15 U.S.C. § 80a–56 — Transactions with certain affiliates

(a) Transactions involving controlling or closely affiliated persons. It's unlawful for someone related to a business development company as described in (b), acting as principal, to (1) knowingly sell any security or property to the company, or to a company it controls, unless the sale involves only (A) securities where the buyer is the issuer, or (B) securities where the seller is the issuer, offered generally to a class of its own security holders; (2) knowingly buy any security or property, other than securities where the seller is the issuer, from the company or a company it controls; (3) knowingly borrow money or property from the company or a controlled company, unless the borrower controls the lender, except as sections 80a–21(b) or 80a–61 allow; or (4) knowingly join the company, or a company it controls, as a joint participant in a transaction, in a way SEC rules forbid because it would give that person a better deal than the company gets — except this doesn't stop someone from managing an underwriting syndicate the company takes part in, and being paid for it. (b) Controlling or closely affiliated persons. (a) applies to (1) any director, officer, employee, or advisory-board member of the company, or anyone who is, under section 80a–2(a)(3)(C), an affiliate of one of those people; and (2) any investment adviser, promoter, general partner, principal underwriter, or person controlling, controlled by, or under common control with the company — except the company itself, and anyone who wouldn't be under that controller's control if the company didn't control them — or anyone who is, under section 80a–2(a)(3)(C) or (D), an affiliate of one of those. (c) Exemption orders. Anyone can apply to the SEC for an order exempting a proposed transaction from (a)(1) through (3). The SEC must grant the exemption if the evidence shows (1) the terms, including the price, are reasonable and fair and don't overreach against the company or its owners; (2) the transaction fits the company's stated policy in its SEC filings and its reports to shareholders or partners; and (3) it's consistent with this law's general purposes. (d) Transactions involving noncontrolling shareholders or affiliated persons. It's unlawful for someone related to the company as described in (e), and not already covered by (a), acting as principal, to do the same four things listed in (a)(1) through (4) — with the same exceptions, though borrowing is only excepted under section 80a–21(b) here, not section 80a–61. (e) Noncontrolling shareholders or affiliated persons; executive officer. (d) applies to (1) anyone who (A) is, under section 80a–2(a)(3)(A), an affiliate of the company, (B) is an executive officer, director, or general partner of that affiliate, or (C) controls, is controlled by, or is under common control with that affiliate; and (2) anyone who is an affiliate of a director, officer, employee, adviser, advisory-board member, promoter, underwriter, or general partner of, or affiliate of, a person controlling or under common control with the company, with the same "except the company itself" carve-out as in (b)(2). "Executive officer" means the president, secretary, treasurer, a vice president over a major business function, or anyone else with similar policymaking power. (f) Approval of proposed transactions. Despite (d), a person described in (e) can still carry out a (d) transaction if the "required majority" (defined in (o)) of the company's directors or general partners approves it, finding (1) the terms, including the price, are reasonable and fair to shareholders or partners and don't overreach; (2) it fits shareholders' or partners' interests and the company's stated SEC-filing policy; and (3) the directors or partners record their findings, the basis for them, and the supporting material in their minutes, and keep those records as long as section 80a–30(a) records must be kept. (g) Transactions in the ordinary course of business. Despite (a) or (d), someone may still, in the ordinary course of business, sell to or buy from any company merchandise, or lease property to or from anyone and provide the related services. (h) Inquiry procedures. The company's directors or general partners must adopt, and regularly review and update, procedures reasonably designed to check, before any transaction the company or a controlled company enters into, whether people described in (b) or (e) might be involved. (i) Rules and regulations of Commission. Until the SEC adopts rules under (a) and (d), the SEC's existing rules under section 80a–17(a) and (d), for registered closed-end companies, apply instead. Any rules the SEC later adopts here can't be more restrictive than those. (j) Warrants, options, and rights to purchase voting securities; loans to facilitate executive compensation plans. Despite (a) and (d), a director, officer, employee, or general partner may (1) get warrants, options, and rights to buy the company's voting securities, and securities from exercising them, through an executive compensation plan meeting section 80a–60(a)(4)(B); and (2) borrow money from the company to buy securities issued under that plan, if each loan (A) runs no more than 10 years; (B) comes due within a reasonable time, up to 60 days, after the person's employment or service ends; (C) charges interest at least equal to the prevailing 90-day Treasury bill rate when made; (D) stays fully collateralized, which can include the company's own securities; and (E) is approved either (i) by the "required majority" of directors or partners, for an officer or employee (including one who's also a director), on the finding that the loan serves the company's and its shareholders' or partners' best interests, or (ii) by SEC order, on application, for a director who isn't also an officer or employee, or for a general partner, on the finding that the loan's terms are fair and reasonable and don't overreach. (k) Restriction on brokerage commissions. It's unlawful for a person described in (l) (1), acting as agent, to accept any compensation — other than a regular salary from the company — for buying or selling property for the company or a controlled company, except as part of that person's underwriting or brokerage business; or (2), acting as broker on a sale of securities to or by the company or a controlled company, to receive a commission or fee bigger than (A) the usual exchange commission, if sold on a securities exchange; (B) 2% of the sale price, for a secondary distribution; or (C) 1% of the price otherwise, unless the SEC allows more. (l) Persons subject to brokerage commission restrictions. (k) applies to (1) any affiliate of the company; and (2) (A) anyone who is, under section 80a–2(a)(3)(B), (C), or (D), an affiliate of a director, officer, employee, or advisory-board member of the company; (B) anyone who is, under those same provisions plus (A), an affiliate of an investment adviser, general partner, or controlling/controlled/common-control person; and (C) anyone who is, under section 80a–2(a)(3)(C), an affiliate of someone who is an affiliate of the company under section 80a–2(a)(3)(A). (m) Receipt of fee or salary from transaction participant. For (a) and (d), a director, officer, or employee of a party to a transaction who just receives their usual fee or salary for their normal job duties from that party isn't treated as having a financial interest in, or as participating in, the transaction solely because of that fee or salary. (n) Profit-sharing plans. (1) Despite (a)(4), a business development company can set up and run a profit-sharing plan for its directors, officers, employees, and general partners, if (A)(i) — for officers and employees, including an officer or employee who's also a director — the "required majority" of directors or partners approves the plan as reasonable and fair to shareholders or partners, not overreaching, and consistent with their interests; or (ii) — if the plan includes a director who isn't also an officer or employee, or a general partner — the SEC approves it by order, on application, on the same basis; and (B) total benefits paid or accrued under the plan can't exceed 20% of the company's after-tax net income in any fiscal year. (2) This subsection can't be used if the company has outstanding stock options, warrants, or rights from an executive compensation plan (including one under section 80a–60(a)(4)(B)), or has an investment adviser that's registered, or required to be registered, under the investment-adviser chapter of this title. (o) Required majority for approval of proposed transactions. "Required majority," for approving a transaction, plan, or arrangement, means both a majority of the company's directors or general partners who have no financial interest in it, and a majority of directors or partners who aren't "interested persons" of the company.