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Legal Opinion Summary
Topic:Incidental Authority/Promotional Activity: May a Farm Credit System association provide $10,000 to a group of dairy farmers and producers forming a limited liability company to recycle dairy waste?
ID Number:99-08
Issue Date:04/29/1999

An association asked whether it may provide $10,000 to a group of dairy farmers and producers forming a limited liability company (LLC) to recycle dairy waste. The association explained that it wanted to create good will in an industry that makes up a significant portion of its lending portfolio. OGC concluded the association could undertake the transaction under its incidental authority under the Farm Credit Act (Act) to promote and advertise its business.

The Act provides that the association may make investments (including those not specifically authorized in the Act) upon approval of its supervising farm credit bank under FCA regulations. See Act 2.2(10), 2.12(18), (12 U.S.C. 2073(10), 2093(18)); 12 C.F.R. 615.5140. However, the association’s primary motivation was not investment. The association’s de minimis and passive interest in the LLC evidences the association’s intent to promote to its borrowers its expertise in and commitment to the dairy industry rather than to engage in entrepreneurial or investment activity.

OGC concluded the Act allows this promotional activity as incidental to the association’s express powers to make contracts and loans. See Act 2.2(3), (13) and 2.12(3), (9) (12 U.S.C. 2073(3), (13) and 2093(3),(9)) and July 27, 1998 and July 28, 1993 OGC opinions. OGC reasoned that the association’s unknown potential return on its de minimis LLC investment does not change the promotional and advertising character of the transaction. It is not uncommon for entities to recoup a portion of advertising and promotional costs (such as through fees for professional seminars).

Because the opinion is fact specific, it does not provide a precedent for any other Farm Credit
System institution to obtain an interest in any other non-Farm Credit System entity.

(April 29, 1999)