FINRA Series 7Opens Accounts and Evaluates Customer ProfileMedium
A corporation wishes to open a brokerage account to trade securities. Before the account can be opened, the broker-dealer typically requires a corporate resolution. This document primarily serves to:
- ACertify the corporation's tax-exempt status with the IRS
- BGuarantee the corporation's debts personally to the broker-dealer
- CAuthorize the corporation to open the account and identify the individuals authorized to transact on its behalf
- DEstablish the corporation's credit rating for margin trading purposes
Show answer & explanationAnswer & explanation
Correct answer: C. Authorize the corporation to open the account and identify the individuals authorized to transact on its behalf
A corporate resolution is a formal document, typically approved by the board of directors, that authorizes the corporation to open a brokerage account and designates which officers or employees have authority to place orders and transact business on the account.
Why the other options are wrong
- A. Tax-exempt status is unrelated; that would require separate IRS documentation.
- B. A resolution does not create personal guarantees of corporate debt.
- D. Credit ratings are unrelated to a corporate resolution's purpose.
Corporate Resolution
A board-approved document authorizing a corporation to open a brokerage account and naming individuals with trading authority.
- Required for corporate/entity accounts
- Identifies authorized signers/traders
- Often accompanied by a copy of corporate bylaws or articles of incorporation
Memory trick: Resolution = the board's 'permission slip' naming who can trade.