15 U.S.C. § 80a–54 — Acquisition of assets by business development companies

submitted 86 years ago by Pub. L. 96-477 to r/title-15-COMMERCE-AND-TRADE · 935 words · no verdicts yet

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A business development company must keep at least 70% of its assets in specific categories, mainly securities of smaller or troubled companies bought without a public offering. A smaller share can go toward office equipment and other operating needs. Asset values come from the company's latest SEC financial filing, updated at least yearly.

(a) Permissible assets; percentage. A business development company can't buy any asset other than those listed in (1) through (7) below, unless, at the time of the purchase, the assets described in (1) through (6) make up at least 70% of its total assets (not counting assets under (7)): (1) securities bought without a public offering, or in other transactions the SEC allows for small or limited offerings — (A) from the issuer, if it's an "eligible portfolio company," from someone who's been its affiliate within the last 13 months, or from anyone else, under SEC rules; or (B) from an issuer described in section 80a–2(a)(46)(A) and (B) that isn't an eligible portfolio company because a broker could extend margin credit against its securities, or from an officer or employee of that issuer, if (i) the business development company already owns at least 50% of the largest number of that issuer's equity and convertible securities, and the largest amount of its debt securities, that it ever held while the issuer was still an eligible portfolio company — not counting expired options or warrants, or debt that's been converted, repaid, or prepaid in the ordinary course — and (ii) the business development company is one of the issuer's 20 largest holders of record of voting securities; (2) securities of an eligible portfolio company where the business development company meets the requirements of section 80a–2(a)(46)(C)(ii); (3) securities bought without a public offering from an issuer under section 80a–2(a)(46)(A) and (B), or from its recent affiliate, or in related transactions, if the securities were (A) issued by an issuer in, or just before, bankruptcy or court-supervised reorganization, (B) issued under a resulting bankruptcy or reorganization plan, or (C) issued by an issuer that, right before the purchase, wasn't in bankruptcy but couldn't meet its obligations without help beyond ordinary lending; (4) securities of eligible portfolio companies bought from anyone without a public offering, if there's no ready market for them and the business development company already owns at least 60% of that issuer's outstanding equity securities, counting convertible securities as converted; (5) securities received in exchange for, or distributed on, securities described in (1) through (4), or received by exercising options, warrants, or rights tied to them; (6) cash, cash items, government securities, or high-quality debt securities maturing within a year of purchase; and (7) office furniture and equipment, real estate interests and leasehold improvements used to run the business, deferred organization and operating expenses, and other non-investment assets needed for its operations — including notes from directors, officers, employees, or general partners, given as payment for company securities issued under an executive compensation plan described in section 80a–56(j). (b) Valuation of assets. A business development company's asset value, for this section, is set as of its most recent financial statements filed with the SEC under section 78m, and must be recalculated at least once a year.

the actual law source: uscode.house.gov ↗public domain

(a) Permissible assets; percentage

It shall be unlawful for a business development company to acquire any assets (other than those described in paragraphs (1) through (7) of this subsection) unless, at the time the acquisition is made, assets described in paragraphs (1) through (6) below represent at least 70 per centum of the value of its total assets (other than assets described in paragraph (7) below):

(1)

securities purchased, in transactions not involving any public offering or in such other transactions as the Commission may, by rule, prescribe if it finds that enforcement of this subchapter and of the Securities Act of 1933 [15 U.S.C. 77a et seq.] with respect to such transactions is not necessary in the public interest or for the protection of investors by reason of the small amount, or the limited nature of the public offering, involved in such transactions—

(A)

from the issuer of such securities, which issuer is an eligible portfolio company, from any person who is, or who within the preceding thirteen months has been, an affiliated person of such eligible portfolio company, or from any other person, subject to such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors; or

(B)

from the issuer of such securities, which issuer is described in section 80a–2(a)(46)(A) and (B) of this title but is not an eligible portfolio company because it has issued a class of securities with respect to which a member of a national securities exchange, broker, or dealer may extend or maintain credit to or for a customer pursuant to rules or regulations adopted by the Board of Governors of the Federal Reserve System under section 78g of this title, or from any person who is an officer or employee of such issuer, if—

(i)

at the time of the purchase, the business development company owns at least 50 per centum of—

(I)

the greatest number of equity securities of such issuer and securities convertible into or exchangeable for such securities; and

(II)

the greatest amount of debt securities of such issuer,

held by such business development company at any point in time during the period when such issuer was an eligible portfolio company, except that options, warrants, and similar securities which have by their terms expired and debt securities which have been converted, or repaid or prepaid in the ordinary course of business or incident to a public offering of securities of such issuer, shall not be considered to have been held by such business development company for purposes of this requirement; and

(ii)

the business development company is one of the 20 largest holders of record of such issuer’s outstanding voting securities;

(2)

securities of any eligible portfolio company with respect to which the business development company satisfies the requirements of section 80a–2(a)(46)(C)(ii) of this title;

(3)

securities purchased in transactions not involving any public offering from an issuer described in sections 80a–2(a)(46)(A) and (B) of this title or from a person who is, or who within the preceding thirteen months has been, an affiliated person of such issuer, or from any person in transactions incident thereto, if such securities were—

(A)

issued by an issuer that is, or was immediately prior to the purchase of its securities by the business development company, in bankruptcy proceedings, subject to reorganization under the supervision of a court of competent jurisdiction, or subject to a plan or arrangement resulting from such bankruptcy proceedings or reorganization;

(B)

issued by an issuer pursuant to or in consummation of such a plan or arrangement; or

(C)

issued by an issuer that, immediately prior to the purchase of such issuer’s securities by the business development company, was not in bankruptcy proceedings but was unable to meet its obligations as they came due without material assistance other than conventional lending or financing arrangements;

(4)

securities of eligible portfolio companies purchased from any person in transactions not involving any public offering, if there is no ready market for such securities and if immediately prior to such purchase the business development company owns at least 60 per centum of the outstanding equity securities of such issuer (giving effect to all securities presently convertible into or exchangeable for equity securities of such issuer as if such securities were so converted or exchanged);

(5)

securities received in exchange for or distributed on or with respect to securities described in paragraphs (1) through (4) of this subsection, or pursuant to the exercise of options, warrants, or rights relating to securities described in such paragraphs;

(6)

cash, cash items, Government securities, or high quality debt securities maturing in one year or less from the time of investment in such high quality debt securities; and

(7)

office furniture and equipment, interests in real estate and leasehold improvements and facilities maintained to conduct the business operations of the business development company, deferred organization and operating expenses, and other noninvestment assets necessary and appropriate to its operations as a business development company, including notes of indebtedness of directors, officers, employees, and general partners held by a business development company as payment for securities of such company issued in connection with an executive compensation plan described in section 80a–56(j) of this title.

(b) Valuation of assets

For purposes of this section, the value of a business development company’s assets shall be determined as of the date of the most recent financial statements filed by such company with the Commission pursuant to section 78m of this title, and shall be determined no less frequently than annually.

Source credit: (Aug. 22, 1940, ch. 686, title I, § 55, as added Pub. L. 96–477, title I, § 105, Oct. 21, 1980, 94 Stat. 2278; amended Pub. L. 100–181, title VI, § 626, Dec. 4, 1987, 101 Stat. 1263; Pub. L. 104–290, title V, § 505, Oct. 11, 1996, 110 Stat. 3446.)

history & why it existsrecord from the source credit

1940Enacted · Pub. L. 96-477 · 94 Stat. 2278
1987Amended · Pub. L. 100-181 · 101 Stat. 1263
1996Amended · Pub. L. 104-290 · 110 Stat. 3446

A history note hasn’t been published yet. The record shows enactment by Pub. L. 96-477 on 1940-08-22.

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