[Federal Register Volume 62, Number 48 (Wednesday, March 12, 1997)] [Rules and Regulations] [Pages 11317-11318] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 97-5739] ======================================================================= ----------------------------------------------------------------------- SMALL BUSINESS ADMINISTRATION 13 CFR Part 121 Small Business Size Regulations; Affiliation With Investment Companies AGENCY: Small Business Administration. ACTION: Final rule. ----------------------------------------------------------------------- SUMMARY: The Small Business Administration (SBA) is amending part 121 section103(b)(5) of its size regulations to make clear that, for purposes of the Small Business Investment Act of 1958 (SBIAct), certain venture capital firms and pension plans that make investments in small firms are not considered affiliated with those firms in which they invest. As a result, for any assistance under the SBIAct, an applicant concern is not affiliated with these investors. This final rule is in accordance with section 208 of the Small Business Programs Improvement Act of 1996. EFFECTIVE DATE: March 12, 1997. FOR FURTHER INFORMATION CONTACT: Gary M. Jackson, Assistant Administrator for Size Standards, 409 3rd Street, SW, Washington, DC 20416, (202) 205-6618. SUPPLEMENTARY INFORMATION: Division D of the Omnibus Consolidated Appropriations Act for Fiscal Year 1997 (Public Law 104-208) is the Small Business Programs Improvement Act of 1996 (SBPIAct), which amended the Small Business Investment Act of 1958 (SBIAct). Title II, Section 208 of the SBPIAct amends the definition of ``small business concern'' to clarify that, for purposes of the SBIAct, a business which receives an investment from certain types of venture capital firms and pension plans shall not be considered affiliates of one another. Specifically, section 208 of the amendment provides that such investments shall not cause a business concern to be deemed not independently owned and operated; and further, the investments shall be disregarded in determining whether or not a business is a small concern under the SBA's size standards. The types of venture capital and pension plans covered by this amendment are listed in Sec. 121.103(b)(5), and include venture capital firms, investment companies, small business investment companies, employee welfare benefit plans or pension plans, and trusts, foundations, or endowments exempt from Federal income taxation. The SBA had recently revised its Small Business Size Regulation (Federal Register, Wednesday, January 31, 1996, Vol. 61. No. 21 FR 3280) to extend its exclusion from affiliation for SBICs that invests in small businesses to include venture capital firms, pension funds, and certain charitable entities exempt from Federal taxation, as long as the investors do not control the concern. For purposes of that provision, control was defined in Sec. 107.865 of this part. This rule eliminates the condition that affiliation between certain investors and small business would be found present if control by an investor existed over the small business. However, SBICs continue to be restricted in the exercise of control over a small business they invest in as stated in Sec. 107.865 of this part. Also, under that regulation and prior to this legislation, the exclusion from affiliation had been limited to applicants for assistance under the Small Business Investment Company (SBIC) Program, and only, as stated above, where the investor(s) did not control the concern. In addition to the SBIC Program, the SBIAct has established a number of other SBA financial and management assistance programs, namely: the Surety Bond Guarantee Program, the Certified State and Local Development Company Program the Lease Guarantees and the Pollution Control Guarantee Program. While the SBIAct may authorize all of these programs, assistance under the Lease Guarantee and the Pollution Control Guarantee Programs has not been available for several years. Nor [[Page 11318]] does SBA intend for this regulation to be understood as re-establishing the availability of assistance under those programs. Hence, since this legislation now extends the exclusion form affiliation to small concerns that apply for any type of assistance under the SBIAct, the exclusion from affiliation applies solely to applicants for available financial, management, or technical assistance under the SBIC, the Surety Bond Guarantee, and the Certified State and Local Development Company Programs. SBA is issuing this as a final rule and not as a proposed rule, because Sba is merely incorporating this Congressionally mandated interpretation and clarification of the definition of small business into its existing regulations. SBA is not modifying or othewise changing its regulations in any way other than to the extent that the statute directs the Agency to do so. Compliance With Executive Orders 12612, 12778, and 12866, the Regulatory Flexibility Act (5 U.S.C. 601, et seq.), and the Paperwork Reduction Act (44 U.S.C. Ch. 5). Under the Regulatory Flexibility Act (RFA), SBA is not required to analyze the impact of this revision of its size regulations on small businesses because: the RFA applies to Federal rules that require public comment; and this is a final rule, incorporating into SBA's Small Business Size Regulations a Congressionally mandated interpretation and clarification of the definition of small business, and therefore requires no comment. In Fiscal Year 1995 SBICs invested in 2,221 enterprises. SBA believes that clarifying this definition actually increases the number of small businesses that may apply for assistance under the SBIAct. It also provides more programs under which these small businesses may seek assistance. Under this amendment, venture capital companies can invest in small businesses confident that they are not jeopardizing a small business' eligibility for additional funding and assistance as well. For purposes of the Paperwork Reduction Act, 44 U.S.C. Ch. 35, SBA certifies that this final rule contains no new reporting or recordkeeping requirements. For purposes of Executive Order 12612, SBA certifies that this rule does not have federalism implications warranting the preparation of a Federalism Assessment. For purposes of Executive Order 12778, SBA certifies that this rule is drafted, to the extent practicable, in accordance with the standards set forth in Section 2 of that Order. List of Subjects in 13 CFR Part 121 Government procurement, Government property, Grant programs-- business, Individuals with disabilities, Loan programs--business, Small businesses. PART 121--[AMENDED] 1. The authority citation for 13 CFR Part 121 is revised to read as follows: Authority: 15 U.S.C. 632(a), 634(b)(6), 637(a), 644(c) and 662(5); 2. Section 121.103(b)(5) introductory text is revised to read as follows: * * * * * (5) For financial, management or technical assistance under the Small Business Investment Company Act of 1958, as amended, (and applicant is not affiliated with the investors listed in paragraphs (b)(5)(I) through (vi) of this section. * * * * * Dated: February 24, 1997. Aida Alvarez, Administrator. [FR Doc. 97-5739 Filed 3-11-97; 8:45 am] BILLING CODE 8025-01-P