Legal Question in Business Law in California
Can I convert client funds from a
lump sum that is on hand to a
contractual agreement to make
monthly purchases on their
behalf, and thereby eliminate my
obligation to have all client funds
on hand? That is to say: Ms.
Johnson has 30k cash equity
with us, and she enters into a
contract with us where we agree
to make a $2,000 purchase every
month for the next 15 months
on her behalf, and we disclose
that from that point on we may,
or may not, have the full 30k on
hand at any one point in time.
The $2,000 monthly purchases
will be debited from a bank
account in her name that we will
fund.
2 Answers from Attorneys
Yes, as long as their is "full" disclosure, and as long as the client agrees to everything that you are doing.
Without knowing what business you are in, I couldn't say whether this is permissible or not. If, for example, this were the securities business, or the real estate business, the answer would probably be no, this is impermissible, because funds held and managed for clients usually have to be treated as trust funds and kept in trust accounts. Even if your business or trade lacks specific rules for hanfling client funds, general principles of law and accounting would place limits on a firm's right to use client funds for its own purposes. Advance disclosure may be hellpful, but in general, prior disclosure of intent to commit a wrong does not justify its ultimate commission.
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