[Code of Federal Regulations]
[Title 13, Volume 1]
[Revised as of January 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 13CFR107.150]

[Page 38-39]
 
                TITLE 13--BUSINESS CREDIT AND ASSISTANCE
 
                CHAPTER I--SMALL BUSINESS ADMINISTRATION
 
PART 107_SMALL BUSINESS INVESTMENT COMPANIES--Table of Contents
 
                Subpart C_Qualifying for an SBIC License
 
Sec. 107.150  Management-ownership diversity requirement.

    (a) Diversity requirement. You must satisfy the requirements in 
paragraphs (b), (c) and (d) of this section:
    (1) In order to obtain an SBIC license (unless you do not plan to 
obtain Leverage),
    (2) If at the time you were licensed you did not plan to obtain 
Leverage, but you now wish to be eligible for Leverage, or
    (3) If SBA so requires as a condition of approval of your transfer 
of Control under Sec. 107.440.
    (b) Percentage ownership requirement. (1) Except as provided in 
paragraph (b)(2) of this section, no Person or group of Persons who are 
Affiliates of one another may own or control, directly or indirectly, 
more than 70 percent of your Regulatory Capital or your Leverageable 
Capital.
    (2) Exception. An investor that is a traditional investment company, 
as determined by SBA, may own and control more than 70 percent of your 
Regulatory Capital and your Leverageable Capital. For purposes of this 
section, a traditional investment company must be a professionally 
managed firm organized exclusively to pool capital from more than one 
source for the purpose of investing in businesses that are expected to 
generate substantial returns to the firm's investors. In determining 
whether a firm is a traditional investment company for purposes of this 
section, SBA will also consider:
    (i) Whether the managers of the firm are unrelated to and 
unaffiliated with the investors in the firm;
    (ii) Whether the managers of the firm are authorized and motivated 
to make investments that, in their independent judgment, are likely to 
produce significant returns to all investors in the firm;
    (iii) Whether the firm benefits from the use of the SBIC only 
through the financial performance of the SBIC; and
    (iv) Other related factors.
    (c) Non-affiliation requirement. (1) General rule. At least 30 
percent of your Regulatory Capital and Leverageable Capital must be 
owned and controlled by three Persons unaffiliated with your management 
and unaffiliated with each other, and whose investments are significant 
in dollar and percentage terms as determined by SBA. Such Persons must 
not be your Associates (except for their status as your shareholders, 
limited partners, or members) and must not Control, be Controlled by, or 
be under Common Control with any of your Associates. A single 
``acceptable'' Institutional Investor may be substituted for two or 
three of the three Persons who are otherwise required under this 
paragraph. The following Institutional Investors are ``acceptable'' for 
this purpose:
    (i) Entities whose overall activities are regulated and periodically 
examined by state, Federal or other governmental authorities 
satisfactory to SBA;
    (ii) Entities listed on the New York Stock Exchange;
    (iii) Entities that are publicly-traded and that meet both the 
minimum numerical listing standards and the corporate governance listing 
standards of the New York Stock Exchange;
    (iv) Public or private employee pension funds;
    (v) Trusts, foundations, or endowments, but only if exempt from 
Federal income taxation; and
    (vi) Other Institutional Investors satisfactory to SBA.
    (2) Look-through for traditional investment company investors. SBA, 
in its sole discretion, may consider the requirement in paragraph (c)(1) 
of this section to be satisfied if at least 30 percent of your 
Regulatory Capital and Leverageable Capital is owned and controlled 
indirectly, through a traditional investment company, by Persons 
unaffiliated with your management.
    (d) Voting requirement. (1) Except as provided in paragraph (d)(2) 
of this section, the investors required for you to satisfy diversity may 
not delegate their voting rights to any Person who is your Associate, or 
who Controls, is Controlled by, or is under Common Control with any of 
your Associates, without prior SBA approval.
    (2) Exception. Paragraph (d)(1) of this section does not apply to 
investors in publicly-traded Licensees, to proxies given to vote in 
accordance with specific instructions for single specified meetings, or 
to any delegation of voting rights to a Person who is neither a

[[Page 39]]

diversity investor in the Licensee nor affiliated with management of the 
Licensee.
    (e) Requirement to maintain diversity. If you were required to have 
management-ownership diversity at any time, you must maintain such 
diversity while you have outstanding Leverage or Earmarked Assets. To 
maintain management-ownership diversity, you may continue to satisfy the 
diversity requirement as in effect at the time it was first applicable 
to you or you may satisfy the management-ownership diversity requirement 
as currently in effect. If, at any time, you no longer have the required 
management-ownership diversity, you must:
    (1) Notify SBA within 10 days; and
    (2) Re-establish diversity within six months. For the consequences 
of failure to re-establish diversity, see Sec. Sec. 107.1810(g) and 
107.1820(f).

[65 FR 71055, Nov. 29, 2000]