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Cashing a Corporation Check
Can someone cash a check made out to corporation without depositing it first? Is there a law governing this?
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 In general, the answer is no. Although there's no specific law, there are at least a few good reasons that a bank should have a policy forbidding such a practice. First, there is the matter of who has authority to cash a check payable to a corporation on the corporation's behalf? Corporations have articles of organization and bylaws that set forth what the corporation can do and who can complete certain actions on the corporation's behalf. Endorsing checks payable to the corporation and cashing them is virtually never seen in any list of authority included in those documents.
Corporate boards of directors adopt resolutions granting certain specific authority to named individuals. For example, there are normally resolutions authorizing the opening of a deposit account or negotiating a loan and signing paperwork for the deposit account or loan agreement, etc. None of those resolutions includes language authorizing the cashing of checks payable to the corporation.
Another concern is the lack of controls over the corporation's finances that such a practice would mean. If checks could be cashed, what controls would ensure that funds from those checks are not diverted to some personal use, rather than the use of the business? What controls would ensure that the business's income would not be understated. Indeed, cashing checks payable to a business rather than depositing them intact is a favorite tool of tax cheats.
Finally, if a business were suspected by the IRS of understating income by cashing, rather than depositing, checks payable to the business, it would start subpoenaing records from area banks. Trying to identify checks that have been cashed, as opposed to deposited, is not something with which a banker would ever want to be faced. For all those reasons, most banks have policies that require that any check payable to a business, with the possible exception of a sole proprietorship, be deposited to the business's account, and if cash is needed, a check be written for the withdrawal.
Published on BankingQuestions.com 10/02/08
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