Related Organizations

Partnership

A bank also can own interests in partnerships established under state law that engage in bank permissible activities. State laws generally define a partnership as an association of two or more persons to carry on as co-owners of a business for profit. Because general partners assume unlimited liability for the acts of other partners within the scope of the partnership, national banks may not serve as general partners. A national bank may, however, set up an operating subsidiary to enter into a general partnership. Because the operating subsidiary, and not the bank, will be the partner, the bank’s potential liability should be contained.

A national bank may be a limited partner in a partnership engaged in permissible activities. A limited partner’s liability is limited to the amount of its investment in the limited partnership. For this reason, a national bank may participate in a limited partnership directly, although an operating subsidiary also may be used. A national bank must not exercise management control as a limited partner because doing so could cause it to lose its limited liability and be treated as a general partner.

Whenever a national bank participates in a partnership, either directly or through an operating subsidiary, it must be able to ensure that the partnership’s activities are permissible for national banks either by controlling the conduct of the business or by possessing the power to veto impermissible activities. If the national bank does not possess either of these powers, it must have the power to withdraw (and it must indeed withdraw) from a partnership that performs or is about to perform impermissible activities.

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