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SBA RIN: 3245-AG67 Publication ID: Fall 2016 
Title: Small Business Investment Companies; Passive Business Expansion & Technical Clarifications 

The SBA is revising the regulations for the Small Business Investment Company (SBIC) program to further expand the use of Passive Businesses and provide needed protections for SBA with regard to such investments. SBICs are generally prohibited from investing in passive businesses under the Small Business Investment Act of 1958 as amended as well as by regulations. Current program regulations provided for two exceptions that allow an SBIC to structure an investment utilizing a passive small business as a pass-through. The first exception identified in 107.720(b)(2) provides that an SBIC may structure an investment utilizing two pass-through entities to make an investment into an active business. The second exception identified in 107.720(b)(3) allows partnership SBICs with SBA prior approval to invest in a wholly owned passive business that in turn provides financing to an active small business only if a direct financing would cause its investors to incur Unrelated Business Taxable Income (UBTI). The second exception is commonly known as a blocker corporation. The current rule creates unnecessary complications in defining two exceptions and does not provide SBA with sufficient protections. SBA is simplifying the rule to allow a more flexible two pass-through entity structure but provides SBA certain protections to offset risks associated with passive investment structures. As part of the rule, SBA will also make technical corrections and clarifications, including conforming the regulation to the new "family of funds" statutory provision. 

Agency: Small Business Administration(SBA)  Priority: Substantive, Nonsignificant 
RIN Status: Previously published in the Unified Agenda Agenda Stage of Rulemaking: Final Rule Stage 
Major: No  Unfunded Mandates: No 
CFR Citation: 13 CFR 107   
Legal Authority: 15 U.S.C. 681 et seq.   
Legal Deadline:  None
Action Date FR Cite
NPRM  10/05/2015  80 FR 60077   
NPRM Comment Period End  12/04/2015 
Final Rule  11/00/2016 
Additional Information: Included in SBA's Retrospective Review under Executive Orders 13563 and 13610.
Regulatory Flexibility Analysis Required: Yes  Government Levels Affected: None 
Small Entities Affected: Businesses  Federalism: No 
Included in the Regulatory Plan: No 
RIN Data Printed in the FR: Yes 
Agency Contact:
Theresa M. Jamerson
Senior Risk and Investment Policy Advisor, Office of Investment and Innovation
Small Business Administration
409 Third Street SW,
Washington, DC 20461
Phone:202 205-7563