FDIC Law, Regulations, Related Acts
4000 - Advisory Opinions
Business Partnership and NOW Accounts
October 19, 1987
Jules Bernard, Senior Attorney
Thank you for your letter of September 29, 1987. You ask whether a state nonmember bank may pay interest on a "business account" held by a partnership. I understand that you refer to an account from which the depositor may make an unlimited number of third-party transfers. See 12 C.F.R. § 329.1(b)(3). An interest-bearing account of this kind is commonly called a "NOW account.''
A partnership may hold a NOW account, but only if the partnership is operated primarily for religious, philanthropic, charitable, educational, political, or other similar purposes, and it is not operated for profit. 12 U.S.C. § 1832; 12 C.F.R. § 329.1(b)(3).
As you point out, section 329.1 of the FDIC's regulations contains the following proviso:
[N]o deposit specified in this paragraph (3) will be deemed to be a "demand deposit" if the entire beneficial interest of the deposit is held by a depositor identified in paragraph (2) of § 2(a) of Pub. L. 93-100 (12 U.S.C. § 1832(a)(2)).
You suggest that when a partnership is composed of individuals, and the partnership holds funds on deposit in a bank, the individual partners may be regarded as the beneficial owners of the deposit, and that the partnership might be eligible to hold a NOW account on that basis.
The FDIC does not agree with this view. The FDIC interprets section 329.1 in the same way as the Federal Reserve Board interprets its parallel rule:
An individual may maintain a NOW account regardless of the
purposes that the funds will serve. . . . However, other entities
organized or operated to make a profit may not maintain NOW accounts
regardless of whether they are corporations, partnerships,
associations, business trusts, or other organizations.
1 Fed. Res. Reg. Serv. ¶ 2-462.5
In the same vein, the Federal Reserve Board's staff has issued an opinion that reads as follows:
Professionals operating on an unassociated basis are among the
class of depositors eligible to maintain NOW accounts, since it is
impracticable to distinguish between funds used in their individual and
business capacity. Professionals operating as partnerships or
corporations, however, are not eligible, since Congress intended that
NOW accounts be made available only to individuals, and funds of such
business organizations would always be used for business purposes.
Id. ¶ 2-589
The FDIC likewise believes that partnerships organized for profit are not eligible to hold NOW accounts.