ARTICLE
24 September 2026

Sole Proprietorships – Not A ‘”Company” Under Regulation W

DM
Duane Morris LLP

Contributor

Duane Morris LLP, a law firm with more than 900 attorneys in offices across the United States and internationally, is asked by a broad array of clients to provide innovative solutions to today's legal and business challenges.
Regulation W governs transactions between banks and their affiliates, but a critical threshold question determines its applicability: does the counterparty qualify as a "company"? The regulatory framework excludes sole proprietorships from this definition, creating important compliance distinctions that banks must navigate carefully. While this exclusion provides clarity on Regulation W's scope, it does not eliminate all regulatory obligations for transactions with sole proprietors who may be insiders or co
United States Finance and Banking

Regulation W applies to transactions between a bank and its affiliates, but the definition of “affiliate” requires that the counterparty be a “company.” This raises a fundamental question: what qualifies as a company for Regulation W purposes?

The answer excludes sole proprietorships – a sole proprietorship is not a company for purposes of Regulation W. This means that even if an individual who operates a sole proprietorship also controls a bank, the sole proprietorship itself cannot be an affiliate of the bank under Regulation W.

This distinction is rooted in the definition of “company” under banking law, which generally encompasses corporations, partnerships, limited liability companies, business trusts, and similar organizations, but not unincorporated businesses operated by a single individual in their personal capacity.

However, banks should not treat this as a blanket safe harbor. Transactions with sole proprietors who are insiders may still be subject to other regulatory requirements, including Regulation O governing insider lending, and general safety and soundness standards. Additionally, the attribution rule could apply if loan proceeds to a sole proprietor are transferred to an affiliated entity.

DM Tip: While sole proprietorships fall outside Regulation W’s affiliate framework, ensure your compliance program still captures transactions with sole proprietors who are insiders or who may transfer proceeds to affiliated entities. Cross-reference your Regulation O and Regulation W monitoring systems.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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