Can A Trust Or An Agreement Be A “Company” Under The Bank Holding Company Act?

One of the most consequential determinations under the Bank Holding Company Act is whether an arrangement constitutes a “company.” Under section 2(b) of the BHC Act (12 U.S.C. § 1841(b)) and 12 CFR 225.2(d)(1), the term “company” includes any bank, corporation, general or limited partnership, business trust, association, or similar organization. But what about voting trusts, buy-sell agreements, and similar shareholder arrangements?

The Federal Reserve has long-standing guidance on when such arrangements will not be treated as a “company” under the BHC Act, offering an informal safe harbor for common governance structures.

The Four-Part Safe Harbor

Under Federal Reserve guidance, a voting trust, buy-sell agreement, or similar arrangement generally will NOT be considered a “company” if it meets all four conditions:

• It relates only to shares of a single bank.
• It terminates within 25 years (or not later than 21 years and 10 months after the death of living individuals at the trust’s creation).
• The parties are not participants in any similar arrangement regarding another bank or nonbank business.
• In the case of a voting trust, it engages in no activity other than holding and voting shares.

Termination Requirements Override State Law

An important nuance is that state laws on the rule against perpetuities do not override the federal termination requirement. Even if a state permits perpetual trusts, the BHC Act’s 25-year (or lives-in-being-plus-21-years-and-10-months) termination requirement still applies. However, a “springing trust” — one that is formed upon the termination of the original trust — is permissible.

This guidance offers clarity but demands thoughtful drafting. Trusts that satisfy the safe harbor at formation can risk losing it through amendments, activities beyond mere share-holding, or involvement in multi-bank arrangements.

DM Tip: Trusts holding bank shares should verify the trust’s termination provisions comply with BHC Act requirements regardless of state perpetuity rules. Review trust documents, buy-sell agreements, shareholder agreements (or similar) on a regular basis or upon any amendment to confirm continued compliance with the safe harbor.