Ms-access – Many one-to-many relationships between two tables

Another way (without Nulls and without cycles in the FOREIGN KEY relationships) is to have a third table to store the "favourite children". In most DBMS, you'll need an additional UNIQUE constraint on TableB.

@Aaron was faster to identify that the naming convention above is rather cumbersome and can lead to errors. It's usually better (and will keep you sane) if you don't have Id columns all over your tables and if the columns (that are joined) have same names in the many tables that appear. So, here's a renaming:

Parent
    ParentID        INT NOT NULL PRIMARY KEY

Child
    ChildID         INT NOT NULL PRIMARY KEY
    ParentID        INT NOT NULL FOREIGN KEY REFERENCES Parent (ParentID)
    UNIQUE (ParentID, ChildID)

FavoriteChild
    ParentID        INT NOT NULL PRIMARY KEY
    ChildID         INT NOT NULL 
    FOREIGN KEY (ParentID, ChildID) 
        REFERENCES Child (ParentID, ChildID)

In SQL-Server (that you are using), you also have the option of the IsFavorite bit column you mention. The unique favourite child per parent can be accomplished via a filtered Unique Index:

Parent
    ParentID        INT NOT NULL PRIMARY KEY

Child
    ChildID         INT NOT NULL PRIMARY KEY
    ParentID        INT NOT NULL FOREIGN KEY REFERENCES Parent (ParentID)
    IsFavorite      BIT NOT NULL

CREATE UNIQUE INDEX is_FavoriteChild
  ON Child (ParentID)
  WHERE IsFavorite = 1 ;

And the main reason that your option 1 is not recommended, at least not in SQL-Server, is that the pattern of circular paths in the foreign key references has some problems.

Read a quite old article: SQL By Design: The Circular Reference

When inserting or deleting rows from the two table, you'll run into the "chicken-and-egg" problem. Which table should I insert first - without violating any constraint?

In order to solve that, you have to define at least one column nullable. (OK, technically you don't have to, you can have all columns as NOT NULL but only in DBMS, like Postgres and Oracle, that have implemented deferrable constraints. See @Erwin's answer in a similar question: Complex foreign key constraint in SQLAlchemy on how this can be done in Postgres). Still, this setup feels like skating on thin ice.

Check also an almost identical question at SO (but for MySQL) In SQL, is it OK for two tables to refer to each other? where my answer is pretty much the same. MySQL has no partial indexes though, so the only viable options are the nullable FK and the extra table solution.

Relational databases are not built to handle this situation perfectly. You have to decide what is most important to you and then make your trade-offs. You have several goals:

• Maintain third normal form
• Maintain referential integrity
• Maintain the constraint that each account belongs to either a corporation or a natural person.
• Preserve the ability to retrieve data simply and directly

The problem is that some of these goals compete with one another.

Sub-Typing Solution
You could choose a sub-typing solution where you create a super-type that incorporates both corporations and persons. This super-type would probably have a compound key of the natural key of the sub-type plus a partitioning attribute (e.g. customer_type). This is fine as far as normalization goes and it allows you to enforce referential integrity as well as the constraint that corporations and persons are mutually exclusive. The problem is that this makes data retrieval more difficult, because you always have to branch based on customer_type when you join account to the account holder. This probably means using UNION and having a lot of repetitive SQL in your query.

Two Foreign Keys Solution
You could choose a solution where you keep two foreign keys in your account table, one to corporation and one to person. This solution also allows you to maintain referential integrity, normalization and mutual exclusivity. It also has the same data retrieval drawback as the sub-typing solution. In fact, this solution is just like the sub-typing solution except that you get to the problem of branching your joining logic "sooner".

Nevertheless, a lot of data modellers would consider this solution inferior to the sub-typing solution because of the way that the mutual exclusivity constraint is enforced. In the sub-typing solution you use keys to enforce the mutual exclusivity. In the two foreign key solution you use a CHECK constraint. I know some people who have an unjustified bias against check constraints. These people would prefer the solution that keeps the constraints in the keys.

"Denormalized" Partitioning Attribute Solution
There is another option where you keep a single foreign key column on the chequing account table and use another column to tell you how to interpret the foreign key column (RoKa's OwnerTypeID column). This essentially eliminates the super-type table in the sub-typing solution by denormalizing the partitioning attribute to the child table. (Note that this is not strictly "denormalization" according to the formal definition, because the partitioning attribute is part of a primary key.) This solution seems quite simple since it avoids having an extra table to do more or less the same thing and it cuts the number of foreign key columns down to one. The problem with this solution is that it doesn't avoid the branching of retrieval logic and what's more, it doesn't allow you to maintain declarative referential integrity. SQL databases don't have the ability to manage a single foreign key column being for one of multiple parent tables.

Shared Primary Key Domain Solution
One way that people sometimes deal with this issue is to use a single pool of IDs so that there is no confusion for any given ID whether it belongs to one sub-type or another. This would probably work pretty naturally in a banking scenario, since you aren't going to issue the same bank account number to both a corporation and a natural person. This has the advantage of avoiding the need for a partitioning attribute. You could do this with or without a super-type table. Using a super-type table allows you to use declarative constraints to enforce uniqueness. Otherwise this would have to be enforced procedurally. This solution is normalized but it won't allow you to maintain declarative referential integrity unless you keep the super-type table. It still does nothing to avoid complex retrieval logic.

You can see therefore that it isn't really possible to have a clean design that follows all of the rules, while at the same time keeping your data retrieval simple. You have to decide where your trade-offs are going to be.