[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]


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SMALL BUSINESS ADMINISTRATION

13 CFR Part 121


Small Business Size Regulations; Affiliation With Investment 
Companies

AGENCY: Small Business Administration.

ACTION: Final rule.

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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