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ARTICLE · 30 OCTOBER 2017

Passive Business Rule

Foley Hoag LLP
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Small Business Investment Companies ("SBICs") are generally prohibited from investing in passive (i.e., non-operating) small businesses under the Small Business Investment Act of 1958...

United StatesCorporate/Commercial Law
Jennifer Audeh
Jennifer Audeh
Robert Sawyer
Robert Sawyer
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Delayed, Withdrawn and Amended –What it Means for You

HISTORY

Small Business Investment Companies ("SBICs") are generally prohibited from investing in passive (i.e., non-operating) small businesses under the Small Business Investment Act of 1958 (the "Act") and its implementing Regulations. Prior to the amended passive business rule now in effect (see below), the Regulations provided only two limited exceptions allowing SBICs to structure investments utilizing a passive small business intermediary: (1) a holding company exemption under which an SBIC could structure an investment in a small business through one or two levels of passive intermediaries, but only if the top level passive business (in which the SBIC directly invested) owns at least 50% (directly, or indirectly through a second lower passive business) of the outstanding voting securities of the operating small business; and (2) a blocker company exemption under which a partnership SBIC, with prior SBA

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