Sec. 204. Affiliation and franchise directory
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Section 7(a)(1) of the Small Business Act ( 15 U.S.C. 636(a)(1) ), as amended by section 203(a) of this Act, is amended by adding at the end the following: Affiliation under any of the circumstances described below is sufficient to establish affiliation for applicants for a loan guaranteed under this subsection: For determining affiliation based on equity ownership, a concern is an affiliate of an individual, concern, or entity that owns or has the power to control more than 50 percent of the voting equity of the concern.
If no individual, concern, or entity is found to control a concern under subclause (I), the Administrator shall deem the board of directors, president, or chief executive officer (or other officers, managing members, or partners who control the management of the concern) to be in control of the concern. The Administrator shall deem a minority shareholder of a concern to be in control of the concern if that individual or entity has the ability, under the charter, by-laws, or shareholder agreement of the concern, to prevent a quorum or otherwise block action by the board of directors or shareholders of the concern.
In determining the size of a concern, the Administrator shall— consider stock options, convertible securities, and agreements to merge (including agreements in principle) to have a present effect on the power to control a concern; and treat options, convertible securities, and agreements described in item
(aa)as though the rights granted have been exercised. An agreement to open or continue negotiations towards the possibility of a merger or a sale of stock at some later date is not considered an agreement in principle and is not given present effect. Stock options, convertible securities, and agreements that are subject to conditions precedent that are incapable of fulfillment, speculative, conjectural, or unenforceable under State or Federal law, or where the probability of the transaction (or exercise of the rights) occurring is shown to be extremely remote, are not given present effect. An individual, concern, or other entity that controls 1 or more other concerns cannot use stock options, convertible securities, or agreements to appear to terminate such control before actually doing so. The Administrator shall not give present effect to the ability of an individual, concern, or other entity to divest all or part of their ownership interest in a concern in order to avoid a finding of affiliation. Affiliation arises where— the chief executive officer or president of the applicant concern (or other officers, managing members, or partners who control the management of the concern) also controls the management of 1 or more other concerns; a single individual, concern, or entity that controls the board of directors or management of 1 concern also controls the board of directors or management of 1 of more other concerns; or a single individual, concern, or entity controls the management of the applicant concern through a management agreement. In this clause, the term close relative means— a spouse, parent, child, or sibling; and the spouse of any individual described in item (aa). Affiliation arises when there is an identity of interest between close relatives with identical or substantially identical business or economic interests, such as where the close relatives operate concerns in the same or similar industry in the same geographic area. If the Administrator determines that interests described in subclause
(II)should be aggregated, an individual or firm may rebut that determination with evidence showing that the interests deemed to be affiliated are in fact separate. The restraints imposed on a franchisee or licensee by its franchise or license agreement generally shall not be considered in determining whether the franchisor or licensor is affiliated with an applicant franchisee or licensee, if the applicant franchisee or licensee has the right to profit from its efforts and bears the risk of loss commensurate with ownership. For purposes of subclause (I), the Administrator shall only consider the franchise or license agreements of the applicant concern. In determining the size of a concern, the Administrator counts the receipts, employees, or the alternate size standard (if applicable) of the concern whose size is at issue and all of the domestic and foreign affiliates of the concern, regardless of whether the affiliates are organized for profit. The exceptions to affiliation described in section 121.103(b) of title 13, Code of Federal Regulations, or any successor regulation, shall apply. . Section 502 of the Small Business Investment Act of 1958 ( 15 U.S.C. 696 ), as amended by section 203(b) of this Act, is amended by adding at the end the following: Affiliation under any of the circumstances described below is sufficient to establish affiliation for applicants for a loan under this section: When the applicant owns more than 50 percent of another business, the applicant and the other business are affiliated. When a business owns more than 50 percent of an applicant, the business that owns the applicant is affiliated with the applicant. If a business entity owner that owns more than 50 percent of an applicant also owns more than 50 percent of another business that operates in the same 3-digit North American Industry Classification System subsector as the applicant, then the business entity owner, the other business, and the applicant are all affiliated. When an individual owns more than 50 percent of the applicant and the individual also owns more than 50 percent of another business entity that operates in the same 3-digit North American Industry Classification System subsector as the applicant, the applicant and the individual owner's other business entity are affiliated. When an applicant does not have an owner that owns more than 50 percent of the applicant, if an owner of 20 percent or more of the applicant also owns more than 50 percent of another business entity that operates in the same 3-digit North American Industry Classification System subsector as the applicant, the applicant and the owner's other business entity are affiliated. Ownership interests of spouses and minor children shall be combined when determining amount of ownership interest. When determining the percentage of ownership that an individual owns in a business, the Administrator shall consider the pro rata ownership of entities. The Administrator shall— consider stock options, convertible securities, and agreements to merge (including agreements in principle) to have a present effect on the ownership of an entity; and treat options, convertible securities, and agreements described in subclause
(I)as though the rights granted have been exercised. An agreement to open or continue negotiations towards the possibility of a merger or a sale of stock at some later date is not considered an agreement in principle and is not given present effect. Stock options, convertible securities, and agreements that are subject to conditions precedent that are incapable of fulfillment, speculative, conjectural, or unenforceable under State or Federal law, or where the probability of the transaction (or exercise of the rights) occurring is shown to be extremely remote, are not given present effect. The Administrator shall not give present effect to individuals', concerns', or other entities' ability to divest all or part of their ownership interest to avoid a finding of affiliation. In determining the size of a concern, the Administrator counts the receipts, employees, or the alternate size standard (if applicable) of the concern whose size is at issue and all of the domestic and foreign affiliates of the concern, regardless of whether the affiliates are organized for profit. The exceptions to affiliation described in section 121.103(b) of title 13, Code of Federal Regulations, or any successor regulation, shall apply. . Not later than 30 days after the date of enactment of this Act, the Administration shall publish and maintain on the website of the Administration a Franchise Directory, which shall contain a list that lenders and certified development companies may use in evaluating whether a franchise is eligible for financing from the Administration.
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