[Federal Register Volume 67, Number 141 (Tuesday, July 23, 2002)]
[Proposed Rules]
[Pages 48054-48059]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-18467]


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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 303


Insurance of State Banks Chartered as Limited Liability Companies

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Notice of proposed rulemaking.

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SUMMARY: One of the statutory requirements for a State-chartered bank 
to be eligible for Federal deposit insurance is that it be 
``incorporated under the laws of any State.'' In the recent past the 
FDIC has received two inquiries regarding whether a State bank that is 
chartered as a limited liability company (LLC) could be considered to 
be ``incorporated'' for purposes of that requirement. The FDIC proposes 
to issue a regulation that would clarify that a bank that is chartered 
as an LLC under State law would be considered to be ``incorporated'' 
under State law if it meets certain criteria.

[[Page 48055]]


DATES: Written comments must be received on or before October 21, 2002.

ADDRESSES: Written comments should be addressed to Robert E. Feldman, 
Executive Secretary, Attention: Comments/OES, Federal Deposit Insurance 
Corporation, 550 17th Street, NW., Washington, DC 20429. Comments may 
be hand-delivered to the guard station at the rear of the 550 17th 
Street Building (located on F Street), on business days between 7:00 
a.m. and 5:00 p.m. Send facsimile transmissions to (202) 898-3838. 
Comments may be submitted electronically to [email protected]. Comments 
may be inspected and photocopied in the FDIC Public Information Center, 
Room 100, 801 17th Street, NW., Washington, DC, between 9 a.m. and 4:30 
p.m. on business days.

FOR FURTHER INFORMATION CONTACT: Curtis Vaughn, Examination Specialist, 
Division of Supervision and Consumer Protection, (202) 898-6759, or 
Robert C. Fick, Counsel, Legal Division, (202) 898-8962, Federal 
Deposit Insurance Corporation, 550 17th Street, NW., Washington, DC 
20429.

SUPPLEMENTARY INFORMATION:   

I. Background

    Generally, the FDIC may grant deposit insurance only to depository 
institutions that are engaged in the business of receiving deposits 
other than trust funds.\1\ The term ``depository institution'' is 
defined in the Federal Deposit Insurance Act (FDI Act) to mean any bank 
or savings association.\2\ The term ``bank'' is also defined in the FDI 
Act to include any State bank.\3\ Finally, ``State bank'' means
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    \1\ See 12 U.S.C. 1815.
    \2\ See 12 U.S.C. 1813(c)(1).
    \3\ See 12 U.S.C. 1813(a)(1).

any bank, banking association, trust company, savings bank, industrial 
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bank * * * or other banking institution which--

    (A) is engaged in the business of receiving deposits other than 
trust funds * * * and
    (B) is incorporated under the laws of any State or which is 
operating under the Code of Law for the District of Columbia (except 
a national bank), including any cooperative bank or other 
unincorporated bank the deposits of which were insured by the 
Corporation on the day before August 9, 1989.\4\
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    \4\ 12 U.S.C. 1813(a)(2).

    Traditionally, the term ``incorporated'' has been applied such that 
only those legal entities that have been identified as corporations 
under State law have been considered eligible to become insured. 
However, recently, two banks have expressed interest in obtaining 
Federal deposit insurance for a State bank that would be chartered as 
an LLC. Proponents have argued specifically that the term 
``incorporated'' should not be interpreted to preclude an LLC from 
becoming an insured depository institution. A common understanding of 
the term ``incorporated'' is ``formed or constituted as a legal 
corporation.'' \5\ In addition, Black's Law Dictionary defines 
``incorporate'' as ``to form a legal corporation.'' \6\ The FDI Act 
provides no definition of the term ``incorporated,'' and there is no 
judicial guidance on the meaning of ``incorporated'' as used in the FDI 
Act. Consequently, in view of the arguments offered regarding LLCs and 
the lack of direct legislative or judicial guidance, there is some 
ambiguity as to the meaning of the word ``incorporated.''
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    \5\ The Random House Dictionary of the English Language 968 (2d 
ed. 1987).
    \6\ Black's Law Dictionary 769 (7th ed. 1999).
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II. Corporations and Other Business Entities

    At common law there were three types of business entities: 
proprietorships, partnerships and corporations. Proprietorships and 
partnerships had no existence separate and apart from their owners. 
Corporations, on the other hand, were created and existed by virtue of 
a grant of authority from the sovereign. Although there appears to be 
no universally accepted definition of ``corporation,'' most definitions 
of the term are pervaded by the notion of ``an `artificial legal 
creation,' the continuance of which does not depend on that of the 
component persons, and the being or existence of which is owed to an 
act of state.'' \7\ One of the earliest judicial definitions reflecting 
that notion is that enunciated in the 1819 case of Trustees of 
Dartmouth College v. Woodward.\8\ In Dartmouth College, Chief Justice 
Marshall stated that
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    \7\ 1 William Meade Fletcher et al., Fletcher's Cyclopedia of 
the Law of Private Corporations Sec. 4 (perm. ed., rev. vol. 2001).
    \8\ Trustees of Dartmouth College v. Woodward, 17 U.S. (4 
Wheat.) 518 (1819).

    [a] corporation is an artificial being, * * * existing only in 
contemplation of law. Being the mere creature of law, it possesses 
only those properties which the charter of its creation confers upon 
it * * *. Among the most important are immortality and * * * 
individuality; properties, by which a perpetual succession of many 
persons are considered as the same, and may act as a single 
individual.\9\
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    \9\ Dartmouth College, 17 U.S. at 636.
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Description of Four Corporate Attributes

    There is also no universal agreement as to the characteristics 
generally attributed to a modern corporation. This may have resulted 
from the fact that the characteristics of a modern corporation have 
evolved over time \10\ and also possibly from the fact that the nature 
of a corporation was subject to the varying notions of the individual 
State legislatures. However, it is generally accepted that there are 
four attributes of a corporation that distinguish it from other forms 
of business entities; they are: perpetual succession, centralized 
management, limited liability, and free transferability of interests.
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    \10\ See Douglas Arner, Development of the American Law of 
Corporations to 1832, 55 SMU Law Review 23, 43-54, 2002.
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    Perpetual succession (also sometimes known as continuity of life) 
is not generally construed to mean immortality; rather perpetual 
succession means that the entity continues to exist independent of its 
owners. In the case of a corporation, the death or withdrawal of a 
shareholder does not terminate the existence of the corporation. 
Perpetual succession is an attribute that distinguishes corporations 
from partnerships because partnerships are created and exist by 
agreement of the partners. The death or withdrawal of a partner 
generally terminates the partnership.
    Centralized management generally means that management of the 
entity is vested in a group of individuals appointed or elected by the 
owners; each owner, therefore, does not have the authority to directly 
participate in the management of the entity. In a partnership the 
general partner(s) manage the affairs of the partnership.
    Limited liability means that an owner of the entity is generally 
not personally liable for the debts of the entity; rather, the maximum 
potential liability of an owner is generally limited to the owner's 
investment in the entity. In a corporation the shareholders of a 
corporation are generally not liable for the corporation's debts. This 
attribute also distinguishes a corporation from a partnership because 
in a partnership a general partner is fully liable for the debts of the 
partnership.
    Free transferability of interests generally means that an owner of 
the entity may transfer an ownership interest in the entity without the 
consent or approval of the other owners. In a corporation a shareholder 
can generally transfer all or a part of his/her shares to another 
person without the consent or approval of the other shareholders. 
However, in closely-held

[[Page 48056]]

corporations, it is a common practice for shareholders to enter into 
agreements requiring a selling shareholder to obtain the prior approval 
of the remaining shareholders. In partnerships, a partner generally 
cannot transfer his/her interest without the consent of the other 
partners. However, even when the other partners consent, the original 
partnership technically is terminated, and a new partnership is 
created.\11\
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    \11\ See Flectcher, supra note 7, Sec. 20.
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Partnership Distinguished

    In addition to the differences noted above, there are other 
characteristics that distinguish a corporation from a partnership. A 
generally accepted definition of a partnership is an association of two 
or more persons to carry on as co-owners a business for profit.\12\ A 
principal distinction between a corporation and a partnership is that 
generally a partnership can be created by agreement among the co-
owners, whereas a corporation requires a grant of authority from the 
State. In addition, a partnership, unlike a corporation, is not a legal 
entity separate from its owners. Because of this fact, for federal 
income tax purposes, the partnership's income is not taxed at the 
partnership level, but is attributed to the partners and taxed only at 
the individual partners' level. This feature of a partnership is 
sometimes called ``pass-through tax treatment,'' and is generally 
considered to be a significant advantage over the tax treatment of a 
corporation's income. A corporation's income is said to be taxed twice, 
once at the corporation level, and again at the shareholders' level 
when the shareholders receive the corporation's income as dividends.
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    \12\ See Unif. Partnership Act, sec. 101(6) (1997), 6 U.L.A. 61 
(Supp. 2002).
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Internal Revenue Service Rules

    Since the characterization of a business entity as a 
``corporation'' has significant tax implications, the Internal Revenue 
Service (IRS) established rules to determine whether an entity would be 
taxed as a corporation or a partnership. Prior to its amendment in 
1997, Treas. Reg. Sec. 301.7701-2 classified an association of two or 
more persons who had the purpose of carrying on a business and dividing 
the profits as either a partnership or a corporation depending upon 
whether the association possessed more corporate characteristics than 
noncorporate characteristics. The four corporate characteristics that 
the IRS utilized were: continuity of life (perpetual succession), 
centralized management, limited liability, and free transferability of 
interests. Under the old IRS regulations, if an association possessed 
at least three of the four corporate characteristics, then it would be 
treated as a corporation for federal income tax purposes. As noted 
above, after 1996 the IRS no longer utilized the corporate 
characteristics test and now permits business entities that are not 
specifically classified as corporations in the regulation to elect 
partnership tax treatment.\13\ In that regard, we note that one of the 
entities specifically classified as a corporation in the regulation is 
a ``[s]tate-chartered business entity conducting banking activities, if 
any of its deposits are insured under the Federal Deposit Insurance 
Act.'' \14\ As a result, an FDIC-insured, State bank that is chartered 
as an LLC would not qualify for partnership tax treatment for Federal 
income tax purposes.
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    \13\ See Treas. Reg. Secs. 301.7701-2, 7701-3 (1997).
    \14\ Treas. Reg. Sec. 301.7701-2(b)(5) (1997).
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Subchapter S Corporations

    In August 1996 Congress amended the Internal Revenue Code to allow 
eligible financial institutions to elect Subchapter S status for 
federal income tax purposes.\15\ A principal advantage of such status 
is that a Subchapter S corporation is taxed the same as a partnership, 
i.e., a Subchapter S corporation is entitled to pass-through tax 
treatment. There are, however, limits on both the number and type of 
shareholders permissible for a Subchapter S corporation. The maximum 
number of shareholders of a Subchapter S corporation is 75, and only 
individuals, estates, certain trusts, and certain tax-exempt 
organizations may be shareholders. Also, there can only be one class of 
stock in a Subchapter S corporation, and no nonresident aliens may be 
shareholders.\16\
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    \15\ See Small Business Job Protection Act, Pub. L. 104-188 
Sec. 1315, 26 U.S.C. 1361(b)(1996).
    \16\ See Id.
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Limited Liability Companies

    Generally, an LLC is a business entity that combines the limited 
liability of a corporation with the pass-through tax treatment of a 
partnership.\17\ Wyoming was the first State to authorize LLCs in 1977; 
since that time the remaining forty-nine States and the District of 
Columbia have all enacted LLC statutes.\18\ Generally, LLC statutes 
were crafted to authorize a business entity that is neither a 
partnership nor a corporation, but an entity that has some of the more 
desirable features of each form of business organization.\19\ As a 
result, an LLC has characteristics of both a partnership and a 
corporation. However, because an LLC is neither a partnership nor a 
corporation, State partnership laws and State corporation laws 
generally do not apply. For example, State corporation laws that 
require a board of directors, that specify how ownership interests 
(shares) may be issued, and that impose capital requirements generally 
do not apply to an LLC. LLC statutes generally allow the owners broad 
discretion in setting up an LLC. According to some legal scholars, 
``[w]hole bodies of corporate law doctrine * * * are rendered 
irrelevant'' when an LLC is utilized.\20\
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    \17\ See Mark A. Sargent & Walter D. Schwidetzky, Limited 
Liability Company Handbook Sec. 1:3 (rev. 2002).
    \18\ See Id.
    \19\ See ``Unif. Limited Liability Company Act,'' Prefatory 
Note, (amended 1996) 6A U.L.A. 426 (Supp. 2002).
    \20\ See Sargent & Schwidetzky, supra note 17, Sec. 1:3.
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    An LLC is established by filing articles of organization with the 
State. These articles are roughly equivalent to a corporation's 
articles of incorporation. Every LLC has an operating agreement which 
is a contract executed by the members that sets forth the manner in 
which the business of the LLC will be conducted. The operating 
agreement establishes the rights and liabilities of the members with 
respect to each other and with respect to the LLC. It contains 
provisions detailing such matters as the LLC's management structure, 
capital contributions, accounting, distributions, transfers of a 
member's interest, and dissolution. As used in many LLC statutes, a 
``member'' of an LLC is a person who owns an interest in the LLC and is 
roughly equivalent to a shareholder of a corporation. Furthermore, a 
``member's interest'' in an LLC is generally the member's ownership 
interest in the LLC, and a member's interest in an LLC is sometimes 
evidenced by a certificate which is roughly equivalent to a stock 
certificate of a corporation.

Consistency of the LLC Structure with Corporate Attributes

    Many LLC statutes authorize entities that do not exhibit all of the 
four corporate attributes. First, some State LLC statutes require, or 
permit LLC members to provide in the operating agreement, that the LLC 
will automatically terminate, or dissolve, or that its operations will 
be suspended pending the consent of the remaining members, upon the 
death, disability, bankruptcy, withdrawal, or expulsion of a member, or 
upon the happening of some other specified event. These

[[Page 48057]]

automatic termination/dissolution/suspension provisions are 
inconsistent with the notion of perpetual succession because the 
continued existence and operation of the entity directly depends upon 
the existence of its owners. Second, some State LLC statutes require, 
or permit LLC members to provide in the operating agreement, that the 
LLC will be managed solely and directly by the members. Such member-
management also tends to be inconsistent with the corporate attribute 
of centralized management (usually a board of directors) because there 
is no central management group (i) that has full authority to act for 
the entity, and (ii) that is not so large or so small as to present 
operational problems for the entity. Third, members of an LLC are 
generally not liable for the debts of the LLC in excess of the amount 
of their investment in the LLC and, therefore, generally have limited 
liability. Finally, some State LLC statutes require, or permit LLC 
members to provide in the operating agreement, either that LLC members 
may not transfer their interests in the LLC without the consent of the 
remaining members, or that a member may not transfer the managerial or 
voting rights that accompany membership without the consent of the 
remaining members. Such a provision tends to be inconsistent with the 
concept of free transferability of interests because the requirement 
for prior consent restrains or prevents the transfer of an ownership 
interest.

III. Interpretation of ``Incorporated''

    In resolving any ambiguity in a statute it is always helpful to try 
to determine what Congress intended by its choice of the particular 
words of the statute. In this case there is no legislative history that 
sheds any light on their intent. The phrase ``incorporated under the 
laws of any State'' first appeared in the definition of ``State bank'' 
with the Banking Act of 1935.\21\ As noted above, there is also no 
judicial guidance on the meaning of ``incorporated'' as used in the FDI 
Act. In the absence of such guidance, the FDIC believes that it is 
reasonable to interpret the term ``incorporated'' in such a way as to 
aid the FDIC in carrying out the purposes of the FDI Act. Specifically, 
the FDIC believes that reviewing the corporate attributes, in light of 
the purposes of the FDI Act, may indicate a rational basis for applying 
the ``incorporated'' requirement and may further indicate which of the 
corporate attributes are necessary or desirable for purposes of 
determining which institutions qualify as ``State banks.''
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    \21\ See Banking Act of 1935, Pub. L. 74-305, sec. 101, 49 Stat. 
684.
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    Congress created the Federal Deposit Insurance Corporation in 1933 
to restore and maintain public confidence in the nation's banking 
system. One of the principal purposes of the FDI Act is to promote the 
safety and soundness of the institutions whose deposits the FDIC 
insures.\22\ Consequently, the FDIC is charged with maintaining public 
confidence in the nation's banking system and promoting the safety and 
soundness of the institutions that it insures.
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    \22\ See FDIC v. Philadelphia Gear Corp., 106 S. Ct. 1931, 1935 
(1986).
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    As noted above, the attributes that are commonly identified as 
distinguishing a corporation from other forms of business organizations 
are: perpetual succession, centralized management, free transferability 
of interests, and limited liability.

Perpetual Succession

    The first attribute, perpetual succession, is very important to the 
FDIC's efforts to promote public confidence in the nation's banking 
industry. An institution that automatically terminated, dissolved, or 
suspended operations upon the happening of some event would most likely 
have a substantial adverse effect on public confidence. A depositor in 
such an institution would have no way of knowing from one day to the 
next whether the institution will continue in existence, and whether 
he/she will be able to retrieve his/her money when desired. 
Furthermore, such an automatic termination, dissolution, or suspension 
feature would have a significantly adverse effect on the FDIC's efforts 
to resolve failed institutions. The FDIC is not only charged with 
promoting the safety and soundness of banking institutions, but is also 
charged with the duty of resolving failed institutions in an orderly, 
least costly manner. The FDIC would have no practical opportunity to 
plan and execute an orderly resolution of an institution that, without 
any warning or advance notice, was terminated or dissolved or whose 
operations were suspended. Most likely it would not be possible to 
arrange for a healthy institution to purchase the assets and assume the 
deposit liabilities of the failed institution in order to continue to 
serve the affected community with the least disruption. The cost of 
resolving such an institution would likely be significantly higher than 
necessary as a result. Depositors of the failed institution would be 
paid to the extent of their insured deposits, and then would have to 
open new accounts with another institution. Checks that were in transit 
at the time of the bank's failure, but that had not yet been paid, 
would be rejected. The disruption to the community would be 
substantial. Consequently, the FDIC believes that perpetual succession 
is an essential prerequisite for an insured depository institution, and 
that automatic termination/dissolution/suspension features are 
inconsistent with the FDIC's duties and the purposes of the FDI Act.

Centralized Management

    Centralized management is also an important attribute. Centralized 
management in the form of a board of directors provides the FDIC with a 
discrete group of individuals who are capable of acting for, and 
representing, the institution in virtually all matters. The typical 
rights, liabilities, powers, and responsibilities of this group are 
well established. Management of an institution directly and solely by 
all of its owners presents a variety of problems both from an 
operational standpoint and from an enforcement standpoint. If there is 
a large group of owners, it may be excessively difficult to conduct 
business in a timely fashion. With a large group, activities such as 
coordinating meetings, providing every owner with information and 
notices, determining who represents the institution and the extent of 
his/her authority become substantial undertakings. If there are too few 
owners, the group may not provide sufficient management depth and 
expertise. Ensuring that the institution is run by experienced, 
competent management may be especially difficult if the owners do not 
happen to possess adequate banking experience and competence. Finally, 
removing an individual from a management position may be complicated 
when the manager is also an owner of the institution. Consequently, 
centralized management is also an important attribute for purposes of 
the FDI Act.

Limited Liability

    Limited liability, of course, encourages investment in the 
enterprise. Potential owners are more likely to invest in an enterprise 
when their liability is limited to the amount of their investment. 
Attracting and maintaining sufficient capital helps to ensure an 
adequate cushion to protect an institution during periods of economic 
stress. Since banks and savings associations are subject to periods of 
economic stress just as other businesses are, the FDIC believes that 
the owners of banks and savings associations

[[Page 48058]]

should also have limited liability to encourage the maintenance of 
adequate capital.

Free Transferability of Ownership Interests

    Finally, the free transferability of ownership interests also tends 
to aid in attracting and maintaining capital. Requiring the prior 
consent of the remaining owners in order to transfer an ownership 
interest impairs an institution's ability to attract additional 
investors. At worst, prior consent to a transfer limits the pool of 
available investors; at best, it delays the additional investment. 
While the FDIC currently insures approximately 700 mutual institutions 
(that issue no stock) and more than 1700 closely-held institutions 
(some of which may have stock-transfer restrictions in the form of 
shareholder agreements), the FDIC has substantial experience with their 
structure, operations, and capital maintenance capabilities. The FDIC 
has no similar experience with institutions organized as LLCs, and that 
lack of similar experience argues for facilitating, rather than 
impairing, the maintenance of a capital cushion.
    In summary, the FDIC believes that all of the above four attributes 
that are peculiar to corporations are attributes that a State bank 
should have in order to be ``incorporated'' as used in the definition 
of ``State bank'' in the FDI Act. Therefore, a banking institution that 
is chartered as an LLC under the law of any State and that has all of 
the above four corporate attributes would be considered to be 
``incorporated'' under the law of the State for purposes of the 
definition of ``State bank.'' Furthermore, such a banking institution 
would be eligible to apply for Federal deposit insurance as a State 
bank under section 5 of the FDI Act, 12 U.S.C. 1815.
    The proposed regulation reflects these conclusions. It provides 
generally that a banking institution that is chartered by a State as an 
LLC will be deemed to be ``incorporated'' if it has each of the four 
corporate attributes. The proposed regulation also specifies that for 
purposes of the FDI Act and the FDIC's regulations, an owner of an 
interest in an LLC is a ``shareholder;'' a manager of an LLC is a 
``director;'' an officer of an LLC is an ``officer;'' and a certificate 
or other evidence of an ownership interest in an LLC is both ``voting 
stock'' and a ``voting security.'' These provisions are intended to 
remove any ambiguity as to how the rest of the FDI Act and the FDIC's 
regulations apply to banking institutions chartered as LLCs.

IV. Request for Comments

    The FDIC's Board of Directors (Board) is seeking comment on whether 
the agency should permit a State bank that is organized as an LLC to 
obtain Federal deposit insurance; whether use of some or all of the 
four corporate attributes is the most appropriate method of determining 
whether an institution is ``incorporated;'' and if not, how the term 
``incorporated'' should be interpreted. The Board invites comments on 
all of the following questions:
    1. Should the FDIC permit a State bank that is organized as an LLC 
to obtain Federal deposit insurance?
    2. If so, should the FDIC interpret the term ``incorporated'' 
utilizing some, all, or none of the traditional four corporate 
attributes?
    3. If the FDIC should not utilize any of the four corporate 
attributes, how should it interpret the term ``incorporated?''

V. Paperwork Reduction Act

    The proposed rule would not involve any collections of information 
under the Paperwork Reduction Act (44 U.S.C. 3501 et seq.). 
Consequently, no information has been submitted to the Office of 
Management and Budget for review.

VI. Regulatory Flexibilty Act

    Pursuant to 5 U.S.C. 605(b) the FDIC certifies that the proposed 
rule would not have a significant economic impact on a substantial 
number of small businesses within the meaning of the Regulatory 
Flexibility Act (5 U.S.C. 601 et seq.). The proposed rule describes the 
circumstances under which a banking institution that is chartered under 
State law as a limited liability company would be considered to be 
``incorporated'' for purposes of the definition of ``State bank'' in 12 
U.S.C. 1813(a)(2). It does not require any banking institution to 
organize as a limited liability company, and it imposes no new 
reporting, recordkeeping or other compliance requirements. Accordingly, 
the requirements relating to an initial and final regulatory 
flexibility analysis are not applicable.

VII. Impact on Families

    The proposed rule will not affect family well-being within the 
meaning of section 654 of the Treasury and General Government 
Appropriations Act, enacted as part of the Omnibus Consolidated and 
Emergency Supplemental Appropriations Act of 1999 (Pub. L. 105-277, 112 
Stat. 2681).

List of Subjects in 12 CFR Part 303

  

    Administrative practice and procedure, Authority delegations 
(Government agencies), Bank deposit insurance, Banks, banking, Foreign 
banking, Golden parachute payments, Reporting and recordkeeping 
requirements, Savings associations.
    The Board of Directors of the Federal Deposit Insurance Corporation 
hereby proposes to amend part 303 of Title 12 of the Code of Federal 
Regulations as follows:

PART 303--FILING PROCEDURES AND DELEGATIONS OF AUTHORITY

    1. The authority citation for part 303 continues to read as 
follows:


    Authority: 12 U.S.C. 378, 1813, 1815, 1816, 1817, 1818, 1819 
(Seventh and Tenth), 1820, 1823, 1828, 1831a, 1831e, 1831o, 1831p-1, 
1831w, 1835a, 1843(l), 3104, 3105, 3108, 3207; 15 U.S.C. 1601-1607.

    2. New Sec. 303.15 is added to subpart A to read as follows:


Sec. 303.15  Certain limited liability companies deemed incorporated 
under State law.

    (a) For purposes of the definition of ``State bank'' in 12 U.S.C. 
1813(a)(2), a banking institution that is chartered as a limited 
liability company (LLC) under the law of any State is deemed to be 
``incorporated'' under the law of the State, if:
    (1) The LLC's existence is independent of the life or lives of its 
owner(s) and specifically is not subject to automatic termination, 
dissolution, or suspension upon the happening of some event including 
the death, disability, bankruptcy, expulsion, or withdrawal of an owner 
of the LLC;
    (2) The LLC is managed by a board of managers or directors that 
operates in substantially the same manner as, and has substantially the 
same rights, powers, privileges, duties, responsibilities, and 
composition as, a board of directors of a State bank chartered as a 
stock corporation;
    (3) Each ownership interest in the LLC, including all management 
rights and voting rights, is transferable without the consent of any 
other owner of the LLC; and
    (4) Each owner of the LLC is not liable for the debts, liabilities, 
and obligations of the LLC in excess of the amount of the owner's 
investment.
    (b) For purposes of the Federal Deposit Insurance Act and chapter 
III, title 12 of the Code of Federal Regulations:
    (1) The term ``shareholder'' includes an owner of any interest in 
an LLC,

[[Page 48059]]

including a member or participant of an LLC;
    (2) The term ``director'' includes a manager, director, or other 
person with substantially similar authority, of an LLC;
    (3) The terms ``voting stock'' and ``voting securities'' each 
includes certificates or other evidence of ownership interests in an 
LLC; and
    (4) The term ``officer'' includes an officer, or other person with 
substantially similar authority, of an LLC.

    By order of the Board of Directors.
    Dated at Washington, DC, this 12th day of July, 2002.
Federal Deposit Insurance Corporation.
Valerie J. Best,
Assistant Executive Secretary/Supervisory Counsel.
[FR Doc. 02-18467 Filed 7-22-02; 8:45 am]
BILLING CODE 6714-01-P