IBA Compliance Connection

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Can an individual deposit a check made out to them personally into an LLC’s account? For example, can Jane Doe deposit a check made out to her into the account of Doe’s Donuts, LLC without first indorsing it over to Doe’s Donuts, LLC? Or must Jane Doe indorse the check as “Jane Doe, payable to Doe’s Donuts, LLC” then indorse the check on behalf of Doe’s Donuts?

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In our view, the best practice would be to require Jane Doe to indorse the check over to Doe’s Donuts, LLC, then to deposit the check into Doe’s account with an indorsement “on behalf of Doe’s Donuts, LLC” — assuming that Jane Doe is an authorized signer on the LLC’s account. As the payee of the check, Jane is entitled to negotiate the check to any third party, including the LLC, which then may deposit the check into the LLC’s account — after it is properly indorsed by an authorized signer for the LLC.

When delivering the check to the payor bank for payment, the Uniform Commercial Code requires your bank to warrant that the check was paid to the payee or to the payee’s account and that your bank is entitled to enforce the check (meaning that there are no missing or unauthorized indorsements). Consequently, your bank could be viewed as breaching that warranty if it deposited a check made out to Jane Doe into the account of Doe’s Donuts, LLC without obtaining the necessary indorsements from Jane Doe and Doe’s Donuts, LLC.

For resources related to our guidance, please see:

  • Uniform Commercial Code, 810 ILCS 5/4-205(2) (“If a customer delivers an item to a depositary bank for collection: . . . (2) the depositary bank warrants to collecting banks, the payor bank or other payor, and the drawer that the amount of the item was paid to the customer or deposited to the customer’s account.”)
  • Uniform Commercial Code, 810 ILCS 5/3-417(a)(1) and 810 ILCS 5/4-208(a)(1) (“If an unaccepted draft is presented to the drawee for payment or acceptance and the drawee pays or accepts the draft, (i) the person obtaining payment or acceptance, at the time of presentment, and (ii) a previous transferor of the draft, at the time of transfer, warrant to the drawee that pays or accepts the draft in good faith that: (1) the warrantor is or was, at the time the warrantor transferred the item, a person entitled to enforce the item . . . .”)
  • UCC § 3-417 cmt. 2 (“Subsection (a)(1) in effect is a warranty that there are no unauthorized or missing indorsements.”)