15 U.S.C. § 682 — Capital requirements

Page 1089 TITLE 15—COMMERCE AND TRADE § 682 1 So in original. Probably should be followed by a comma. Subsec. (b). Pub. L. 94–305, § 106(c), struck out ‘‘of in- corporation’’ after ‘‘The articles’’. Subsec. (c). Pub. L. 94–305, § 106(d), struck out ‘‘of in- corporation’’ after ‘‘articles’’ wherever appearing. 1972—Subsec. (d). Pub. L. 92–595 added subsec. (d). 1967—Subsec. (c). Pub. L. 90–104 provided for consider- ation of availability of financing, the geographic area, the business reputation, ownership factor, and prob- ability of successful operations of company including adequate profitability and financial soundness and eliminated from consideration the number of such com- panies previously organized in the United States and the volume of their operations. 1961—Subsec. (a). Pub. L. 87–341, § 11(a), provided that small business investment companies shall be incor- porated, organized and chartered under State law, with a minimum succession period of thirty years unless sooner dissolved by its activities and functions, its area of operation shall be subject to the Administration’s approval, and deleted provisions setting the minimum number of incorporators at 10, no company shall be chartered by the Administration unless it determined that none could be chartered under the laws of the State and operate in accordance with this chapter, and that no such company shall be chartered by the Admin- istration under this section after June 30, 1961. Subsec. (c). Pub. L. 87–341, § 11(b)(1), (2), substituted ‘‘such a company’s articles of incorporation and permit it to operate under the provisions of this chapter’’ for ‘‘the establishment of such a company and its proposed articles of incorporation’’, and provided that if the Ad- ministration approves the company to operate under the provisions of this chapter, it may issue the com- pany a license for such operation. Subsec. (d). Pub. L. 87–341, § 11(b)(3), repealed subsec. (d) which specified the general powers of a company formed under this section. Subsec. (e). Pub. L. 87–341, § 11(b)(3), repealed subsec. (e) which provided for a board of directors for a com- pany formed under this section. 1960—Subsec. (d)(9) to (11). Pub. L. 86–502 repealed par. (9) which empowered companies to act as depositories or fiscal agents of the United States, and redesignated pars. (10) and (11) as (9) and (10), respectively. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 1997 AMENDMENT Amendment by Pub. L. 105–135 effective Oct. 1, 1997, see section 3 of Pub. L. 105–135, set out as a note under section 631 of this title. EFFECTIVE DATE OF 1967 AMENDMENT Pub. L. 90–104, title II, § 211, Oct. 11, 1967, 81 Stat. 272, provided that: ‘‘The effective date of this title [amend- ing this section and sections 682 to 684, 686, 687, 687b, and 692 of this title] shall be ninety days after enact- ment [Oct. 11, 1967], except that, with respect to section 207 [amending section 686 of this title], it shall be Janu- ary 1, 1968.’’ SAVINGS PROVISION Pub. L. 104–208, div. D, title II, § 208(b)(3)(B), Sept. 30, 1996, 110 Stat. 3009–742, provided that: ‘‘The repeal under subparagraph (A) [repealing subsec. (d) of this section] shall not be construed to require the Administrator to cancel, revoke, withdraw, or modify any license issued under section 301(d) of the Small Business Investment Act of 1958 [subsec. (d) of this section] before the date of enactment of this Act [Sept. 30, 1996].’’ REGULATORY REVIEW Pub. L. 102–366, title IV, § 408(d), Sept. 4, 1992, 106 Stat. 1017, directed Small Business Administration, not later than 90 days after Sept. 4, 1992, to complete a review of regulations intended to provide for safety and sound- ness of small business investment companies which ob- tain financing from the Administration under provi- sions of the Small Business Investment Act of 1958, 15 U.S.C. 661 et seq., and to exempt from such regulations, or to separately regulate, companies which do not ob- tain financing from the Administration. REPORTS TO CONGRESS Pub. L. 102–366, title IV, § 408(e), Sept. 4, 1992, 106 Stat. 1017, directed Administration, within 180 days after Sept. 4, 1992, to report on actions taken pursuant to section 408(d) of Pub. L. 102–366, formerly set out above, to the Committees on Small Business of the Senate and the House of Representatives, including the rationale for its actions. Pub. L. 102–366, title IV, § 417(b), Sept. 4, 1992, 106 Stat. 1019, provided that not later than 4 years after Sept. 4, 1992, the Comptroller General was to transmit to Con- gress a report that reviewed the Small Business Invest- ment Company program established under the Small Business Investment Act of 1958 (15 U.S.C. 661 et seq.) for the 3-year period following Sept. 4, 1992, with re- spect to each item listed in section 687(g)(3) of this title. § 682. Capital requirements (a) Amount (1) In general Except as provided in paragraph (2), the pri- vate capital of each licensee shall be not less than— (A) $5,000,000; or (B) $10,000,000, with respect to each li- censee authorized or seeking authority to issue participating securities to be pur- chased 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 Adminis- trator determines that such action would not create or otherwise contribute to an unreason- able risk of default or loss to the Federal Gov- ernment. (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 rea- sonable prospect that the licensee will be op- erated 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 ap- proving any request for financing, to make periodic payments on any debt of the com- pany which is interest bearing and shall take into consideration the income which the company anticipates on its con- templated 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 Page 1090 TITLE 15—COMMERCE AND TRADE § 682 2 See References in Text note below. licensee licensed under subsection (c) or (d) of section 681 of this title before September 30, 1996, that does not meet the capital require- ments of paragraph (1), if— (A) the licensee certifies in writing that not less than 50 percent of the aggregate dol- lar amount of its financings after September 30, 1996, will be provided to smaller enter- prises; 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 Sys- tem or nonmember insured bank to the extent permitted under applicable State law, may in- vest in any 1 or more small business invest- ment 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 sur- plus 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 in- vest solely in small business investment com- panies, except that in no event may the total amount of such investments by any such Fed- eral 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 man- agement of each licensee licensed after Sep- tember 30, 1996, is sufficiently diversified from and unaffiliated with the ownership of the li- censee in a manner that ensures independence and objectivity in the financial management and oversight of the investments and operations of the licensee. (Pub. L. 85–699, title III, § 302, Aug. 21, 1958, 72 Stat. 692; Pub. L. 86–502, § 5, June 11, 1960, 74 Stat. 196; Pub. L. 87–341, § 3, Oct. 3, 1961, 75 Stat. 752; Pub. L. 88–273, § 2, Feb. 28, 1964, 78 Stat. 146; Pub. L. 90–104, title II, §§ 203(a), 204, Oct. 11, 1967, 81 Stat. 269, 270; Pub. L. 94–305, title I, §§ 106(e), 107, June 4, 1976, 90 Stat. 666; Pub. L. 95–89, title II, § 210, Aug. 4, 1977, 91 Stat. 558; Pub. L. 95–507, title I, § 105, Oct. 24, 1978, 92 Stat. 1758; Pub. L. 102–366, title IV, §§ 406(a), 409, Sept. 4, 1992, 106 Stat. 1015, 1017; Pub. L. 104–208, div. D, title II, § 208(c), Sept. 30, 1996, 110 Stat. 3009–742; Pub. L. 105–135, title II, § 215(a), Dec. 2, 1997, 111 Stat. 2601; Pub. L. 106–554, § 1(a)(9) [title IV, § 403], Dec. 21, 2000, 114 Stat. 2763, 2763A–690.) Editorial Notes REFERENCES IN TEXT For definition of ‘‘this chapter’’, referred to in sub- sec. (a)(1)(B), see References in Text note set out under section 661 of this title. Subsection (d) of section 681 of this title, referred to in subsec. (a)(4), was repealed by Pub. L. 104–208, div. D, title II, § 208(b)(3)(A), Sept. 30, 1996, 110 Stat. 3009–742. Section 1845(a)(1) of title 12, referred to in subsec. (b)(1), was repealed by Pub. L. 89–485, § 9, July 1, 1966, 80 Stat. 240. See section 371c of Title 12, Banks and Bank- ing. 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). Pub. L. 106–554 inserted subsec. heading, designated existing provisions as par. (1), in- serted par. heading, and added par. (2). 1997—Subsec. (b). Pub. L. 105–135 substituted ‘‘any na- tional bank, or any member bank of the Federal Re- serve 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 busi- ness 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.’’ for ‘‘shares of stock in small business invest- ment companies shall be eligible for purchase by na- tional banks, and shall be eligible for purchase by other member banks of the Federal Reserve System and non- member insured banks to the extent permitted under applicable State law; except that in no event may any such bank acquire shares in any small business invest- ment company if, upon the making of that acquisition, the aggregate amount of shares in small business in- vestment companies then held by the bank would ex- ceed 5 percent of its capital and surplus.’’ 1996—Subsec. (a). Pub. L. 104–208, § 208(c)(1), inserted heading and substituted pars. (1) to (3)(A) and ‘‘deter- mine that the licensee will be able’’ in par. (3)(B) for ‘‘The combined private paid-in capital and paid-in sur- plus of any company licensed pursuant to section 681(c) and (d) of this title shall not be less than $150,000: Pro- vided, however, That the combined private paid-in cap- ital and paid-in surplus of any company licensed on or after October 1, 1992 pursuant to section 681(c) of this title shall be not less than $2,500,000 and pursuant to section 681(d) of this title shall be not less than $1,500,000. In all cases, such capital and surplus shall be adequate to assure a reasonable prospect that the com- pany will be operated soundly and profitably, and man- aged actively and prudently in accordance with its arti- cles. The Administration shall also determine the abil- ity of the company,’’. Subsec. (a)(4). Pub. L. 104–208, § 208(c)(2), added par. (4). Subsec. (c). Pub. L. 104–208, § 208(c)(3), inserted head- ing and amended text of subsec. (c) generally. Prior to amendment, text read as follows: ‘‘The aggregate amount of shares in any such company or companies which may be owned or controlled by any stockholder, or by any group or class of stockholders, may be lim- ited by the Administration.’’ 1992—Subsec. (a). Pub. L. 102–366 substituted ‘‘1992 pursuant to section 681(c) of this title shall be not less than $2,500,000 and pursuant to section 681(d) of this title shall be not less than $1,500,000’’ for ‘‘1979 pursuant to section 681(c) and (d) of this title shall be not less than $500,000’’ and inserted at end ‘‘The Administration shall also determine the ability of the company, both Page 1091 TITLE 15—COMMERCE AND TRADE § 683 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 an- ticipates on its contemplated investments, the experi- ence of the company’s owners and managers, the his- tory of the company as an entity, if any, and the com- pany’s financial resources.’’ 1978—Subsec. (a). Pub. L. 95–507 provided that the combined private paid-in capital and paid-in surplus of any company licensed on or after Oct. 1, 1979 pursuant to section 681(c) and (d) of this title would not be less than $500,000. 1977—Subsec. (b). Pub. L. 95–89 inserted ‘‘and’’ be- tween ‘‘capital’’ and ‘‘surplus’’. 1976—Subsec. (a). Pub. L. 94–305, § 106(e), struck out ‘‘of incorporation’’ after ‘‘its articles’’. Subsec. (b). Pub. L. 94–305, § 107, struck out provisions prohibiting the bank from acquiring shares in a small business investment company if the bank would hold 50 percent or more of any class of equity securities issued by that investment company and having actual or po- tential voting rights. 1967—Subsec. (a). Pub. L. 90–104, § 203(a), substituted small business investment company minimum capital requirement, a combined private paid-in capital and paid-in surplus, of $150,000 and adequate to assure rea- sonable prospect of sound and profitable company oper- ations and active and prudent management in accord- ance with the articles of incorporation for former re- quirement of a paid-in capital and surplus equal to at least $300,000, and eliminated provisions for purchase of debentures of such companies in an amount not to ex- ceed the lesser of $700,000 or the amount of paid-in cap- ital and surplus of the company from other sources and for subordination of debentures (both incorporated in section 686(b) of this title), for such purchases by the Administration only during certain prescribed period, and deeming the debentures part of the capital and sur- plus for certain purposes. Subsec. (b). Pub. L. 90–104, § 204, substituted prohibi- tion against bank acquisition of small business invest- ment company stock if, upon such acquisition, the ag- gregate amount of shares in such companies then held by the bank would exceed 5 percent of the capital and surplus, or the bank would hold 50 percent or more of any class of equity securities issued by that investment company and having actual or potential voting rights for former prohibition against holding of shares in an amount aggregating more than 2 percent of its capital and surplus. 1964—Subsec. (a). Pub. L. 88–273 increased the limita- tion on Administration purchase of debentures from $400,000 to $700,000 and extended the period for such pur- chase from three years after date of issuance of license or date of enactment of Pub. L. 87–341, the Small Busi- ness Investment Act Amendments of 1961 (Oct. 3, 1961), whichever is later, to five years after date of issuance of license or date of enactment of Pub. L. 88–273, the Small Business Investment Act Amendments of 1963 (Feb. 28, 1964), whichever is later. 1961—Subsec. (a). Pub. L. 87–341, § 3(a), inserted ‘‘and growth’’, limited the purchase of debentures to the ex- tent that necessary funds are not available to the com- pany involved from private sources on reasonable terms, increased the amount of purchasable debentures to not more than the lesser of $400,000 or the paid-in capital and surplus of the company from other sources, and restricted such purchases to such period as may be fixed by the Administration, but not ending more than three years after the date of issuance of the company’s license under section 681c of this title, or Oct. 3, 1961, whichever is later, and deleted provisions limiting pur- chase of debentures to $150,000. Subsec. (b). Pub. L. 87–341, § 3(b), increased the max- imum amount of shares a bank may hold in small busi- ness investment companies to 2 percent of the capital and surplus. 1960—Subsec. (b). Pub. L. 86–502 substituted ‘‘Not- withstanding the provisions of section 1845(a)(1) of title 12, shares’’ for ‘‘Shares’’. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 1997 AMENDMENT Amendment by Pub. L. 105–135 effective Oct. 1, 1997, see section 3 of Pub. L. 105–135, set out as a note under section 631 of this title. EFFECTIVE DATE OF 1967 AMENDMENT Amendment by Pub. L. 90–104 effective 90 days after Oct. 11, 1967, see section 211 of Pub. L. 90–104, set out as a note under section 681 of this title. EFFECT OF SMALL BUSINESS EQUITY ENHANCEMENT ACT OF 1992 ON SECURITIES LAWS Nothing in amendment by Pub. L. 102–366 to be con- strued to affect applicability of securities laws or to otherwise supersede or limit jurisdiction of Securities and Exchange Commission, see section 418 of Pub. L. 102–366, set out as a note under section 661 of this title. § 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 Ad- ministration 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 se- curities issued by such companies. Such pur- chases or guarantees may be made by the Ad- ministration 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 pay- ment of all amounts which may be required to be paid under any guarantee under this sub- section. 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 de- bentures may be issued for a term of not to ex- ceed fifteen years and shall bear interest at a rate not less than a rate determined by the Sec- retary of the Treasury taking into consideration the current average market yield on out- standing marketable obligations of the United States with remaining periods to maturity com- parable to the average maturities on such de- bentures, adjusted to the nearest one-eighth of 1 percent, plus, for debentures obligated after Sep- tember 30, 2001, an additional charge, in an amount established annually by the Administra- tion, as necessary to reduce to zero the cost (as defined in section 661a of title 2) to the Adminis- tration of purchasing and guaranteeing deben- tures under this chapter, which amount may not exceed 1.38 percent per year, and which shall be paid to and retained by the Administration. The debentures or participating securities shall also contain such other terms as the Administration