When SQL is installed, some services are installed with it. The two main ones, MSSQLServer, and SQLServerAgent need to be logged in as a user account in some cases such as using SQLMail or backing up a database to a directory that requires permissions. For most installs of SQL Server, the local system account works perfect.
The local system account is a builtin account that can't be modified. It's used to start most services. All services have to start running under an account of some sort. The default account for most services is the local system account. By using this account the services get administrative rights on the local machine (server or workstation), but no rights to any other machine on the network or domain.
Denny
MCSA (2003) / MCDBA (SQL 2000)
--Anything is possible. All it takes is a little research. (Me)
So is the System account in fact the 'Administrator' account that you can see within
Administrative Tools-->Computer Management-->Local Users And Groups-->Users or is it a hidden account not listed?
It's NOT the Administrator account and it isn't listed in active directory. It is a hidden built in account. When you do things like give NTFS permissions, you can add System to the list.
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