for example, a business owner contacted the bank and said, “The other business owner never needs to make transactions in the account. I want their account to be read-only, so they can access information, but they can’t make transactions.” And maybe you take away their rights to sign checks. As long as that doesn’t interfere with the business, that would not be illegal. It would not be a breach of fiduciary duty unless there is some contract that says otherwise. In other words, if the business owners had a contract that said they both have a right to the bank account, of course, you can’t breach that contract. But we are assuming there is no contract for something like this.
Summary
It is generally a bad idea to just blindside a business owner and lock them out. The only time I have recommended that is when there is evidence of embezzlement. And I tell business owners, not only do you have a right to prevent the other business owner from stealing money, you have a fiduciary duty and obligation to protect the business and prevent theft from the company. But you want to be very careful about that, and typically, I advise the business owner, once you do the lockout, to explain to the other business owner what is happening here. And because they are probably going to lawyer up right away, they are going to be very upset, and you might have a lawsuit on your hands quickly. And some skills in diplomacy and diffusing the situation will be very valuable when you are selecting attorneys at that point.
Conclusion
If you found this video helpful and you would like more educational videos like this, feel free to subscribe to this channel. If you have other questions, put them in the comments below. I am Aaron Hall, an attorney for business owners and entrepreneurial companies. You can learn more about me at aaronhall.com. And if you would like to sign up for our free resources, go to aaronhall.com/free. It was great to be with you here today.
