August 23, 2006 

Mr. Justin McClinton 

Tennessee Department of Financial Institutions 

511 Union Street 

Fourth Floor 

Nashville City Center 

Nashville, TN 37219 

Dear Mr. McClinton: 

This responds to your e-mail to the Federal Reserve Bank of Atlanta dated 

March 21, 2006, in which you request a Board staff opinion on the eligibility of “single 

member limited liability companies” (“SMLLCs”) to maintain an account of the type 

described in 12 U.S.C. § 1832 (“NOW account”). 

Section 1832 of Title 12 of the United States Code authorizes depository 

institutions (as defined in that section) “to permit the owner of a deposit or account on 

which interest or dividends are paid to make withdrawals by negotiable or transferable 

instruments for the purpose of making transfers to third parties.” 12 U.S.C. § 1832(a). 

This authorization extends, however, only to certain accounts or deposits, namely those 

“which consist solely of funds in which the entire beneficial interest is held by one or 

more individuals or by an organization which is operated primarily for religious, 

philanthropic, charitable, educational, political, or other similar purposes and which is not 

operated for profit, and with respect to deposits of public funds by an officer, employee, 

or agent of the United States, any State, county, municipality, or political subdivision 

thereof, the District of Columbia, the Commonwealth of Puerto Rico, American Samoa, 

Guam, any territory or possession of the United States, or any political subdivision 

thereof.” 12 U.S.C. § 1832(b). In summary, Section 1832 authorizes depository 

institutions to offer interest-bearing checking accounts to individuals, certain nonprofit 

organizations, and domestic governmental units. 

According to the National Conference of Commissioners on Uniform State 

Laws (“NCCUSL”), which promulgated a Uniform Limited Liability Company Act 

(“ULLCA”) in 1994, a limited liability company “is a single business entity which 

provides limited liability protection for the partners, as well as providing all the owners of 

the business with federal partnership taxation.”1

 The Tennessee Limited Liability 

 

1

 Cf. http://www.nccusl.org/Update/uniformact_factsheets/uniformacts-fs-ullca.asp. 
2

Company Act was enacted in 1994, with the Tennessee Revised Limited Liability 

Company Act being enacted in 1995 and effective as of January 1, 2006. Tenn. Code 

Ann. §§ 48-201-101 et seq. (1994); Tenn. Code Ann. §§ 48-249-101 et seq. (2005). 

The Board has long held that for-profit entities are prohibited by statute 

from maintaining NOW accounts.2

 The only business-related entities that have been 

permitted to maintain NOW accounts are sole proprietorships and individuals operating 

unincorporated businesses, “because the funds of the business are the funds of the 

individual and are not the funds of a separate legal entity such as a corporation or 

partnership. Additionally, it could prove to be burdensome to separate the funds of a sole 

proprietorship into those that are used for personal expenses and those that are used for 

business purposes.”3

 Accordingly, Board staff has opined that a “one-man corporation” 

may not maintain a NOW account because “[e]ven though a corporation may be owned 

by one person, a corporate entity does not qualify as an ‘individual’ under the statute 

[12 U.S.C. § 1832(a)].”4

 Board staff similarly opined that subchapter S corporations may 

not maintain NOW accounts: “[a]lthough some subchapter S corporations may have only 

one shareholder, and thus may be taxed as a sole proprietorship, they are legally 

incorporated organizations under state law and have an existence independent of the 

individual shareholder. . . . Therefore, the mere fact that a subchapter S corporation may 

be in the same position as sole proprietorships with regard to taxes does not blur the clear 

legal distinctions between the two types of entities.”5 

Board staff believes that an SMLLC is in the same position as a “one-man 

corporation” or a subchapter S corporation with a single shareholder for purposes of 

determining NOW account eligibility. The SMLLC has a legal existence independent of 

its individual shareholder. It is not only possible therefore to distinguish between funds 

of the individual in his individual capacity and the funds of the SMLLC, but one of the 

purposes of establishing such an entity is to distinguish legally between the individual and 

the SMLLC. Accordingly, Board staff believes that unless an SMLLC is “operated 

 

2

 See, e.g., Board letter dated July 2, 1981: “Profit-making entities such as 

corporations are not permitted by statute to maintain NOW accounts. Since partnerships 

are regarded as separate legal entities, the Board and the other Federal agencies have long 

held that they should be treated in a manner similar to that accorded corporations. 

Consequently, partnerships organized for profit are not permitted to maintain NOW 

accounts.” Id. at 1. 

3

 Id. at 2. Recognizing that this interpretation created disparate treatment of 

businesses operated as sole proprietorships and businesses operated as closely-held 

corporations, the Board in 1981 proposed categorizing sole proprietorships as ineligible to 

maintain NOW accounts. Cf. Board Press Release (Apr, 14, 1981). The Board did not 

adopt the proposal in light of negative comments received. 

4

 Board staff opinion dated April 27, 1981. 

5

 Board staff opinion dated February 23, 1981. 
3

primarily for religious, philanthropic, charitable, educational, political, or other similar 

purposes and . . . is not operated for profit,” the SMLLC is not eligible to maintain a 

NOW account. 

I hope this information is useful. 

Sincerely, 

Stephanie Martin 

Associate General Counsel 

c: Alaina Gimbert, Esquire 

 Mr. Gary Louis 

 Federal Reserve Bank of Atlanta