| Question: Is there any prohibition from changing a Sole Proprietor's account product from a non-interest bearing, commercial account to an interest bearing business account, while maintaining the very same account number, so long as the correct account disclosures are provided to that Sole Proprietor?
Answer: The scenario you describe should be acceptable. Sole proprietorships are permitted hold interest bearing business checking accounts (NOW accounts). As you mention, the account number will stay the same, but you will provide the correct account disclosures for this type of account and that will be an important step. You will also want to insure that the interest income earned on the account is reported properly. (posted 7/23/07)
Question: Under Reg. D, a sole proprietor can open a NOW Account to earn interest on the business checking account. Do they still qualify if they become a single member LLC with no additional employees?
Answer: Probably not. The eligibility rules for holding NOW state that the owner must be an individual, a non profit organization, a governmental unit, or funds held by a fiduciary. See 12 CFR 204.130.
An individual is defined to include a sole proprietorship because there is no legal distinction between an individual and that individual’s sole proprietorship. A limited liability company is an entity that is separate from the individual, even if formed by only one person, for purposes of taxation, liability, etc. Because of this legal distinction, a single member LLC presumably would not be eligible for a NOW account. (posted 7/2/07)
Question: Is it legal for a church to open a now account? They are a non profit organization.
Answer: Yes, as long as the church is considered a nonprofit. The Federal Reserve Board offers an interpretation at 12 CFR 204.130 which states that a NOW account can be held by an organization which is operated primarily for religious, philanthropic, charitable, educational, political or other similar purpose and which is not operated for profit. (posted 2/19/07) |
