Legal Question in Banking Law in Utah

Using another company's merchant account

My partners and I are starting a business in Utah. Before we incorporate and create our own merchant account, they want to piggyback off another company that one of them has some ownership in and use that company's merchant account. We would get all the money generated from our business and reimburse the other company for transaction fees. The other company would benefit by increased enrollment in its newsletters coming from people opting in (or out--don't know which yet) when they register for an event put on by our company. After we get going and have money we'd incorporate and get our own merchant account.

I've heard that it is illegal for one company to use another company's merchant account. That's a big reason my partners don't want to incorporate yet--so that we can use this other company's merchant account. We would work it as though we were independent contractors. How do I find out if this is legal. Is it even wise?

Thanks for the help.


Asked on 11/28/03, 7:11 pm

1 Answer from Attorneys
Alvin Lundgren Alvin R. Lundgren, L.C.

Re: Using another company's merchant account

Use of merchant accounts is regulated by the terms of the merchant agreement signed by the other company. You are at substantial risk by using the other company's account without a clear and defined (written) between you and the other company.

I would not recommend use of the other company's merchant account. They are not that difficult to obtain, and you will enhance your own credibility - and business credit - by having your own accounts. You should also form your business entity as soon as you can, and most importantly draft your by-laws or articles of operation. One of the biggest problem facing young businesses is the lack of written rules by which to operate the business.

Read more
Answered on 11/29/03, 10:51 am


Related Questions & Answers

More Banking Law questions and answers in Utah