§ 80a-56. — Transactions with certain affiliates.
[Laws in effect as of January 24, 2002]
[Document not affected by Public Laws enacted between
January 24, 2002 and December 19, 2002]
[CITE: 15USC80a-56]
TITLE 15--COMMERCE AND TRADE
CHAPTER 2D--INVESTMENT COMPANIES AND ADVISERS
SUBCHAPTER I--INVESTMENT COMPANIES
Sec. 80a-56. Transactions with certain affiliates
(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.
(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.
Section Referred to in Other Sections
This section is referred to in sections 80a-2, 80a-6, 80a-53, 80a-
54, 80a-60, 80a-61, 80a-62, 80b-2, 80b-5 of this title.
