DATE: August 14, 2000

FROM: Barry McVay, CPCM

SUBJECT: Small Business Administration; Management-Ownership of Small Business Investment Companies (SBICs)

SOURCE: Federal Register, August 14, 2000, Vol. 65, No. 157, page 49511

AGENCIES: Small Business Administration (SBA)

ACTION: Proposed Rule

SYNOPSIS: SBA is proposing to amend its SBIC regulations to prohibit the ownership of more than 70% of a leveraged SBIC by any single investor or group of affiliated investors.

EDITOR'S NOTE: The SBA's regulations are in Title 13 of the Code of Federal Regulations. The SBA SBIC regulations are in Chapter 1, Small Business Administration, Part 107, Small Business Investment Companies.

DATES: Submit comments on or before September 13, 2000.

ADDRESSES: Send comments to Leonard Fagan, Investment Division, U.S. Small Business Administration, 409 3rd Street, SW, Suite 6300, Washington, DC 20416.

FOR FURTHER INFORMATION CONTACT: Leonard W. Fagan, 202-205-7583.

SUPPLEMENTAL INFORMATION: To prevent abuses that SBA had observed in SBICs owned and operated by a single individual or group of individuals (such as conflict of interest transactions, misapplication of funds, and other types of self-dealing activities), SBA adopted in 1994 a regulation that required all SBICs to have independence, or "diversity", between the management and the ownership of the company - Section 107.150, Management and Ownership Diversity Requirement. SBA is proposing to several changes to Section 107.150 to ensure that each new leveraged SBIC has managers that exercise independence in managing the operations of the SBIC.

The proposed management-ownership diversity regulation would apply to an existing SBIC only if SBA requires management-ownership diversity as a condition of SBA's approval of the licensee's change of control or if a non-leveraged SBIC wants to be approved as eligible to issue leverage. Therefore, SBA is proposing to revise paragraph (c) of Section 107.440, Standards Governing Prior SBA Approval for a Proposed Transfer of Control, from "require compliance with any other conditions set by SBA," to "require compliance with any other conditions set by SBA, including compliance with the requirements for minimum capital and management-ownership diversity as in effect at such time for new license applicants." This would clarify that SBA's approval of a change of control of an SBIC may be conditioned upon the licensee's compliance with the diversity regulation, as well as minimum capital requirements, then in effect. This change would reflect SBA's practice since the diversity regulation was first adopted.

FOR FURTHER INFORMATION CONTACT: Barry McVay at 703-451-5953 or by e-mail to BarryMcVay@FedGovContracts.com.

Copyright 2000 by Panoptic Enterprises. All Rights Reserved.

Return to the Dispatches Library.

Return to the Main Page.