Sec. 2. Employee equity investment facility
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Section 103 of the Small Business Investment Act of 1958 ( 15 U.S.C. 662 ) is amended— in paragraph (19), by striking and at the end; in paragraph (20), by striking the period at the end and inserting a semicolon; and by adding at the end the following: the term covered investment means, with respect to an investment in a covered small business concern— the provision of capital to finance the sale of an ownership interest of a covered small business concern, including a covered small business concern created as a result of a corporate divestiture, to an employee stock ownership plan or eligible worker-owned cooperative if such sale results in— the employee stock ownership plan or eligible worker-owned cooperative, respectively, holding a majority interest of the outstanding stock of the covered small business concern; and with respect to such a sale to an employee stock ownership plan, the appointment of an independent trustee for the transaction; or the provision of capital to finance a covered small business concern if— an employee stock ownership plan or eligible worker-owned cooperative holds a majority interest of the outstanding stock of the covered small business concern, prior to and immediately following the provision of capital; and the provision of capital does not reduce the percentage of stock of the covered small business concern held by the employee stock ownership plan or eligible worker-owned cooperative (as applicable), excluding any synthetic equity; the term covered small business concern — means a small business concern; and with respect to an employee equity investment company that is not a Protege EEIC, includes an entity that is not more than 300 percent larger than the size standards established for categorizing a business concern as a small business concern under section 3(a) of the Small Business Act ( 15 U.S.C. 632(a) ); the term eligible worker-owned cooperative has the meaning given that term in section 1042(c) of the Internal Revenue Code of 1986; the term employee equity investment company means a small business investment company— that identifies at the time of application for licensure under section 301 an intent to be licensed as an employee equity investment company; and for which— not less than 75 percent of the total capital managed by the investment firm shall be invested in covered investments; not less than 50 percent of the total capital managed by the investment firm shall be invested in covered investments described in paragraph (21)(A); covered investment returns are obtained from debt, synthetic equity, or a combination thereof, including returns obtained from cash interest, payment-in-kind interest, and stock warrants; and any investment that is not a covered investment is an investment in a small business concern; the term employee stock ownership plan has the meaning given that term in section 4975(e) of the Internal Revenue Code of 1986; the term independent trustee means a trustee that— is in the profession of serving as a fiduciary for employee stock ownership plans; has never— performed services for or on behalf of any party selling an ownership interest in the covered small business concern to the employee stock ownership plan involved in the transaction the trustee is considering; or been a director, officer, or employee of the covered small business concern; has not performed services for or on behalf of the covered small business concern at any time during the 5-year period ending on the date of execution of the transaction the trustee is considering, unless such services solely consisted of acting as a fiduciary of an employee benefit plan (including an employee stock ownership plan) under the Employee Retirement Income Security Act of 1974 ( 29 U.S.C. 1001 et seq. ); has not performed services related to the transaction the trustee is considering, for or on behalf of— the employee equity investment company that is preparing to or has already allocated capital to the covered small business; or any other entity that is structuring or financing the transaction for any party other than the employee stock ownership plan; and does not have a familial or corporate relationship (such as a parent-subsidiary relationship) to any person or entity described in subparagraph (B), (C), or (D); the term independent financial advisor means a financial or valuation advisor that— is in the profession of serving as a financial or valuation advisor for transactions involving employee stock ownership plans; has never— performed services, including a preliminary valuation, for or on behalf of— any party selling an ownership interest in the covered small business concern to the employee stock ownership plan involved in the transaction the advisor is evaluating; or the covered small business concern, unless the services were provided solely to an existing employee stock ownership plan sponsored by the covered small business concern; or been a director, officer, or employee of the covered small business concern; has not performed services related to the transaction the advisor is evaluating, including a preliminary valuation, for or on behalf of— the employee equity investment company that is preparing to or has already allocated capital to the covered small business; or any other entity that is structuring or financing the transaction for any party other than the employee stock ownership plan; and does not have a familial or corporate relationship (such as a parent-subsidiary relationship) to any of person or entity described in subparagraph
(B)or (C); the term non-EEIC company means a small business investment company that— is licensed under section 301; is selected to receive leverage from the facility established under section 321; and is not an employee equity investment company; the term outstanding stock means shares of stock, including synthetic equity; the term Protege EEIC means an entity licensed under section 301 as an employee equity investment company and selected in accordance with section 322(c)— for which the managers of the firm have a documented record of successful business experience; and that has an investment track record that does not meet the requirements to be licensed under section 301; and the term synthetic equity has the meaning given that term in section 409(p)(6) of the Internal Revenue Code of 1986. . Part A of title III of the Small Business Investment Act of 1958 ( 15 U.S.C. 681 et seq. ) is amended by adding at the end the following: In this section, the term facility means the facility established under subsection (b). The Administrator, acting through the Associate Administrator of the Office of Investment and Innovation of the Administration, shall establish and carry out a facility to provide leverage to licensed employee equity investment companies and non-EEIC companies for the purpose of encouraging covered investments. An investment firm desiring to participate in the facility shall submit to the Administrator an application— to be licensed to participate in the facility as an employee equity investment company (including as a Protege EEIC); or to be selected to participate as a non-EEIC company. The Administrator shall accept applications under paragraph
(1)on a rolling basis. The Administrator shall allow an applicant under this section to electronically submit any document required by this section and to provide an electronic signature for any signature that is required on such a document. An investment firm shall identify an intent to be licensed as an employee equity investment company at the time the investment firm applies to be licensed as a small business investment company under section 301. The Administrator may provide provisional approval for a license to participate in the facility as an employee equity investment company for a period not to exceed 1 year to an investment firm submitting an application under subsection (c)— that does not meet the minimum private capital requirements under section 302 necessary for licensing under section 301 at the time of application; that states an intent to more effectively raise capital commitments in private markets with a license; and that states an intent to more precisely request the desired amount of leverage contingent on securing capital from private market investors. The Administrator may not provide leverage to employee equity investment companies and non-EEIC companies under the facility in a total amount that is more than $5,000,000,000 for a fiscal year. Not more than 20 percent of such total amount may be provided to non-EEIC companies. With respect to a covered investment described in section 103(21)(A) involving a sale to an employee stock ownership plan, an independent trustee for the employee stock ownership plan shall be appointed before the execution of the covered investment for a period of time that is sufficient for the independent trustee to fully evaluate the proposed transaction. An independent trustee appointed under paragraph
(1)shall obtain a fairness opinion on the proposed covered investment from an independent financial advisor, which shall evaluate whether the price, terms, and cost of financing of the proposed covered investment are financially fair to the employee stock ownership plan. An employee of a covered small business concern may not provide personal financing of any kind for a covered investment, including through a wage concession or rollover of a retirement plan. Subparagraph
(A)shall not apply to— financing provided by an employee for the sale of an ownership interest held by the employee in a covered small business concern; or employee capital contributions or membership fees paid by members of an eligible worker-owned cooperative, if such amounts are reasonable and customary and not used for the purchase of the covered small business concern. An employee equity investment company or non-EEIC company shall not exercise control over a covered small business concern in which the employee equity investment company or non-EEIC company, respectively, has made a covered investment. With respect to a covered investment described in section 103(21)(A) made by an employee equity investment company that involves an employee stock ownership plan, the employee stock ownership plan shall include a requirement that in the event of a sale to a third party of the covered small business concern in which the covered investment is made, the proceeds that the employee stock ownership plan receives from the sale shall be distributed as though all shares of stock held by the employee stock ownership plan prior to the sale were fully allocated. With respect to a covered investment described in section 103(21)(A) made by an employee equity investment company that involves an employee stock ownership plan, the number of shares held by the employee stock ownership plan on the final date of each plan year shall not be less than the number of shares held by the employee stock ownership plan on the execution date of the covered investment. The requirements under paragraph
(1)shall apply only with respect to the period during which the employee equity investment company has an interest in the covered small business concern. The requirement under paragraph
(1)may be waived by the independent trustee for the applicable employee stock ownership plan. With respect to a covered investment described in section 103(21)(A) made by an employee equity investment company that involves an employee stock ownership plan, the employee stock ownership plan shall have an independent trustee during the period that the employee equity investment company has an interest in the covered small business concern. Except as provided in paragraph (2), section 303(d) shall not apply to employee equity investment companies. Section 303(d) shall apply to a Protege EEIC. Subject to paragraph (2), an employee equity investment company shall require as a condition of making a covered investment described in section 103(21)(A) involving an employee stock ownership plan that— before any stock sale or the execution of any corporate matter listed in section 409(e)(3) of the Internal Revenue Code of 1986, the employee stock ownership plan shall— appoint an independent trustee for the transaction; and require that the independent trustee obtain a fairness opinion from an independent financial advisor, which shall evaluate whether the price, terms, and cost of financing of the proposed covered investment are financially fair to the employee stock ownership plan; and the employee stock ownership plan requires that— in addition to the corporate matters listed in section 409(e)(3) of the Internal Revenue Code of 1986, each participant or beneficiary in the employee stock ownership plan is entitled to direct the employee stock ownership plan as to the manner in which voting rights under securities of the employer which are allocated to the account of such participant or beneficiary are to be exercised with respect to the approval or disapproval of any stock sale; the requirements of section 409(e)(3) of the Internal Revenue Code of 1986 and clause
(i)of this subparagraph shall be met using the procedures described in section 409(e)(5) of the Internal Revenue Code of 1986; unless the parties agree otherwise, with respect to unallocated shares, the independent trustee shall be directed to vote or tender such unallocated shares in the same proportion as allocated shares for which the independent trustee has received voting or tender instructions from participants in the employee stock ownership plan; and with respect to allocated shares that the independent trustee does not receive voting or tender instructions from participants in the employee stock ownership plan, the independent trustee shall have voting discretion over such shares. Nothing in paragraph (1)(B) shall limit the ability of an independent trustee to exercise voting discretion in accordance with the fiduciary obligations of the independent trustee under the Employee Retirement Income Security Act of 1974 ( 29 U.S.C. 1001 et seq. ). The requirements under paragraph
(1)shall apply only with respect to the period during which the employee equity investment company has an interest in the covered small business concern. In addition to the reporting requirements in 310(b), each employee equity investment company (including each Protege EEIC licensed to operate as an employee equity investment company) and each non-EEIC company that has outstanding leverage received from the facility shall submit to the Administrator an annual report, which shall include, for the year covered by the report, the following information, disaggregated by covered investments made under subparagraph
(A)and
(B)of section 103(21): Whether the covered investment was made with respect to an employee stock ownership plan or eligible worker-owned cooperative. For an employee stock ownership plan— the effective date of the plan; the number of active plan participants; the number of employees of the covered small business concern for which the employee stock ownership plan is established; the total value of employer securities, as determined by an independent appraiser hired by the independent trustee of the employee stock ownership plan; the total plan assets; the total contributions during the plan year; the total distributions during the plan year; the median account asset balance; and demographic information of plan participants, disaggregated by race, gender, and State. For an eligible worker-owned cooperative— the number of member-owners; the number of employees of the covered small business concern for which the eligible worker-owned cooperative is established; the total value of employer securities; the aggregate assets of all membership accounts of the cooperative; the median membership account balance; and demographic information of membership base, disaggregated by race, gender, and State. Not later than 180 days after the date of enactment of this section, the Administrator shall begin accepting applications to be licensed to participate in the facility as an employee equity investment company (including as a Protege EEIC). Not later than 1 year after the date of enactment of this section, the Administrator shall begin excluding from the calculation of outstanding leverage, as described in section 303(b)(2)(F), covered investments described in clause
(iii)of such section. Not later than 1 year after the date of enactment of this section, the Administrator shall approve the first tranche of licenses to participate in the facility as an employee equity investment company (including as a Protege EEIC) with respect to applicants that satisfy the applicable eligibility criteria. In this subsection, the term sunset date means the first day of the twentieth calendar year that begins after the date on which the Administrator approves the first license to participate in the facility as an employee equity investment company (including as a Protege EEIC). On and after the sunset date, the Administrator may not license an entity to participate in the facility as an employee equity investment company (including as a Protege EEIC) or select an entity to participate in the facility as a non-EEIC company. Nothing in paragraph
(2)shall be construed to prohibit— an employee equity investment company from continuing to draw leverage on and after the sunset date that was committed to the entity through the facility before the sunset date; or a non-EEIC company from continuing to receive an exclusion in the calculation of outstanding leverage by the Administrator, as described in section 303(b)(2)(F), for covered investments described in clause
(iii)of such section made to a covered small business before the sunset date. The Administrator shall not consider paragraph
(2)as a factor in the decision to license an entity to participate in the facility as an employee equity investment company (including as a Protege EEIC) or to select an entity to participate in the facility as a non-EEIC company before the sunset date. . Title III of the Small Business Investment Act of 1958 ( 15 U.S.C. 681 et seq. ) is amended— in section 301(c) ( 15 U.S.C. 681(c) ), by striking paragraph
(3)and inserting the following: In reviewing and processing any application under this subsection, the Administrator— shall determine whether— the applicant meets the requirements of subsections
(a)and
(c)of section 302; and the management of the applicant is qualified and has the knowledge, experience, and capability necessary to comply with this Act; shall take into consideration— the need for and availability of financing for small business concerns in the geographic area in which the applicant is to commence business; the general business reputation of the owners and management of the applicant; and the probability of successful operations of the applicant, including adequate profitability and financial soundness; shall not take into consideration any projected shortage or unavailability of leverage; and shall give first priority to an applicant that is located in an underlicensed State with below median financing, as determined by the Administrator. Except as provided in clause (ii), an applicant for a license to operate as an employee equity investment company shall submit to the Administrator proof that the managers of the applicant have a track record of managing investments, including structured investments, realized or unrealized, in an employee stock ownership plan or eligible worker-owned cooperative. An applicant that does not have an investment track record described in clause
(i)or that is a Protege EEIC shall submit to the Administrator evidence that the applicant has retained or will retain a legal, accounting, or financial advisory firm with at least 5 years of experience in structuring employee stock ownership plans or eligible worker-owned cooperatives. The Administrator may not reject an applicant for a license to operate as an employee equity investment company solely because the applicant lacks a sufficient track record in realized investments if the applicant demonstrates an otherwise successful investment track record that includes unrealized covered investments. ; and in section 303(b)(2) ( 15 U.S.C. 683(b)(2) )— in subparagraph (A), in the matter preceding clause (i), by striking The maximum and inserting Except as provided otherwise in this paragraph, the maximum ; and by adding at the end the following— Except as provided in subparagraph (G), the maximum amount of outstanding leverage made available to any 1 employee equity investment company may not exceed the lesser of— 100 percent of the private capital of such company; or $350,000,000. The maximum amount of outstanding leverage made available to 2 or more employee equity investment companies that are commonly controlled (as determined by the Administrator) and not under capital impairment may not exceed $700,000,000. A non-EEIC company may access leverage from the facility established under section 321 in addition to any leverage such non-EEIC company is otherwise eligible to receive solely for the purpose described in clause
(ii)and subject to the limitation under clause (iv). The purpose described in this clause is for the purpose of making covered investments described in section 103(21)(B) (excluding synthetic equity). Subject to the limitation under clause (iv), in calculating the outstanding leverage of a non-EEIC company for purposes of subparagraphs (A)(ii) and (B), the Administrator shall exclude the amount of leverage outstanding to covered small business concerns for a covered investment described in section 103(21)(B) (excluding synthetic equity) made by such non-EEIC company. The amount of leverage provided under clause
(i)that is excluded under clause
(iii)may not exceed $50,000,000. The maximum amount of outstanding leverage made available under the facility established under section 321 to any 1 Protege EEIC may not to exceed the lesser of— 100 percent of the private capital of the Protege EEIC; or $100,000,000. . Section 308(g) of the Small Business Investment Act of 1958 ( 15 U.S.C. 687(g) ) is amended by adding at the end the following: In its annual report for the year ending on December 31, 2023, and in each succeeding annual report made pursuant to section 10(a) of the Small Business Act, the Administration shall include full and detailed aggregate data regarding— employee stock ownership plans created by an employee equity investment company, including— the total number of active plan participants; the total number of employees of the covered small business concerns with such employee stock ownership plans; the total value of employer securities, as determined by the independent appraisers hired by the independent trustee of each employee stock ownership plan; the total plan assets; the total contributions during the plan year; the total distributions during the plan year; the median account asset balance; and demographic information of plan participants, disaggregated by race, gender, State; eligible worker-owned cooperatives created by employee equity investment companies, including— the number of member-owners; the total number of employees of the covered small business concern with such eligible worker-owned cooperatives; the total value of employer securities; the assets of all membership accounts; the median membership account balance; and demographic information of membership base, disaggregated by race, gender, and State; and non-EEIC companies that received leverage from the facility, including— the total amount of such leverage excluded by the Administrator pursuant to section 321(e)(3)(C); the number of employee stock ownership plans and eligible worker-owned cooperatives that received capital from a non-EEIC company during the year covered by the report; and the geographic location of each employee stock ownership plan and eligible worker-owned cooperative described in clause (ii). .
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Sec. 2
Employee equity investment facility
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