Part A—Small Business Investment Companies
§681. Organization
(a) Incorporation and charter under State law, period of succession; area of operations
A small business investment company shall be an incorporated body, a limited liability company, or a limited partnership organized and chartered or otherwise existing under State law solely for the purpose of performing the functions and conducting the activities contemplated under this subchapter, which, if incorporated, has succession for a period of not less than thirty years unless sooner dissolved by its shareholders, and if a limited partnership, has succession for a period of not less than ten years, and possesses the powers reasonably necessary to perform such functions and conduct such activities. The area in which the company is to conduct its operations, and the establishment of branch offices or agencies (if authorized by the articles), shall be subject to the approval of the Administration.
(b) Articles of incorporation; approval
The articles of any small business investment company shall specify in general terms the objects for which the company is formed, the name assumed by such company, the area or areas in which its operations are to be carried on, the place where its principal office is to be located, and the amount and classes of its shares of capital stock. Such articles may contain any other provisions not inconsistent with this chapter that the company may see fit to adopt for the regulation of its business and the conduct of its affairs. Such articles and any amendments thereto adopted from time to time shall be subject to the approval of the Administration.
(c) Issuance of license
(1) Submission of application
Each applicant for a license to operate as a small business investment company under this chapter shall submit to the Administrator an application, in a form and including such documentation as may be prescribed by the Administrator.
(2) Procedures
(A) Status
Not later than 90 days after the initial receipt by the Administrator of an application under this subsection, the Administrator shall provide the applicant with a written report detailing the status of the application and any requirements remaining for completion of the application.
(B) Approval or disapproval
Within a reasonable time after receiving a completed application submitted in accordance with this subsection and in accordance with such requirements as the Administrator may prescribe by regulation, the Administrator shall—
(i) approve the application and issue a license for such operation to the applicant if the requirements of this section are satisfied; or
(ii) disapprove the application and notify the applicant in writing of the disapproval.
(3) Matters considered
In reviewing and processing any application under this subsection, the Administrator—
(A) shall determine whether—
(i) the applicant meets the requirements of subsections (a) and (c) of
(ii) the management of the applicant is qualified and has the knowledge, experience, and capability necessary to comply with this chapter;
(B) shall take into consideration—
(i) the need for and availability of financing for small business concerns in the geographic area in which the applicant is to commence business;
(ii) the general business reputation of the owners and management of the applicant; and
(iii) the probability of successful operations of the applicant, including adequate profitability and financial soundness;
(C) shall not take into consideration any projected shortage or unavailability of leverage; and
(D) shall give first priority to an applicant that is located in an underlicensed State with below median financing, as determined by the Administrator.
(4) Exception
(A) In general
Notwithstanding any other provision of this chapter, the Administrator may, in the discretion of the Administrator and based on a showing of special circumstances and good cause, approve an application and issue a license under this subsection with respect to any applicant that—
(i) has private capital of not less than $3,000,000;
(ii) would otherwise be issued a license under this subsection, except that the applicant does not satisfy the requirements of
(iii) has a viable business plan reasonably projecting profitable operations and a reasonable timetable for achieving a level of private capital that satisfies the requirements of
(B) Leverage
An applicant licensed pursuant to the exception provided in this paragraph shall not be eligible to receive leverage as a licensee until the applicant satisfies the requirements of
(i) is located in a State that—
(I) is not served by a licensee; or
(II) is an underlicensed State; and
(ii) agrees to be limited to 1 tier of leverage available under
(d) Repealed. Pub. L. 104–208, div. D, title II, §208(b)(3)(A), Sept. 30, 1996, 110 Stat. 3009–742
(e) Fees
(1) In general
The Administration may prescribe fees to be paid by each applicant for a license to operate as a small business investment company under this chapter.
(2) Use of amounts
Fees collected under this subsection—
(A) shall be deposited in the account for salaries and expenses of the Administration; and
(B) are authorized to be appropriated solely to cover the costs of licensing examinations.
(
Editorial Notes
References in Text
For definition of "this chapter", referred to in subsecs. (b), (c), and (e), see References in Text note set out under
Amendments
2018—Subsec. (c)(3)(D).
Subsec. (c)(4)(B)(i).
Subsec. (c)(4)(B)(ii), (iii).
1997—Subsec. (c)(4)(B).
Subsec. (e).
1996—Subsec. (a).
Subsec. (c).
Subsec. (d).
1988—Subsec. (a).
1978—Subsec. (d).
1976—Subsec. (a).
Subsec. (b).
Subsec. (c).
1972—Subsec. (d).
1967—Subsec. (c).
1961—Subsec. (a).
Subsec. (c).
Subsec. (d).
Subsec. (e).
1960—Subsec. (d)(9) to (11).
Statutory Notes and Related Subsidiaries
Effective Date of 1997 Amendment
Amendment by
Effective Date of 1967 Amendment
Savings Provision
Regulatory Review
Reports to Congress
§682. Capital requirements
(a) Amount
(1) In general
Except as provided in paragraph (2), the private capital of each licensee shall be not less than—
(A) $5,000,000; or
(B) $10,000,000, with respect to each licensee authorized or seeking authority to issue participating securities to be purchased or guaranteed by the Administration under this chapter.
(2) Exception
The Administrator may, in the discretion of the Administrator and based on a showing of special circumstances and good cause, permit the private capital of a licensee authorized or seeking authorization to issue participating securities to be purchased or guaranteed by the Administration to be less than $10,000,000, but not less than $5,000,000, if the Administrator determines that such action would not create or otherwise contribute to an unreasonable risk of default or loss to the Federal Government.
(3) Adequacy
In addition to the requirements of paragraph (1), the Administrator shall—
(A) determine whether the private capital of each licensee is adequate to assure a reasonable prospect that the licensee will be operated soundly and profitably, and managed actively and prudently in accordance with its articles; and
(B) determine that the licensee will be able 1 both prior to licensing and prior to approving any request for financing, to make periodic payments on any debt of the company which is interest bearing and shall take into consideration the income which the company anticipates on its contemplated investments, the experience of the company's owners and managers, the history of the company as an entity, if any, and the company's financial resources.
(4) Exemption from capital requirements
The Administrator may, in the discretion of the Administrator, approve leverage for any licensee licensed under subsection (c) or (d) of
(A) the licensee certifies in writing that not less than 50 percent of the aggregate dollar amount of its financings after September 30, 1996, will be provided to smaller enterprises; and
(B) the Administrator determines that such action would not create or otherwise contribute to an unreasonable risk of default or loss to the United States Government.
(b) Financial institution investments
(1) Certain banks
Notwithstanding the provisions of section 1845(a)(1) 2 of title 12, any national bank, or any member bank of the Federal Reserve System or nonmember insured bank to the extent permitted under applicable State law, may invest in any 1 or more small business investment companies, or in any entity established to invest solely in small business investment companies, except that in no event shall the total amount of such investments of any such bank exceed 5 percent of the capital and surplus of the bank.
(2) Certain savings associations
Notwithstanding any other provision of law, any Federal savings association may invest in any one or more small business investment companies, or in any entity established to invest solely in small business investment companies, except that in no event may the total amount of such investments by any such Federal savings association exceed 5 percent of the capital and surplus of the Federal savings association.
(c) Diversification of ownership
The Administrator shall ensure that the management of each licensee licensed after September 30, 1996, is sufficiently diversified from and unaffiliated with the ownership of the licensee in a manner that ensures independence and objectivity in the financial management and oversight of the investments and operations of the licensee.
(
Editorial Notes
References in Text
For definition of "this chapter", referred to in subsec. (a)(1)(B), see References in Text note set out under
Subsection (d) of
Codification
September 30, 1996, referred to in subsecs. (a)(4) and (c), was in the original "the date of enactment of the Small Business Program Improvement Act of 1996", which was translated as meaning the date of enactment of the Small Business Programs Improvement Act of 1996, to reflect the probable intent of Congress.
Amendments
2000—Subsec. (b).
1997—Subsec. (b).
1996—Subsec. (a).
Subsec. (a)(4).
Subsec. (c).
1992—Subsec. (a).
1978—Subsec. (a).
1977—Subsec. (b).
1976—Subsec. (a).
Subsec. (b).
1967—Subsec. (a).
Subsec. (b).
1964—Subsec. (a).
1961—Subsec. (a).
Subsec. (b).
1960—Subsec. (b).
Statutory Notes and Related Subsidiaries
Effective Date of 1997 Amendment
Amendment by
Effective Date of 1967 Amendment
Amendment by
Effect of Small Business Equity Enhancement Act of 1992 on Securities Laws
Nothing in amendment by
1 So in original. Probably should be followed by a comma.
2 See References in Text note below.
§683. Borrowing operations
(a) Authority to issue obligations
Each small business investment company shall have authority to borrow money and to issue its securities, promissory notes, or other obligations under such general conditions and subject to such limitations and regulations as the Administration may prescribe.
(b) Debentures and participating securities
To encourage the formation and growth of small business investment companies the Administration is authorized when authorized in appropriation Acts, to purchase, or to guarantee the timely payment of all principal and interest as scheduled on, debentures or participating securities issued by such companies. Such purchases or guarantees may be made by the Administration on such terms and conditions as it deems appropriate, pursuant to regulations issued by the Administration. The full faith and credit of the United States is pledged to the payment of all amounts which may be required to be paid under any guarantee under this subsection. Debentures purchased or guaranteed by the Administration under this subsection shall be subordinate to any other debenture bonds, promissory notes, or other debts and obligations of such companies, unless the Administration in its exercise of reasonable investment prudence and in considering the financial soundness of such company determines otherwise. Such debentures may be issued for a term of not to exceed fifteen years and shall bear interest at a rate not less than a rate determined by the Secretary of the Treasury taking into consideration the current average market yield on outstanding marketable obligations of the United States with remaining periods to maturity comparable to the average maturities on such debentures, adjusted to the nearest one-eighth of 1 percent, plus, for debentures obligated after September 30, 2001, an additional charge, in an amount established annually by the Administration, as necessary to reduce to zero the cost (as defined in
(1) The total amount of debentures and participating securities that may be guaranteed by the Administration and outstanding from a company licensed under
(2)
(A)
(i) 300 percent of such company's private capital; or
(ii) $175,000,000.
(B)
(C)
(ii) The maximum amount of outstanding leverage made available to—
(I) any 1 company described in clause (iii) may not exceed the lesser of 300 percent of private capital of the company, or $175,000,000; and
(II) 2 or more companies described in clause (iii) that are under common control (as determined by the Administrator) may not exceed $250,000,000.
(iii) A company described in this clause is a company licensed under
(D)
(i)
(ii)
(I)
(II)
(III)
(3) Subject to the foregoing dollar and percentage limits, a company licensed under
For purposes of this subsection, the term "venture capital" includes such common stock, preferred stock, or other financing with subordination or nonamortization characteristics as the Administration determines to be substantially similar to equity financing.
(c) Third party debt
The Administrator—
(1) shall not permit a licensee having outstanding leverage to incur third party debt that would create or contribute to an unreasonable risk of default or loss to the Federal Government; and
(2) shall permit such licensees to incur third party debt only on such terms and subject to such conditions as may be established by the Administrator, by regulation or otherwise.
(d) Investments in smaller enterprises
The Administrator shall require each licensee, as a condition of approval of an application for leverage, to certify in writing that not less than 25 percent of the aggregate dollar amount of financings of that licensee shall be provided to smaller enterprises.
(e) Capital impairment
Before approving any application for leverage submitted by a licensee under this chapter, the Administrator—
(1) shall determine that the private capital of the licensee meets the requirements of
(2) shall determine, taking into account the nature of the assets of the licensee, the amount and terms of any third party debt owed by such licensee, and any other factors determined to be relevant by the Administrator, that the private capital of the licensee has not been impaired to such an extent that the issuance of additional leverage would create or otherwise contribute to an unreasonable risk of default or loss to the Federal Government.
(f) Redemption or repurchase of preferred stock
Notwithstanding any other provision of law—
(1) the Administrator may allow the issuer of any preferred stock sold to the Administration before November 1, 1989 to redeem or repurchase such stock, upon the payment to the Administration of an amount less than the par value of such stock, for a repurchase price determined by the Administrator after consideration of all relevant factors, including—
(A) the market value of the stock;
(B) the value of benefits provided and anticipated to accrue to the issuer;
(C) the amount of dividends paid, accrued, and anticipated; and
(D) the estimate of the Administrator of any anticipated redemption; and
(2) any moneys received by the Administration from the repurchase of preferred stock shall be available solely to provide debenture leverage to licensees having 50 percent or more in aggregate dollar amount of their financings invested in smaller enterprises.
(g) Guarantee of payment of and authority to purchase participating securities
In order to encourage small business investment companies to provide equity capital to small businesses, the Administration is authorized to guarantee the payment of the redemption price and prioritized payments on participating securities issued by such companies which are licensed pursuant to
(1) Participating securities shall be redeemed not later than 15 years after their date of issuance for an amount equal to 100 per centum of the original issue price plus the amount of any accrued prioritized payment: Provided, That if, at the time the securities are redeemed, whether as scheduled or in advance, the issuing company (A) has not paid all accrued prioritized payments in full as provided in paragraph (2) below and (B) has not sold or otherwise disposed of all investments subject to profit distributions pursuant to paragraph (11), the company's obligation to pay accrued and unpaid prioritized payments shall continue and payment shall be made from the realized gain, if any, on the disposition of such investments, but if on disposition there is no realized gain, the obligation to pay accrued and unpaid prioritized payments shall be extinguished: Provided further, That in the interim, the company shall not make any in-kind distributions of such investments unless it pays to the Administration such sums, up to the amount of the unrealized appreciation on such investments, as may be necessary to pay in full the accrued prioritized payments.
(2) Prioritized payments on participating securities shall be preferred and cumulative and payable out of the retained earnings available for distribution, as defined by the Administration, of the issuing company at a rate determined by the Secretary of the Treasury taking into consideration the current average market yield on outstanding marketable obligations of the United States with remaining periods to maturity comparable to the average maturities on such securities, adjusted to the nearest one-eighth of 1 percent, plus, for participating securities obligated after September 30, 2001, an additional charge, in an amount established annually by the Administration, as necessary to reduce to zero the cost (as defined in
(3) In the event of liquidation of the company, participating securities shall be senior in priority for all purposes to all other equity interests in the issuing company, whenever created.
(4) Any company issuing a participating security under this chapter shall commit to invest or shall invest an amount equal to the outstanding face value of such security solely in equity capital. As used in this subsection, "equity capital" means common or preferred stock or a similar instrument, including subordinated debt with equity features which is not amortized and which provides for interest payments from appropriate sources, as determined by the Administration.
(5) The only debt (other than leverage obtained in accordance with this subchapter) which any company issuing a participating security under this subsection may have outstanding shall be temporary debt in amounts limited to not more than 50 per centum of private capital.
(6) The Administration may permit the proceeds of a participating security to be used to pay the principal amount due on outstanding debentures guaranteed by the Administration, if (A) the company has outstanding equity capital invested in an amount equal to the amount of the debentures being refinanced and (B) the Administration receives profit participation on such terms and conditions as it may determine, but not to exceed the per centums specified in paragraph (11).
(7) For purposes of computing profit participation under paragraph (11), except as otherwise determined by the Administration, the management expenses of any company which issues participating securities shall not be greater than 2.5 per centum per annum of the combined capital of the company, plus $125,000 if the company's combined capital is less than $20,000,000. For purposes of this paragraph, (A) the term "combined capital" means the aggregate amount of private capital and outstanding leverage and (B) the term "management expenses" includes salaries, office expenses, travel, business development, office and equipment rental, bookkeeping and the development, investigation and monitoring of investments, but does not include the cost of services provided by specialized outside consultants, outside lawyers and outside auditors, who perform services not generally expected of a venture capital company nor does such term include the cost of services provided by any affiliate of the company which are not part of the normal process of making and monitoring venture capital investments.
(8) Notwithstanding paragraph (9), if a company is operating as a limited partnership or as a subchapter S corporation or an equivalent pass-through entity for tax purposes and if there are no accumulated and unpaid prioritized payments, the company may make annual distributions to the partners, shareholders, or members in amounts not greater than each partner's, shareholder's, or member's maximum tax liability. For purposes of this paragraph, the term "maximum tax liability" means the amount of income allocated to each partner, shareholder, or member (including an allocation to the Administration as if it were a taxpayer) for Federal income tax purposes in the income tax return filed or to be filed by the company with respect to the fiscal year of the company immediately preceding such distribution, multiplied by the highest combined marginal Federal and State income tax rates for corporations or individuals, whichever is higher, on each type of income included in such return. For purposes of this paragraph, the term "State income tax" means the income tax of the State where the company's principal place of business is located. A company may also elect to make a distribution under this paragraph at any time during any calendar quarter based on an estimate of the maximum tax liability. If a company makes 1 or more interim distributions for a calendar year, and the aggregate amount of those distributions exceeds the maximum amount that the company could have distributed based on a single annual computation, any subsequent distribution by the company under this paragraph shall be reduced by an amount equal to the excess amount distributed.
(9) After making any distributions as provided in paragraph (8), a company with participating securities outstanding may distribute the balance of income to its investors, specifically including the Administration, in the per centums specified in paragraph (11), if there are no accumulated and unpaid prioritized payments and if all amounts due the Administration pursuant to paragraph (11) have been paid in full, subject to the following conditions:
(A) As of the date of the proposed distribution, if the amount of leverage outstanding is more than 200 per centum of the amount of private capital, any amounts distributed shall be made to private investors and to the Administration in the ratio of leverage to private capital.
(B) As of the date of the proposed distribution, if the amount of leverage outstanding is more than 100 per centum but not more than 200 per centum of the amount of private capital, 50 per centum of any amounts distributed shall be made to the Administration and 50 per centum shall be made to the private investors.
(C) If the amount of leverage outstanding is 100 per centum, or less, of the amount of private capital, the ratio shall be that for distribution of profits as provided in paragraph (11).
(D) Any amounts received by the Administration under subparagraph (A) or (B) shall be applied first as profit participation as provided in paragraph (11) and any remainder shall be applied as a prepayment of the principal amount of the participating securities or debentures.
(10) After making any distributions pursuant to paragraph (8), a company with participating securities outstanding may return capital to its investors, specifically including the Administration, if there are no accumulated and unpaid prioritized payments and if all amounts due the Administration pursuant to paragraph (11) have been paid in full. Any distributions under this paragraph shall be made to private investors and to the Administration in the ratio of private capital to leverage as of the date of the proposed distribution: Provided, That if the amount of leverage outstanding is less than 50 per centum of the amount of private capital or $10,000,000, whichever is less, no distribution shall be required to be made to the Administration unless the Administration determines, on a case by case basis, to require distributions to the Administration to reduce the amount of outstanding leverage to an amount less than $10,000,000.
(11)(A) A company which issues participating securities shall agree to allocate to the Administration a share of its profits determined by the relationship of its private capital to the amount of participating securities guaranteed by the Administration in accordance with the following:
(i) If the total amount of participating securities is 100 per centum of private capital or less, the company shall allocate to the Administration a per centum share computed as follows: the amount of participating securities divided by private capital times 9 per centum.
(ii) If the total amount of participating securities is more than 100 per centum but not greater than 200 per centum of private capital, the company shall allocate to the Administration a per centum share computed as follows:
(I) 9 per centum, plus
(II) 3 per centum of the amount of participating securities minus private capital divided by private capital.
(B) Notwithstanding any other provision of this paragraph—
(i) in no event shall the total per centum required by this paragraph exceed 12 per centum, unless required pursuant to the provisions of (ii) below,
(ii) if, on the date the participating securities are marketed, the interest rate on Treasury bonds with a maturity of 10 years is a rate other than 8 per centum, the Administration shall adjust the rate specified in paragraph (A) above, either higher or lower, by the same per centum by which the Treasury bond rate is higher or lower than 8 per centum, and
(iii) this paragraph shall not be construed to create any ownership interest of the Administration in the company.
(12) A company may elect to make an in-kind distribution of securities only if such securities are publicly traded and marketable. The company shall deposit the Administration's share of such securities for disposition with a trustee designated by the Administration or, at its option and with the agreement of the company, the Administration may direct the company to retain the Administration's share. If the company retains the Administration's share, it shall sell the Administration's share and promptly remit the proceeds to the Administration. As used in this paragraph, the term "trustee" means a person who is knowledgeable about and proficient in the marketing of thinly traded securities.
(h) Computation of amounts due under participating securities
The computation of amounts due the Administration under participating securities shall be subject to the following terms and conditions:
(1) The formula in subsection (g)(11) shall be computed annually and the Administration shall receive distributions of its profit participation at the same time as other investors in the company.
(2) The formula shall not be modified due to an increase in the private capital unless the increase is provided for in a proposed business plan submitted to and approved by the Administration.
(3) After distributions have been made, the Administration's share of such distributions shall not be recomputed or reduced.
(4) If the company prepays or repays the participating securities, the Administration shall receive the requisite participation upon the distribution of profits due to any investments held by the company on the date of the repayment or prepayment.
(5) If a company is licensed on or before March 31, 1993, it may elect to exclude from profit participation all investments held on that date and in such case the Administration shall determine the amount of the future expenses attributable to such prior investment: Provided, That if the company issues participating securities to refinance debentures as authorized in subsection (g)(6), it may not elect to exclude profits on existing investments under this paragraph.
(i) Leverage fee
With respect to leverage granted by the Administration to a licensee, the Administration shall collect from the licensee a nonrefundable fee in an amount equal to 3 percent of the face amount of leverage granted to the licensee in the following manner: 1 percent upon the date on which the Administration enters into any commitment for such leverage with the licensee, and the balance of 2 percent (or 3 percent if no commitment has been entered into by the Administration) on the date on which the leverage is drawn by the licensee.
(j) Calculation of subsidy rate
All fees, interest, and profits received and retained by the Administration under this section shall be included in the calculations made by the Director of the Office of Management and Budget to offset the cost (as that term is defined in
(k) Energy saving debentures
In addition to any other authority under this chapter, a small business investment company licensed in the first fiscal year after December 19, 2007, or any fiscal year thereafter may issue Energy Saving debentures.
(
Editorial Notes
References in Text
For definition of "this chapter", referred to in subsecs. (b), (e), (g)(2), (4), (j), and (k), see References in Text note set out under
Amendments
2018—Subsec. (b)(2)(A)(ii).
2015—Subsec. (b)(2)(B).
2009—Subsec. (b)(2)(A), (B).
Subsec. (b)(2)(C).
Subsec. (b)(4).
Subsec. (d).
2007—Subsec. (b)(2)(D).
Subsec. (b)(4)(E).
Subsec. (k).
2004—Subsec. (g)(4).
2003—Subsec. (g)(2).
2001—Subsec. (b).
Subsec. (g)(2).
2000—Subsec. (b).
Subsec. (b)(2).
Subsec. (b)(4)(D).
Subsec. (g)(2).
Subsec. (g)(8).
1999—Subsec. (g)(13).
"(A)
"(B)
1997—Subsec. (b)(2)(D).
Subsec. (b)(4).
Subsec. (d).
Subsec. (g)(8).
Subsec. (i).
1996—Subsec. (a).
Subsec. (b).
Subsec. (c).
Subsec. (d).
Subsec. (e).
Subsec. (f).
Subsec. (g)(2).
Subsec. (g)(4).
Subsec. (g)(8).
Subsecs. (i), (j).
1994—Subsec. (g)(13).
1992—Subsec. (b).
Subsec. (b)(1) to (4).
"(1) The total amount of debentures purchased or guaranteed and outstanding at any one time from a company which does not qualify under the terms of paragraph (2) of this subsection, shall not exceed 300 percent of the combined private paid-in capital and paid-in surplus of such company. In no event shall the debentures guaranteed and outstanding under this subchapter of any such company or companies which are commonly controlled as determined by the Administration exceed $35,000,000.
"(2) The total amount of debentures which may be purchased or guaranteed and outstanding at any one time from a company not complying with
"(3) Outstanding amounts of financial assistance provided to a company by the Administration prior to the effective date of the Small Business Investment Act Amendments of 1967 shall be deducted from the maximum amount of debentures which the Administration would otherwise be authorized to purchase or guarantee under this subsection."
Subsec. (c).
Subsec. (c)(1).
Subsec. (c)(6).
Subsec. (c)(7).
Subsec. (e).
Subsecs. (g), (h).
1990—Subsec. (b)(1).
Subsec. (c)(6).
Subsec. (d).
1989—Subsec. (c).
Subsecs. (d) to (f).
1978—Subsec. (c)(1).
1976—Subsec. (b)(1).
Subsec. (b)(2).
Subsec. (c)(2)(iii).
Subsec. (c)(4).
1972—Subsec. (b)(1).
Subsec. (b)(2).
Subsec. (c).
1971—Subsec. (b).
1967—Subsec. (b).
1964—Subsec. (b).
1961—Subsec. (b).
Statutory Notes and Related Subsidiaries
Effective Date of 2007 Amendment
Amendment by
Effective Date of 2001 Amendment
Effective Date of 1997 Amendment
Amendment by
Effective Date of 1990 Amendment
Effective Date of 1967 Amendment
Amendment by
Regulations
"(i)
"(ii)
Effect of Small Business Equity Enhancement Act of 1992 on Securities Laws
Nothing in amendment by
§684. Equity capital for small-business concerns
(a) Function of investment companies
It shall be a function of each small business investment company to provide a source of equity capital for incorporated and unincorporated small-business concerns, in such manner and under such terms as the small business investment company may fix in accordance with the regulations of the Administration.
(b) Conditions
Before any capital is provided to a small-business concern under this section—
(1) the company may require such concern to refinance any or all of its outstanding indebtedness so that the company is the only holder of any evidence of indebtedness of such concern; and
(2) except as provided in regulations issued by the Administration, such concern shall agree that it will not thereafter incur any indebtedness without first securing the approval of the company and giving the company the first opportunity to finance such indebtedness.
(c) Repealed. Pub. L. 90–104, title II, §206, Oct. 11, 1967, 81 Stat. 271
(d) Direct or cooperative provision of capital
Equity capital provided to incorporated small business concerns under this section may be provided directly or in cooperation with other investors, incorporated or unincorporated, through agreements to participate on an immediate basis.
(
Editorial Notes
Amendments
1972—Subsec. (a).
1967—Subsec. (c).
1961—Subsec. (d).
1960—Subsec. (a).
Subsec. (b).
Subsecs. (c), (d).
Statutory Notes and Related Subsidiaries
Effective Date of 1967 Amendment
Amendment by
§685. Long-term loans to small-business concerns
(a) Authorization
Each company is authorized to make loans, in the manner and subject to the conditions described in this section, to incorporated and unincorporated small-business concerns in order to provide such concerns with funds needed for sound financing, growth, modernization, and expansion.
(b) Direct loans; loans on participation basis
Loans made under this section may be made directly or in cooperation with other lenders, incorporated or unincorporated, through agreements to participate on an immediate or deferred basis.
(c) Maximum rate of interest
The maximum rate of interest for the company's share of any loan made under this section shall be determined by the Administration: Provided, That the Administration also shall permit those companies which have issued debentures pursuant to this chapter to charge a maximum rate of interest based upon the coupon rate of interest on the outstanding debentures, determined on an annual basis, plus such other expenses of the company as may be approved by the Administration.
(d) Maturity
Any loan made under this section shall have a maturity not exceeding twenty years.
(e) Soundness of loan; security
Any loan made under this section shall be of such sound value, or so secured, as reasonably to assure repayment.
(f) Extension or renewal
Any company which has made a loan to a small-business concern under this section is authorized to extend the maturity of or renew such loan for additional periods, not exceeding ten years, if the company finds that such extension or renewal will aid in the orderly liquidation of such loan.
(
Editorial Notes
References in Text
For definition of "this chapter", referred to in subsec. (c), see References in Text note set out under
Amendments
1992—Subsec. (c).
1976—Subsec. (b).
1961—Subsec. (b).
Statutory Notes and Related Subsidiaries
Effect of Small Business Equity Enhancement Act of 1992 on Securities Laws
Nothing in amendment by
§686. Aggregate limitations on amount of assistance to any single enterprise
(a) Percentage limitation on private capital
If any small business investment company has obtained financing from the Administrator and such financing remains outstanding, the aggregate amount of securities acquired and for which commitments may be issued by such company under the provisions of this subchapter for any single enterprise shall not, without the approval of the Administrator, exceed 10 percent of the sum of—
(1) the private capital of such company; and
(2) the total amount of leverage projected by the company in the company's business plan that was approved by the Administrator at the time of the grant of the company's license.
(b) Repealed. Pub. L. 92–595, §2(f), Oct. 27, 1972, 86 Stat. 1316
(c) Application of provisions to commitments incurred prior to effective date of section
With respect to obligations or securities acquired prior to the effective date of the Small Business Investment Act Amendments of 1967, and with respect to legally binding commitments issued prior to such date, the provisions of this section as in effect immediately prior to such effective date shall continue to apply.
(
Editorial Notes
References in Text
For effective date of the Small Business Investment Act Amendments of 1967, referred to in subsec. (c), see Effective Date of 1967 Amendment note set out under
Amendments
2009—Subsec. (a).
1992—Subsec. (a).
1972—Subsec. (a).
Subsec. (b).
1967—Subsec. (a).
Subsecs. (b), (c).
1964—
1961—
Statutory Notes and Related Subsidiaries
Effective Date of 1967 Amendment
Amendment by
Effective Date of 1961 Amendment
Effect of Small Business Equity Enhancement Act of 1992 on Securities Laws
Nothing in amendment by
§687. Operation and regulation of companies
(a) Cooperation with banks and other financial institutions
Wherever practicable the operations of a small business investment company, including the generation of business, may be undertaken in cooperation with banks or other investors or lenders, incorporated or unincorporated, and any servicing or initial investigation required for loans or acquisitions of securities by the company under the provisions of this chapter may be handled through such banks or other investors or lenders on a fee basis. Any small business investment company may receive fees for services rendered to such banks and other investors and lenders.
(b) Use of advisory services; depository or fiscal agents; investment of funds
Each small business investment company may make use, wherever practicable, of the advisory services of the Federal Reserve System and of the Department of Commerce which are available for and useful to industrial and commercial businesses, and may provide consulting and advisory services on a fee basis and have on its staff persons competent to provide such services. Any Federal Reserve bank is authorized to act as a depository or fiscal agent for any company operating under provisions of this chapter. Any such company that is licensed before October 1, 2004 and has outstanding financings is authorized to invest funds not needed for its operations—
(1) in direct obligations of, or obligations guaranteed as to principal and interest by, the United States;
(2) in certificates of deposit or other accounts of federally insured banks or other federally insured depository institutions, if the certificates or other accounts mature or are otherwise fully available not more than 1 year after the date of the investment; or
(3) in mutual funds, securities, or other instruments that consist of, or represent pooled assets of, investments described in paragraphs (1) or (2).
(c) Rules and regulations
The Administration is authorized to prescribe regulations governing the operations of small business investment companies, and to carry out the provisions of this chapter, in accordance with the purposes of this chapter.
(d) Forfeiture of rights, privileges, and franchises; jurisdiction
Should any small business investment company violate or fail to comply with any of the provisions of this chapter or of regulations prescribed hereunder, all of its rights, privileges, and franchises derived therefrom may thereby be forfeited. Before any such company shall be declared dissolved, or its rights, privileges, and franchises forfeited, any noncompliance with or violation of this chapter shall be determined and adjudged by a court of the United States of competent jurisdiction in a suit brought for that purpose in the district, territory, or other place subject to the jurisdiction of the United States, in which the principal office of such company is located. Any such suit shall be brought by the United States at the instance of the Administration or the Attorney General.
(e) Liability of United States
Except as expressly provided otherwise in this chapter, nothing in this chapter or in any other provision of law shall be deemed to impose any liability on the United States with respect to any obligation entered into, or stocks issued, or commitments made, by any company operating under the provisions of this chapter.
(f) Performance of functions, powers, and duties by Administration and Administrator
In the performance of, and with respect to the functions, powers, and duties vested by this chapter, the Administrator and the Administration shall (in addition to any authority otherwise vested by this chapter) have the functions, powers, and duties set forth in the Small Business Act [
(g) Annual report on Small Business Investment activities
(1) The Administration shall include in its annual report, made pursuant to section 10(a) of the Small Business Act [
(2) In its annual report for the year ending December 31, 1967, and in each succeeding annual report made pursuant to section 10(a) of the Small Business Act [
(A) The Administration's recommendations with respect to the feasibility and organization of a small business capital bank to encourage private financing of small business investment companies to replace Government financing of such companies.
(B) The Administration's plans to insure the provision of small business investment company financing and licensing to all areas of the country and to all eligible small business concerns including steps taken to accomplish same.
(C) Steps taken by the Administration to improve the number of licensees in underlicensed States.
(D) The Administration's plans to support States that seek to increase the number of licensees in the State.
(E) Steps taken by the Administration to maximize recoupment of Government funds incident to the inauguration and administration of the small business investment company program and to insure compliance with statutory and regulatory standards relating thereto.
(F) An accounting by the Office of Management and Budget with respect to Federal expenditures to business by executive agencies, specifying the proportion of said expenditures going to business concerns falling above and below small business size standards applicable to small business investment companies.
(G) An accounting by the Treasury Department with respect to tax revenues accruing to the Government from business concerns, incorporated and unincorporated, specifying the source of such revenues by concerns falling above and below the small business size standards applicable to small business investment companies.
(H) An accounting by the Treasury Department with respect to both tax losses and increased tax revenues related to small business investment company financing of both individual and corporate business taxpayers.
(I) Recommendations of the Treasury Department with respect to additional tax incentives to improve and facilitate the operations of small business investment companies and to encourage the use of their financing facilities by eligible small business concerns.
(J) A report from the Securities and Exchange Commission enumerating actions undertaken by that agency to simplify and minimize the regulatory requirements governing small business investment companies under the Federal securities laws and to eliminate overlapping regulation and jurisdiction as between the Securities and Exchange Commission, the Administration, and other agencies of the executive branch.
(K) A report from the Securities and Exchange Commission with respect to actions taken to facilitate and stabilize the access of small business concerns to the securities markets.
(L) Actions undertaken by the Securities and Exchange Commission to simplify compliance by small business investment companies with the requirements of the Investment Company Act of 1940 [
(3) In its annual report for the year ending on December 31, 1993, and in each succeeding annual report made pursuant to section 10(a) of the Small Business Act [
(A) the number of small business investment companies the Administration licensed, the number of licensees that have been placed in liquidation, and the number of licensees that have surrendered their licenses in the previous year, identifying the amount of government leverage each has received and the type of leverage instruments each has used;
(B) the amount of government leverage that each licensee received in the previous year and the types of leverage instruments each licensee used;
(C) for each type of financing instrument, the sizes, geographic locations, and other characteristics of the small business investment companies using them, including the extent to which the investment companies have used the leverage from each instrument to make small business loans, equity investments, or both;
(D) the frequency with which each type of investment instrument has been used in the current year and a comparison of the current year with previous years; and
(E) the geographic dispersion of licensees in each State compared to the population of the State, identifying underlicensed States.
(h) Certifications of eligibility
(1) Certification by small business concern
Prior to receiving financial assistance from a company licensed pursuant to
(2) Certification by company
Prior to providing financial assistance to a small business concern under this chapter, a company licensed pursuant to
(3) Retention of certifications
Certificates made pursuant to paragraphs (1) and (2) shall be retained by the company licensed pursuant to
(i) Interest rates
(1) The purpose of this subsection is to facilitate the orderly and necessary flow of long-term loans and equity funds from small business investment companies to small business concerns.
(2) In the case of a business loan, the small business investment company making such loan may charge interest on such loan at a rate which does not exceed the maximum rate prescribed by regulation by the Administration for loans made by any licensee (determined without regard to any State rate incorporated by such regulation). In this paragraph, the term "interest" includes only the maximum mandatory sum, expressed in dollars or as a percentage rate, that is payable with respect to the business loan amount received by the small business concern, and does not include the value, if any, of contingent obligations, including warrants, royalty, or conversion rights, granting the small business investment company an ownership interest in the equity or increased future revenue of the small business concern receiving the business loan.
(3) A State law or constitutional provision shall be preempted for purposes of paragraph (2) with respect to any loan if such loan is made before the date, on or after April 1, 1980, on which such State adopts a law or certifies that the voters of such State have voted in favor of any provision, constitutional or otherwise, which states explicitly and by its terms that such State does not want the provisions of this subsection to apply with respect to loans made in such State, except that such State law or constitutional or other provision shall be preempted in the case of a loan made, on or after the date on which such law is adopted or such certification is made, pursuant to a commitment to make such loan which was entered into on or after April 1, 1980, and prior to the date on which such law is adopted or such certification is made.
(4)(A) If the maximum rate of interest authorized under paragraph (2) on any loan made by a small business investment company exceeds the rate which would be authorized by applicable State law if such State law were not preempted for purposes of this subsection, the charging of interest at any rate in excess of the rate authorized by paragraph (2) shall be deemed a forfeiture of the greater of (i) all interest which the loan carries with it, or (ii) all interest which has been agreed to be paid thereon.
(B) In the case of any loan with respect to which there is a forfeiture of interest under subparagraph (A), the person who paid the interest may recover from a small business investment company making such loan an amount equal to twice the amount of the interest paid on such loan. Such interest may be recovered in a civil action commenced in a court of appropriate jurisdiction not later than two years after the most recent payment of interest.
(
Editorial Notes
References in Text
For definition of "this chapter", referred to in subsecs. (a) to (h), see References in Text note set out under
The Small Business Act, referred to in subsec. (f), is
The Investment Company Act of 1940, referred to in subsec. (g)(2)(L), is title I of act Aug. 22, 1940, ch. 686,
Codification
Section 204 of
Section 104 of
Section 204 of
Amendments
2018—Subsec. (g)(2)(B).
Subsec. (g)(2)(C) to (L).
Subsec. (g)(3)(E).
2004—Subsec. (b).
1999—Subsec. (i)(2).
1996—Subsec. (e).
Subsec. (h).
1994—Subsec. (h).
1992—Subsec. (b).
Subsec. (g)(3).
1986—Subsec. (g)(2)(J).
1985—Subsec. (i)(2).
Subsec. (i)(3).
1980—Subsec. (h).
Subsec. (i).
1979—Subsec. (h).
1978—Subsec. (b).
1974—Subsec. (h).
1967—Subsec. (g).
1966—Subsec. (c).
Subsecs. (f), (g).
1964—Subsec. (b).
1961—Subsec. (a).
Subsec. (b).
Subsec. (e).
Subsec. (f).
Subsec. (g).
Statutory Notes and Related Subsidiaries
Effective Date of 1985 Amendment
Effective Date of 1980 Amendment
Effective Date of 1979 Amendments
Effective Date of 1974 Amendment
Effective Date of 1967 Amendment
Amendment by
Savings Provision
Effect of Small Business Equity Enhancement Act of 1992 on Securities Laws
Nothing in amendment by
Choice of Highest Applicable Interest Rate
In any case in which one or more provisions of, or amendments made by, title V of
States Having Constitutional Provisions Regarding Maximum Interest Rates
Definition of "State"
For purposes of subsec. (i) of this section, the term "State" to include the several States, the Commonwealth of Puerto Rico, the District of Columbia, Guam, the Trust Territories of the Pacific Islands, the Northern Mariana Islands, and the Virgin Islands, see section 527 of
Executive Documents
Transfer of Functions
Bureau of the Budget designated as Office of Management and Budget and Offices of Director, Deputy Director, and Assistant Directors of Bureau of the Budget designated Director, Deputy Director, and Assistant Directors of Office of Management and Budget, respectively. Records, property, personnel, and funds of Bureau of the Budget transferred to Office of Management and Budget. See Part I of Reorganization Plan 2 of 1970, set out in the Appendix to Title 5, Government Organization and Employees.
§687a. Revocation and suspension of licenses; cease and desist orders
(a) Grounds for suspension or revocation
A license may be revoked or suspended by the Administration—
(1) for false statements knowingly made in any written statement required under this subchapter, or under any regulation issued under this subchapter by the Administration;
(2) if any written statement required under this subchapter, or under any regulation issued under this subchapter by the Administrator, fails to state a material fact necessary in order to make the statement not misleading in the light of the circumstances under which the statement was made;
(3) for willful or repeated violation of, or willful or repeated failure to observe, any provision of this chapter;
(4) for willful or repeated violation of, or willful or repeated failure to observe, any rule or regulation of the Administration authorized by this chapter; or
(5) for violation of, or failure to observe, any cease and desist order issued by the Administration under this section.
(b) Grounds for cease and desist order
Where a licensee or any other person has not complied with any provision of this chapter, or of any regulation issued pursuant thereto by the Administration, or is engaging or is about to engage in any acts or practices which constitute or will constitute a violation of such chapter or regulation, the Administration may order such licensee or other person to cease and desist from such action or failure to act. The Administration may further order such licensee or other person to take such action or to refrain from such action as the Administration deems necessary to insure compliance with this chapter and the regulations. The Administration may also suspend the license of a licensee, against whom an order has been issued, until such licensee complies with such order.
(c) Order to show cause; contents; hearing; issuance and service
Before revoking or suspending a license pursuant to subsection (a), or issuing a cease and desist order pursuant to subsection (b), the Administration shall serve upon the licensee and any other person involved an order to show cause why an order revoking or suspending the license or a cease and desist order should not be issued. Any such order to show cause shall contain a statement of the matters of fact and law asserted by the Administration and the legal authority and jurisdiction under which a hearing is to be held, and shall set forth that a hearing will be held before the Administration at a time and place stated in the order. If after hearing, or a waiver thereof, the Administration determines on the record that an order revoking or suspending the license or a cease and desist order should issue, it shall promptly issue such order, which shall include a statement of the findings of the Administration and the grounds and reasons therefor and specify the effective date of the order, and shall cause the order to be served on the licensee and any other person involved.
(d) Subpena of person, and books, papers and documents; fees and mileage; enforcement
The Administration may require by subpena the attendance and testimony of witnesses and the production of all books, papers, and documents relating to the hearing from any place in the United States. Witnesses summoned before the Administration shall be paid by the party at whose instance they were called the same fees and mileage that are paid witnesses in the courts of the United States. In case of disobedience to a subpena, the Administration, or any party to a proceeding before the Administration, may invoke the aid of any court of the United States in requiring the attendance and testimony of witnesses and the production of books, papers, and documents.
(e) Petition to modify or set aside order; filing, time and place, Administration to submit record; action of court; review
An order issued by the Administration under this section shall be final and conclusive unless within thirty days after the service thereof the licensee, or other person against whom an order is issued, appeals to the United States court of appeals for the circuit in which such licensee has its principal place of business by filing with the clerk of such court a petition praying that the Administration's order be set aside or modified in the manner stated in the petition. After the expiration of such thirty days, a petition may be filed only by leave of court on a showing of reasonable grounds for failure to file the petition theretofore. The clerk of the court shall immediately cause a copy of the petition to be delivered to the Administration, and the Administration shall thereupon certify and file in the court a transcript of the record upon which the order complained of was entered. If before such record is filed the Administration amends or sets aside its order, in whole or in part, the petitioner may amend the petition within such time as the court may determine, on notice to the Administration. The filing of a petition for review shall not of itself stay or suspend the operation of the order of the Administration, but the court of appeals in its discretion may restrain or suspend, in whole or in part, the operation of the order pending the final hearing and determination of the petition. The court may affirm, modify, or set aside the order of the Administration. If the court determines that the just and proper disposition of the case requires the taking of additional evidence, the court shall order the Administration to reopen the hearing for the taking of such evidence, in such manner and upon such terms and conditions as the court may deem proper. The Administration may modify its findings as to the facts, or make new findings, by reason of the additional evidence so taken, and it shall file its modified or new findings and the amendments, if any, of its order, with the record of such additional evidence. No objection to an order of the Administration shall be considered by the court unless such objection was urged before the Administration or, if it was not so urged, unless there were reasonable grounds for failure to do so. The judgment and decree of the court affirming, modifying, or setting aside any such order of the Administration shall be subject only to review by the Supreme Court of the United States upon certification or certiorari as provided in
(f) Enforcement of order
If any licensee or other person against which or against whom an order is issued under this section fails to obey the order, the Administration may apply to the United States court of appeals, within the circuit where the licensee has its principal place of business, for the enforcement of the order, and shall file a transcript of the record upon which the order complained of was entered. Upon the filing of the application the court shall cause notice thereof to be served on the licensee or other person. The evidence to be considered, the procedure to be followed, and the jurisdiction of the court shall be the same as is provided in subsection (e) for applications to set aside or modify orders.
(
Editorial Notes
References in Text
For definition of "this chapter", referred to in subsecs. (a)(3), (4) and (b), see References in Text note set out under
Amendments
1984—Subsec. (e).
Subsec. (f).
1966—Subsec. (a).
Subsec. (b).
Subsec. (c).
Subsec. (e).
Subsec. (f).
Statutory Notes and Related Subsidiaries
Effective Date of 1984 Amendment
Amendment by
§687b. Investigations and examinations; power to subpena and take oaths and affirmations; aid of courts; examiners; reports
(a) Investigation of violations
The Administration may make such investigations as it deems necessary to determine whether a licensee or any other person has engaged or is about to engage in any acts or practices which constitute or will constitute a violation of any provision of this chapter, or of any rule or regulation under this chapter, or of any order issued under this chapter. The Administration shall permit any person to file with it a statement in writing, under oath or otherwise as the Administration shall determine, as to all the facts and circumstances concerning the matter to be investigated. For the purpose of any investigation, the Administration is empowered to administer oaths and affirmations, subpena witnesses, compel their attendance, take evidence, and require the production of any books, papers, and documents which are relevant to the inquiry. Such attendance of witnesses and the production of any such records may be required from any place in the United States. In case of contumacy by, or refusal to obey a subpena issued to, any person, including a licensee, the Administration may invoke the aid of any court of the United States within the jurisdiction of which such investigation or proceeding is carried on, or where such person resides or carries on business, in requiring the attendance and testimony of witnesses and the production of books, papers, and documents; and such court may issue an order requiring such person to appear before the Administration, there to produce records, if so ordered, or to give testimony touching the matter under investigation. Any failure to obey such order of the court may be punished by such court as a contempt thereof. All process in any such case may be served in the judicial district whereof such person is an inhabitant or wherever he may be found.
(b) Examinations and reports
Each small business investment company shall be subject to examinations made by direction of the Investment Division of the Administration, which may be conducted with the assistance of a private sector entity that has both the qualifications to conduct and expertise in conducting such examinations, and the cost of such examinations, including the compensation of the examiners, may in the discretion of the Administration be assessed against the company examined and when so assessed shall be paid by such company. Fees collected under this subsection shall be deposited in the account for salaries and expenses of the Administration, and are authorized to be appropriated solely to cover the costs of examinations and other program oversight activities. Every such company shall make such reports to the Administration at such times and in such form as the Administration may require; except that the Administration is authorized to exempt from making such reports any such company which is registered under the Investment Company Act of 1940 [
(c) Examinations of small business investment companies
Each small business investment company shall be examined at least every two years in such detail so as to determine whether or not—
(1) it has engaged solely in lawful activities and those contemplated by this subchapter;
(2) it has engaged in prohibited conflicts of interest;
(3) it has acquired or exercised illegal control of an assisted small business;
(4) it has made investments in small businesses for not less than 1 year;
(5) it has invested more than 20 per centum of its capital in any individual small business, if such restriction is applicable;
(6) it has engaged in relending, foreign investments, or passive investments; or
(7) it has charged an interest rate in excess of the maximum permitted by law:
Provided, That the Administration may waive the examination (A) for up to one additional year if, in its discretion, it determines such a delay would be appropriate, based upon the amount of debentures being issued by the company and its repayment record, the prior operating experience of the company, the contents and results of the last examination and the management expertise of the company, or (B) if it is a company whose operations have been suspended while the company is involved in litigation or is in receivership.
(d) Valuations
(1) Frequency of valuations
(A) In general
Each licensee shall submit to the Administrator a written valuation of the loans and investments of the licensee not less often than semiannually or otherwise upon the request of the Administrator, except that any licensee with no leverage outstanding shall submit such valuations annually, unless the Administrator determines otherwise.
(B) Material adverse changes
Not later than 30 days after the end of a fiscal quarter of a licensee during which a material adverse change in the aggregate valuation of the loans and investments or operations of the licensee occurs, the licensee shall notify the Administrator in writing of the nature and extent of that change.
(C) Independent certification
(i) In general
Not less than once during each fiscal year, each licensee shall submit to the Administrator the financial statements of the licensee, audited by an independent certified public accountant approved by the Administrator.
(ii) Audit requirements
Each audit conducted under clause (i) shall include—
(I) a review of the procedures and documentation used by the licensee in preparing the valuations required by this section; and
(II) a statement by the independent certified public accountant that such valuations were prepared in conformity with the valuation criteria applicable to the licensee established in accordance with paragraph (2).
(2) Valuation criteria
Each valuation submitted under this subsection shall be prepared by the licensee in accordance with valuation criteria, which shall—
(A) be established or approved by the Administrator; and
(B) include appropriate safeguards to ensure that the noncash assets of a licensee are not overvalued.
(
Editorial Notes
References in Text
For definition of "this chapter", referred to in subsec. (a), see References in Text note set out under
The Investment Company Act of 1940, referred to in subsec. (b), is title I of act Aug. 22, 1940, ch. 686,
Amendments
2000—Subsec. (c)(4).
1997—Subsec. (b).
1996—Subsec. (b).
Subsec. (c)(4).
Subsec. (d).
1992—Subsec. (b).
Subsec. (c)(5).
Subsec. (d).
1988—Subsec. (b).
Subsec. (c).
1967—Subsec. (b).
1966—
Statutory Notes and Related Subsidiaries
Effective Date of 1997 Amendment
Amendment by
Effective Date of 1967 Amendment
Amendment by
Effect of Small Business Equity Enhancement Act of 1992 on Securities Laws
Nothing in amendment by
Transfer of Resources
§687c. Injunctions and other orders
(a) Grounds; jurisdiction of court
Whenever, in the judgment of the Administration, a licensee or any other person has engaged or is about to engage in any acts or practices which constitute or will constitute a violation of any provision of this chapter, or of any rule or regulation under this chapter, or of any order issued under this chapter, the Administration may make application to the proper district court of the United States or a United States court of any place subject to the jurisdiction of the United States for an order enjoining such acts or practices, or for an order enforcing compliance with such provision, rule, regulation, or order, and such courts shall have jurisdiction of such actions and, upon a showing by the Administration that such licensee or other person has engaged or is about to engage in any such acts or practices, a permanent or temporary injunction, restraining order, or other order, shall be granted without bond.
(b) Equity jurisdiction of licensee and assets thereof
In any such proceeding the court as a court of equity may, to such extent as it deems necessary, take exclusive jurisdiction of the licensee or licensees and the assets thereof, wherever located; and the court shall have jurisdiction in any such proceeding to appoint a trustee or receiver to hold or administer under the direction of the court the assets so possessed.
(c) Trusteeship or receivership over licensee
The Administration shall have authority to act as trustee or receiver of the licensee. Upon request by the Administration, the court may appoint the Administration to act in such capacity unless the court deems such appointment inequitable or otherwise inappropriate by reason of the special circumstances involved.
(
Editorial Notes
References in Text
For definition of "this chapter", referred to in subsec. (a), see References in Text note set out under
Amendments
1984—Subsec. (a).
1966—Subsec. (c).
Statutory Notes and Related Subsidiaries
Effective Date of 1984 Amendment
Amendment by
§687d. Conflicts of interest
For the purpose of controlling conflicts of interest which may be detrimental to small business concerns, to small business investment companies, to the shareholders, partners, or members of either, or to the purposes of this chapter, the Administration shall adopt regulations to govern transactions with any officer, director, shareholder, partner, or member of any small business investment company, or with any person or concern, in which any interest, direct or indirect, financial or otherwise, is held by any officer, director, shareholder, partner, or member of (1) any small business investment company, or (2) any person or concern with an interest, direct or indirect, financial or otherwise, in any small business investment company. Such regulations shall include appropriate requirements for public disclosure necessary to the purposes of this section.
(
Editorial Notes
References in Text
For definition of "this chapter", referred to in text, see References in Text note set out under
Amendments
2001—
1996—
1976—
§687e. Removal or suspension of management officials
(a) Definition of "management official"
In this section, the term "management official" means an officer, director, general partner, manager, employee, agent, or other participant in the management or conduct of the affairs of a licensee.
(b) Removal of management officials
(1) Notice of removal
The Administrator may serve upon any management official a written notice of its intention to remove that management official whenever, in the opinion of the Administrator—
(A) such management official—
(i) has willfully and knowingly committed any substantial violation of—
(I) this chapter;
(II) any regulation issued under this chapter; or
(III) a cease-and-desist order which has become final; or
(ii) has willfully and knowingly committed or engaged in any act, omission, or practice which constitutes a substantial breach of a fiduciary duty of that person as a management official; and
(B) the violation or breach of fiduciary duty is one involving personal dishonesty on the part of such management official.
(2) Contents of notice
A notice of intention to remove a management official, as provided in paragraph (1), shall contain a statement of the facts constituting grounds therefor, and shall fix a time and place at which a hearing will be held thereon.
(3) Hearings
(A) Timing
A hearing described in paragraph (2) shall be fixed for a date not earlier than 30 days nor later than 60 days after the date of service of notice of the hearing, unless an earlier or a later date is set by the Administrator at the request of—
(i) the management official, and for good cause shown; or
(ii) the Attorney General of the United States.
(B) Consent
Unless the management official shall appear at a hearing described in this paragraph in person or by a duly authorized representative, that management official shall be deemed to have consented to the issuance of an order of removal under paragraph (1).
(4) Issuance of order of removal
(A) In general
In the event of consent under paragraph (3)(B), or if upon the record made at a hearing described in this subsection, the Administrator finds that any of the grounds specified in the notice of removal has been established, the Administrator may issue such orders of removal from office as the Administrator deems appropriate.
(B) Effectiveness
An order under subparagraph (A) shall—
(i) become effective at the expiration of 30 days after the date of service upon the subject licensee and the management official concerned (except in the case of an order issued upon consent as described in paragraph (3)(B), which shall become effective at the time specified in such order); and
(ii) remain effective and enforceable, except to such extent as it is stayed, modified, terminated, or set aside by action of the Administrator or a reviewing court in accordance with this section.
(c) Authority to suspend or prohibit participation
(1) In general
The Administrator may, if the Administrator deems it necessary for the protection of the licensee or the interests of the Administration, suspend from office or prohibit from further participation in any manner in the management or conduct of the affairs of the licensee, or both, any management official referred to in subsection (b)(1), by written notice to such effect served upon the management official.
(2) Effectiveness
A suspension or prohibition under paragraph (1)—
(A) shall become effective upon service of notice under paragraph (1); and
(B) unless stayed by a court in proceedings authorized by paragraph (3), shall remain in effect—
(i) pending the completion of the administrative proceedings pursuant to a notice of intention to remove served under subsection (b); and
(ii) until such time as the Administrator shall dismiss the charges specified in the notice, or, if an order of removal or prohibition is issued against the management official, until the effective date of any such order.
(3) Judicial review
Not later than 10 days after any management official has been suspended from office or prohibited from participation in the management or conduct of the affairs of a licensee, or both, under paragraph (1), that management official may apply to the United States district court for the judicial district in which the home office of the licensee is located, or the United States District Court for the District of Columbia, for a stay of the suspension or prohibition pending the completion of the administrative proceedings pursuant to a notice of intent to remove served upon the management official under subsection (b), and such court shall have jurisdiction to stay such action.
(d) Authority to suspend on criminal charges
(1) In general
Whenever a management official is charged in any information, indictment, or complaint authorized by a United States attorney, with the commission of or participation in a felony involving dishonesty or breach of trust, the Administrator may, by written notice served upon that management official, suspend that management official from office or prohibit that management official from further participation in any manner in the management or conduct of the affairs of the licensee, or both.
(2) Effectiveness
A suspension or prohibition under paragraph (1) shall remain in effect until the subject information, indictment, or complaint is finally disposed of, or until terminated by the Administrator.
(3) Authority upon conviction
If a judgment of conviction with respect to an offense described in paragraph (1) is entered against a management official, then at such time as the judgment is not subject to further appellate review, the Administrator may issue and serve upon the management official an order removing that management official, which removal shall become effective upon service of a copy of the order upon the licensee.
(4) Authority upon dismissal or other disposition
A finding of not guilty or other disposition of charges described in paragraph (1) shall not preclude the Administrator from thereafter instituting proceedings to suspend or remove the management official from office, or to prohibit the management official from participation in the management or conduct of the affairs of the licensee, or both, pursuant to subsection (b) or (c).
(e) Notification to licensees
Copies of each notice required to be served on a management official under this section shall also be served upon the interested licensee.
(f) Procedural provisions; judicial review
(1) Hearing venue
Any hearing provided for in this section shall be—
(A) held in the Federal judicial district or in the territory in which the principal office of the licensee is located, unless the party afforded the hearing consents to another place; and
(B) conducted in accordance with the provisions of
(2) Issuance of orders
After a hearing provided for in this section, and not later than 90 days after the Administrator has notified the parties that the case has been submitted for final decision, the Administrator shall render a decision in the matter (which shall include findings of fact upon which its decision is predicated), and shall issue and cause to be served upon each party to the proceeding an order or orders consistent with the provisions of this section.
(3) Authority to modify orders
The Administrator may modify, terminate, or set aside any order issued under this section—
(A) at any time, upon such notice, and in such manner as the Administrator deems proper, unless a petition for review is timely filed in a court of appeals of the United States, as provided in paragraph (4)(B), and thereafter until the record in the proceeding has been filed in accordance with paragraph (4)(C); and
(B) upon such filing of the record, with permission of the court.
(4) Judicial review
(A) In general
Judicial review of an order issued under this section shall be exclusively as provided in this subsection.
(B) Petition for review
Any party to a hearing provided for in this section may obtain a review of any order issued pursuant to paragraph (2) (other than an order issued with the consent of the management official concerned, or an order issued under subsection (d)), by filing in the court of appeals of the United States for the circuit in which the principal office of the licensee is located, or in the United States Court of Appeals for the District of Columbia Circuit, not later than 30 days after the date of service of such order, a written petition praying that the order of the Administrator be modified, terminated, or set aside.
(C) Notification to administration
A copy of a petition filed under subparagraph (B) shall be forthwith transmitted by the clerk of the court to the Administrator, and thereupon the Administrator shall file in the court the record in the proceeding, as provided in
(D) Court jurisdiction
Upon the filing of a petition under subparagraph (A)—
(i) the court shall have jurisdiction, which, upon the filing of the record under subparagraph (C), shall be exclusive, to affirm, modify, terminate, or set aside, in whole or in part, the order of the Administrator, except as provided in the last sentence of paragraph (3)(B);
(ii) review of such proceedings shall be had as provided in
(iii) the judgment and decree of the court shall be final, except that the judgment and decree shall be subject to review by the Supreme Court of the United States upon certiorari, as provided in
(E) Judicial review not a stay
The commencement of proceedings for judicial review under this paragraph shall not, unless specifically ordered by the court, operate as a stay of any order issued by the Administrator under this section.
(
Editorial Notes
References in Text
For definition of "this chapter", referred to in subsec. (b)(1)(A)(i)(I), (II), see References in Text note set out under
Amendments
2001—
§687f. Unlawful acts and omissions by officers, directors, employees, or agents
(a) Violation by licensee deemed violation by persons participating
Wherever a licensee violates any provision of this chapter or regulation issued thereunder by reason of its failure to comply with the terms thereof or by reason of its engaging in any act or practice which constitutes or will constitute a violation thereof, such violation shall be deemed to be also a violation and an unlawful act on the part of any person who, directly or indirectly, authorizes, orders, participates in, or causes, brings about, counsels, aids, or abets in the commission of any acts, practices, or transactions which constitute or will constitute, in whole or in part, such violation.
(b) Breach of fiduciary duty
It shall be unlawful for any officer, director, employee, agent, or other participant in the management or conduct of the affairs of a licensee to engage in any act or practice, or to omit any act, in breach of his fiduciary duty as such officer, director, employee, agent, or participant, if, as a result thereof, the licensee has suffered or is in imminent danger of suffering financial loss or other damage.
(c) Disqualification of officers and employees for dishonesty, fraud, or breach of trust
Except with the written consent of the Administration, it shall be unlawful—
(1) for any person hereafter to take office as an officer, director, or employee of a licensee, or to become an agent or participant in the conduct of the affairs or management of a licensee, if—
(A) he has been convicted of a felony, or any other criminal offense involving dishonesty or breach of trust, or
(B) he has been found civilly liable in damages, or has been permanently or temporarily enjoined by an order, judgment, or decree of a court of competent jurisdiction, by reason of any act or practice involving fraud or breach of trust; or
(2) for any person to continue to serve in any of the above-described capacities, if—
(A) he is hereafter convicted of a felony, or any other criminal offense involving dishonesty or breach of trust, or
(B) he is hereafter found civilly liable in damages, or is permanently or temporarily enjoined by an order, judgment, or decree of a court of competent jurisdiction, by reason of any act or practice involving fraud or breach of trust.
(
Editorial Notes
References in Text
For definition of "this chapter", referred to in subsec. (a), see References in Text note set out under
§687g. Penalties and forfeitures
(a) Report violations
Except as provided in subsection (b) of this section, a licensee which violates any regulation or written directive issued by the Administrator, requiring the filing of any regular or special report pursuant to
(b) Exemption from reporting requirements
The Administration may by rules and regulations, or upon application of an interested party, at any time previous to such failure, by order, after notice and opportunity for hearing, exempt in whole or in part, any small business investment company from the provisions of subsection (a) of this section, upon such terms and conditions and for such period of time as it deems necessary and appropriate, if the Administration finds that such action is not inconsistent with the public interest or the protection of the Administration. The Administration may for the purposes of this section make any alternative requirements appropriate to the situation.
(
§687h. Jurisdiction and service of process
Any suit or action brought under
(
Editorial Notes
References in Text
For definition of "this chapter", referred to in text, see References in Text note set out under
§§687i, 687j. Repealed. Pub. L. 104–208, div. D, title II, §208(h)(1)(E), Sept. 30, 1996, 110 Stat. 3009–747
Section 687i,
Section 687j,
§687k. Guaranteed obligations not eligible for purchase by Federal Financing Bank
Nothing in any provision of law shall be construed to authorize the Federal Financing Bank to acquire after September 30, 1985—
(1) any obligation the payment of principal or interest on which has at any time been guaranteed in whole or in part under this subchapter,
(2) any obligation which is an interest in any obligation described in paragraph (1), or
(3) any obligation which is secured by, or substantially all of the value of which is attributable to, any obligation described in paragraph (1) or (2).
(
Editorial Notes
Prior Provisions
A prior section 318 of
§687l. Issuance and guarantee of trust certificates
(a) Issuance; debentures or participating securities composing trust or pool
The Administration is authorized to issue trust certificates representing ownership of all or a fractional part of debentures issued by small business investment companies and guaranteed by the Administration under this chapter, or participating securities which are issued by such companies and purchased and guaranteed pursuant to
(b) Terms and conditions of guarantee; payment of principal and interest
The Administration is authorized, upon such terms and conditions as are deemed appropriate, to guarantee the timely payment of the principal of and interest on trust certificates issued by the Administration or its agent for purposes of this section. Such guarantee shall be limited to the extent of principal and interest on the guaranteed debentures or the redemption price of and priority payments on the participating securities, which compose the trust or pool. In the event that a debenture in such trust or pool is prepaid, or participating securities are redeemed, either voluntarily or involuntarily, or in the event of default of a debenture or voluntary or involuntary redemption of a participating security, the guarantee of timely payment of principal and interest on the trust certificates shall be reduced in proportion to the amount of principal and interest such prepaid debenture or redeemed participating security and priority payments represent in the trust or pool. Interest on prepaid or defaulted debentures, or priority payments on participating securities, shall accrue and be guaranteed by the Administration only through the date of payment on the guarantee. During the term of the trust certificate, it may be called for redemption due to prepayment or default of all debentures or redemption, whether voluntary or involuntary, of all participating securities residing in the pool.
(c) Full faith and credit of United States
The full faith and credit of the United States is pledged to the payment of all amounts which may be required to be paid under any guarantee of such trust certificates issued by the Administration or its agent pursuant to this section.
(d) Collection of fees
The Administration shall not collect a fee for any guarantee under this section: Provided, That nothing herein shall preclude any agent of the Administration from collecting a fee approved by the Administration for the functions described in subsection (f)(2) of this section.
(e) Subrogation rights; ownership rights in debentures or participating securities
(1) In the event the Administration pays a claim under a guarantee issued under this section, it shall be subrogated fully to the rights satisfied by such payment.
(2) No State or local law, and no Federal law, shall preclude or limit the exercise by the Administration of its ownership rights in the debentures or participating securities residing in a trust or pool against which trust certificates are issued.
(f) Central registration requirements; regulation of brokers and dealers
(1) The Administration shall provide for a central registration of all trust certificates sold pursuant to this section.
(2) The Administrator shall contract with an agent or agents to carry out on behalf of the Administration the pooling and the central registration functions of this section including, notwithstanding any other provision of law, maintenance on behalf of and under the direction of the Administration, such commercial bank accounts or investments in obligations of the United States as may be necessary to facilitate trusts or pools backed by debentures or participating securities guaranteed under this chapter, and the issuance of trust certificates to facilitate such poolings. Such agent or agents shall provide a fidelity bond or insurance in such amounts as the Administration determines to be necessary to fully protect the interests of the Government.
(3) Prior to any sale, the Administrator shall require the seller to disclose to a purchaser of a trust certificate issued pursuant to this section, information on the terms, conditions, and yield of such instrument.
(4) The Administrator is authorized to regulate brokers and dealers in trust certificates sold pursuant to this section.
(5) Nothing in this subsection shall prohibit the use of a book-entry or other electronic form of registration for trust certificates.
(
Editorial Notes
References in Text
For definition of "this chapter", referred to in subsecs. (a) and (f)(2), see References in Text note set out under
Prior Provisions
A prior section 319 of
Amendments
1996—Subsec. (a).
Subsec. (f)(1).
"(A) identification of each small business investment company;
"(B) the interest rate or prioritized payment rate paid by the small business investment company;
"(C) commissions, fees, or discounts paid to brokers and dealers in trust certificates;
"(D) identification of each purchaser of the trust certificate;
"(E) the price paid by the purchaser for the trust certificate;
"(F) the interest rate on the trust certificate;
"(G) the fee of any agent for carrying out the functions described in paragraph (2); and
"(H) such other information as the Administration deems appropriate."
Subsec. (f)(2).
Subsec. (f)(5).
1992—
1989—Subsec. (a).
Statutory Notes and Related Subsidiaries
Effective Date of 1996 Amendment
Amendment by section 205 of
Amendment by section 208 of
Regulations
"(1) Notwithstanding any law, rule, or regulation, within 60 days after the date of the enactment of this Act [Apr. 7, 1986], the Small Business Administration shall develop and promulgate final rules and regulations to implement the central registration provisions provided for in section 321(f)(1) of the Small Business Investment Act [
"(2) Notwithstanding any law, rule, or regulation, within 60 days after the date of the enactment of this Act [Apr. 7, 1986], the Small Business Administration also shall consult with representatives of appropriate Federal and State agencies and officials, the securities industry, financial institutions and lenders, and small business persons, and shall develop and promulgate final rules and regulations to implement sections 504 and 505 [section 321;
Effect of Small Business Equity Enhancement Act of 1992 on Securities Laws
Nothing in amendment by
§687m. Periodic issuance of guarantees and trust certificates
The Administration shall issue guarantees under
(
Editorial Notes
Prior Provisions
A prior section 320 of
Amendments
1999—
1997—
1996—
Statutory Notes and Related Subsidiaries
Effective Date of 1997 Amendment
Amendment by
1 So in original. Probably should be "it".
§688. Repealed. Pub. L. 87–341, §11(e), Oct. 3, 1961, 75 Stat. 756
Section,