CITE
15 USC Sec. 80a-56 01/05/2009
EXPCITE
TITLE 15 - COMMERCE AND TRADE
CHAPTER 2D - INVESTMENT COMPANIES AND ADVISERS
SUBCHAPTER I - INVESTMENT COMPANIES
HEAD
Sec. 80a-56. Transactions with certain affiliates
STATUTE
(a) Transactions involving controlling or closely affiliated
persons
It shall be unlawful for any person who is related to a business
development company in a manner described in subsection (b) of this
section, acting as principal -
(1) knowingly to sell any security or other property to such
business development company or to any company controlled by such
business development company, unless such sale involves solely
(A) securities of which the buyer is the issuer, or (B)
securities of which the seller is the issuer and which are part
of a general offering to the holders of a class of its
securities;
(2) knowingly to purchase from such business development
company or from any company controlled by such business
development company, any security or other property (except
securities of which the seller is the issuer);
(3) knowingly to borrow money or other property from such
business development company or from any company controlled by
such business development company (unless the borrower is
controlled by the lender), except as permitted in section 80a-
21(b) or section 80a-61 of this title; or
(4) knowingly to effect any transaction in which such business
development company or a company controlled by such business
development company is a joint or a joint and several participant
with such person in contravention of such rules and regulations
as the Commission may prescribe for the purpose of limiting or
preventing participation by such business development company or
controlled company on a basis less advantageous than that of such
person, except that nothing contained in this paragraph shall be
deemed to preclude any person from acting as manager of any
underwriting syndicate or other group in which such business
development company or controlled company is a participant and
receiving compensation therefor.
(b) Controlling or closely affiliated persons
The provisions of subsection (a) of this section shall apply to
the following persons:
(1) Any director, officer, employee, or member of an advisory
board of a business development company or any person (other than
the business development company itself) who is, within the
meaning of section 80a-2(a)(3)(C) of this title, an affiliated
person of any such person specified in this paragraph.
(2) Any investment adviser or promoter of, general partner in,
principal underwriter for, or person directly or indirectly
either controlling, controlled by, or under common control with,
a business development company (except the business development
company itself and any person who, if it were not directly or
indirectly controlled by the business development company, would
not be directly or indirectly under the control of a person who
controls the business development company), or any person who is,
within the meaning of section 80a-2(a)(3)(C) or (D) of this
title, an affiliated person of any such person specified in this
paragraph.
(c) Exemption orders
Notwithstanding paragraphs (1), (2), and (3) of subsection (a) of
this section, any person may file with the Commission an
application for an order exempting a proposed transaction of the
applicant from one or more provisions of such paragraphs. The
Commission shall grant such application and issue such order of
exemption if evidence establishes that -
(1) the terms of the proposed transaction, including the
consideration to be paid or received, are reasonable and fair and
do not involve overreaching of the business development company
or its shareholders or partners on the part of any person
concerned;
(2) the proposed transaction is consistent with the policy of
the business development company as recited in the filings made
by such company with the Commission under the Securities Act of
1933 [15 U.S.C. 77a et seq.], its registration statement and
reports filed under the Securities Exchange Act of 1934 [15
U.S.C. 78a et seq.], and its reports to shareholders or partners;
and
(3) the proposed transaction is consistent with the general
purposes of this subchapter.
(d) Transactions involving noncontrolling shareholders or
affiliated persons
It shall be unlawful for any person who is related to a business
development company in the manner described in subsection (e) of
this section and who is not subject to the prohibitions of
subsection (a) of this section, acting as principal -
(1) knowingly to sell any security or other property to such
business development company or to any company controlled by such
business development company, unless such sale involves solely
(A) securities of which the buyer is the issuer, or (B)
securities of which the seller is the issuer and which are part
of a general offering to the holders of a class of its
securities;
(2) knowingly to purchase from such business development
company or from any company controlled by such business
development company, any security or other property (except
securities of which the seller is the issuer);
(3) knowingly to borrow money or other property from such
business development company or from any company controlled by
such business development company (unless the borrower is
controlled by the lender), except as permitted in section 80a-
21(b) of this title; or
(4) knowingly to effect any transaction in which such business
development company or a company controlled by such business
development company is a joint or a joint and several participant
with such affiliated person in contravention of such rules and
regulations as the Commission may prescribe for the purpose of
limiting or preventing participation by such business development
company or controlled company on a basis less advantageous than
that of such affiliated person, except that nothing contained in
this paragraph shall be deemed to preclude any person from acting
as manager of any underwriting syndicate or other group in which
such business development company or controlled company is a
participant and receiving compensation therefor.
(e) Noncontrolling shareholders or affiliated persons; executive
officer
The provisions of subsection (d) of this section shall apply to
the following persons:
(1) Any person (A) who is, within the meaning of section 80a-
2(a)(3)(A) of this title, an affiliated person of a business
development company, (B) who is an executive officer or a
director of, or general partner in, any such affiliated person,
or (C) who directly or indirectly either controls, is controlled
by, or is under common control with, such affiliated person.
(2) Any person who is an affiliated person of a director,
officer, employee, investment adviser, member of an advisory
board or promoter of, principal underwriter for, general partner
in, or an affiliated person of any person directly or indirectly
either controlling or under common control with a business
development company (except the business development company
itself and any person who, if it were not directly or indirectly
controlled by the business development company, would not be
directly or indirectly under the control of a person who controls
the business development company).
For purposes of this subsection, the term "executive officer" means
the president, secretary, treasurer, any vice president in charge
of a principal business function, and any other person who performs
similar policymaking functions.
(f) Approval of proposed transactions
Notwithstanding subsection (d) of this section, a person
described in subsection (e) of this section may engage in a
proposed transaction described in subsection (d) of this section if
such proposed transaction is approved by the required majority (as
defined in subsection (o) of this section) of the directors of or
general partners in the business development company on the basis
that -
(1) the terms thereof, including the consideration to be paid
or received, are reasonable and fair to the shareholders or
partners of the business development company and do not involve
overreaching of such company or its shareholders or partners on
the part of any person concerned;
(2) the proposed transaction is consistent with the interests
of the shareholders or partners of the business development
company and is consistent with the policy of such company as
recited in filings made by such company with the Commission under
the Securities Act of 1933 [15 U.S.C. 77a et seq.], its
registration statement and reports filed under the Securities
Exchange Act of 1934 [15 U.S.C. 78a et seq.], and its reports to
shareholders or partners; and
(3) the directors or general partners record in their minutes
and preserve in their records, for such periods as if such
records were required to be maintained pursuant to section 80a-
30(a) of this title, a description of such transaction, their
findings, the information or materials upon which their findings
were based, and the basis therefor.
(g) Transactions in the ordinary course of business
Notwithstanding subsection (a) or (d) of this section, a person
may, in the ordinary course of business, sell to or purchase from
any company merchandise or may enter into a lessor-lessee
relationship with any person and furnish the services incident
thereto.
(h) Inquiry procedures
The directors of or general partners in any business development
company shall adopt, and periodically review and update as
appropriate, procedures reasonably designed to ensure that
reasonable inquiry is made, prior to the consummation of any
transaction in which such business development company or a company
controlled by such business development company proposes to
participate, with respect to the possible involvement in the
transaction of persons described in subsections (b) and (e) of this
section.
(i) Rules and regulations of Commission
Until the adoption by the Commission of rules or regulations
under subsections (a) and (d) of this section, the rules and
regulations of the Commission under subsections (a) and (d) of
section 80a-17 of this title applicable to registered closed-end
investment companies shall be deemed to apply to transactions
subject to subsections (a) and (d) of this section. Any rules or
regulations adopted by the Commission to implement this section
shall be no more restrictive than the rules or regulations adopted
by the Commission under subsections (a) and (d) of section 80a-17
of this title that are applicable to all registered closed-end
investment companies.
(j) Warrants, options, and rights to purchase voting securities;
loans to facilitate executive compensation plans
Notwithstanding subsections (a) and (d) of this section, any
director, officer, or employee of, or general partner in, a
business development company may -
(1) acquire warrants, options, and rights to purchase voting
securities of such business development company, and securities
issued upon the exercise or conversion thereof, pursuant to an
executive compensation plan offered by such company which meets
the requirements of section 80a-60(a)(3)(B) of this title; and
(2) borrow money from such business development company for the
purpose of purchasing securities issued by such company pursuant
to an executive compensation plan, if each such loan -
(A) has a term of not more than ten years;
(B) becomes due within a reasonable time, not to exceed sixty
days, after the termination of such person's employment or
service;
(C) bears interest at no less than the prevailing rate
applicable to 90-day United States Treasury bills at the time
the loan is made;
(D) at all times is fully collateralized (such collateral may
include any securities issued by such business development
company); and
(E)(i) in the case of a loan to any officer or employee of
such business development company (including any officer or
employee who is also a director of such company), is approved
by the required majority (as defined in subsection (o) of this
section) of the directors of or general partners in such
company on the basis that the loan is in the best interests of
such company and its shareholders or partners; or
(ii) in the case of a loan to any director of such business
development company who is not also an officer or employee of
such company, or to any general partner in such company, is
approved by order of the Commission, upon application, on the
basis that the terms of the loan are fair and reasonable and do
not involve overreaching of such company or its shareholders or
partners.
(k) Restriction on brokerage commissions
It shall be unlawful for any person described in subsection (l)
of this section -
(1) acting as agent, to accept from any source any compensation
(other than a regular salary or wages from the business
development company) for the purchase or sale of any property to
or for such business development company or any controlled
company thereof, except in the course of such person's business
as an underwriter or broker; or
(2) acting as broker, in connection with the sale of securities
to or by the business development company or any controlled
company thereof, to receive from any source a commission, fee, or
other remuneration for effecting such transaction which exceeds -
(A) the usual and customary broker's commission if the sale
is effected on a securities exchange;
(B) 2 per centum of the sales price if the sale is effected
in connection with a secondary distribution of such securities;
or
(C) 1 per centum of the purchase or sale price of such
securities if the sale is otherwise effected,
unless the Commission, by rules and regulations or order in the
public interest and consistent with the protection of investors,
permits a larger commission.
(l) Persons subject to brokerage commission restrictions
The provisions of subsection (k) of this section shall apply to
the following persons:
(1) Any affiliated person of a business development company.
(2)(A) Any person who is, within the meaning of section 80a-
2(a)(3)(B), (C), or (D) of this title, an affiliated person or
any director, officer, employee, or member of an advisory board
of the business development company.
(B) Any person who is, within the meaning of section 82a-
2(a)(3)(A), (B), (C), or (D) of this title, an affiliated person
of any investment adviser of, general partner in, or person
directly or indirectly either controlling, controlled by, or
under common control with, the business development company.
(C) Any person who is, within the meaning of section 80a-
2(a)(3)(C) of this title, an affiliated person of any person who
is an affiliated person of the business development company
within the meaning of section 80a-2(a)(3)(A) of this title.
(m) Receipt of fee or salary from transaction participant
For purposes of subsections (a) and (d) of this section, a person
who is a director, officer, or employee of a party to a transaction
and who receives his usual and ordinary fee or salary for usual and
customary services as a director, officer, or employee from such
party shall not be deemed to have a financial interest or to
participate in the transaction solely by reason of his receipt of
such fee or salary.
(n) Profit-sharing plans
(1) Notwithstanding subsection (a)(4) of this section, a business
development company may establish and maintain a profit-sharing
plan for its directors, officers, employees, and general partners
and such directors, officers, employees, and general partners may
participate in such profit-sharing plan, if -
(A)(i) in the case of a profit-sharing plan for officers and
employees of the business development company (including any
officer or employee who is also a director of such company), such
profit-sharing plan is approved by the required majority (as
defined in subsection (o) of this section) of the directors of or
general partners in such company on the basis that such plan is
reasonable and fair to the shareholders or partners of such
company, does not involve overreaching of such company or its
shareholders or partners on the part of any person concerned, and
is consistent with the interests of the shareholders or partners
of such company; or
(ii) in the case of a profit-sharing plan which includes one or
more directors of the business development company who are not
also officers or employees of such company, or one or more
general partners in such company, such profit-sharing plan is
approved by order of the Commission, upon application, on the
basis that such plan is reasonable and fair to the shareholders
or partners of such company, does not involve overreaching of
such company or its shareholders or partners on the part of any
person concerned, and is consistent with the interests of the
shareholders or partners of such company; and
(B) the aggregate amount of benefits which would be paid or
accrued under such plan shall not exceed 20 per centum of the
business development company's net income after taxes in any
fiscal year.
(2) This subsection may not be used where the business
development company has outstanding any stock option, warrant, or
right issued as part of an executive compensation plan, including a
plan pursuant to section 80a-60(a)(3)(B) of this title, or has an
investment adviser registered or required to be registered under
subchapter II of this chapter.
(o) Required majority for approval of proposed transactions
The term "required majority", when used with respect to the
approval of a proposed transaction, plan, or arrangement, means
both a majority of a business development company's directors or
general partners who have no financial interest in such
transaction, plan, or arrangement and a majority of such directors
or general partners who are not interested persons of such company.
SOURCE
(Aug. 22, 1940, ch. 686, title I, Sec. 57, as added Pub. L. 96-477,
title I, Sec. 105, Oct. 21, 1980, 94 Stat. 2280; amended Pub. L.
100-181, title VI, Sec. 627, Dec. 4, 1987, 101 Stat. 1263.)
REFERENCES IN TEXT
The Securities Act of 1933, referred to in subsecs. (c)(2) and
(f)(2), is act May 27, 1933, ch. 38, title I, 48 Stat. 74, as
amended, which is classified generally to subchapter I (Sec. 77a et
seq.) of chapter 2A of this title. For complete classification of
this Act to the Code, see section 77a of this title and Tables.
The Securities Exchange Act of 1934, referred to in subsecs.
(c)(2) and (f)(2), is act June 6, 1934, ch. 404, 48 Stat. 881, as
amended, which is classified principally to chapter 2B (Sec. 78a et
seq.) of this title. For complete classification of this Act to the
Code, see section 78a of this title and Tables.
AMENDMENTS
1987 - Subsec. (i). Pub. L. 100-181 substituted "subsections (a)
and (d) of section 80a-17 of this title" for "sections 80a-17(a)
and (d) of this title" in two places.