A Business Development Company ("BDC") is a form of unregistered closed-end investment company in the United States that invests in small and mid-sized businesses. This form of company was created by the US Congress in 1980 in the amendments to the Investment Company Act of 1940. Publicly filing firms may elect regulation as BDCs if they meet certain requirements of the Investment Company Act.[1]
BDCs were created to provide small and growing companies access to capital and to enable private equity funds to access public capital markets. Under the legislation, a BDC must invest at least 70% of its assets in nonpublic US companies with market values of less than $250 million. Moreover, like REITs, as long as 90% or more of the BDC's income is distributed to investors, a BDC is not taxed at the corporate level. Although BDCs are allowed to invest in the capital structure, the vast majority of the investment has been debt because BDCs typically leverage their equity with debt (up to 2X their equity[2]), and fixed-income investing supports their debt obligations.
Election means the BDC must subject itself to all relevant provisions of the Investment Company Act, which (a) limits how much debt a BDC may incur, (b) prohibits most affiliated transactions, (c) requires a code of ethics and a comprehensive compliance program, and (d) requires regulation by the Securities and Exchange Commission (SEC) and subject to regular examination, like all mutual funds and closed-end funds. BDCs are also required to file quarterly reports, annual reports, and proxy statements with the SEC. Some BDCs are publicly traded, while others are not.
BDCs are usually taxed as regulated investment companies (RIC) under the Internal Revenue Code. Like real estate investment trusts (REITs), as long as the RIC meets certain income, diversity, and distribution requirements, the company pays little or no corporate income tax. As a pass-through tax structure, RICs must distribute at least 90 percent of taxable income as dividends to investors. Most BDCs distribute 98 percent of their taxable income to avoid all corporate taxation. (RICs fall under section 851 of the Internal Revenue Code; REITs fall under section 856.) At least two BDCs have stated that they intend to be taxed as a REIT.[3][4] Because income is not taxed at the corporate level, distributions to investors are generally taxable for investors based on the type of income earned by the BDC. For example, ordinary income to the BDC is taxable for investors at ordinary income rates, while capital gains income to the BDC is generally taxable for investors at capital gains rates.
Historically, BDCs are listed on a national stock exchange like the NYSE or NASDAQ. Recently, as is common for REITs, some BDCs have declined to list on an exchange. Unlisted BDCs are required to follow the same regulatory structure as listed BDCs.
Distinctivenessedit
BDCs are similar to venture capital (VC) or private equity (PE) funds since they provide investors with a way to invest in small companies and participate in the sale of those investments. However, VC and PE funds are often closed to all but wealthy investors. BDCs, on the other hand, allow anyone who purchases a share to participate in the open market. This feature often attracts money to newly public BDCs, thereby giving them a faster way to raise capital for investments than VC funds.[5]
Larger BDCsedit
Among the largest BDCs by market value, are (in alphabetical order):
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This article relies excessively on references to primary sources Please improve this article by adding secondary or tertiary sources Find sources Business Development Company news newspapers books scholar JSTOR May 2013 Learn how and when to remove this template message A Business Development Company BDC is a form of unregistered closed end investment company in the United States that invests in small and mid sized businesses This form of company was created by the US Congress in 1980 in the amendments to the Investment Company Act of 1940 Publicly filing firms may elect regulation as BDCs if they meet certain requirements of the Investment Company Act 1 BDCs were created to provide small and growing companies access to capital and to enable private equity funds to access public capital markets Under the legislation a BDC must invest at least 70 of its assets in nonpublic US companies with market values of less than 250 million Moreover like REITs as long as 90 or more of the BDC s income is distributed to investors a BDC is not taxed at the corporate level Although BDCs are allowed to invest in the capital structure the vast majority of the investment has been debt because BDCs typically leverage their equity with debt up to 2X their equity 2 and fixed income investing supports their debt obligations Contents 1 Regulation and tax structure 2 Distinctiveness 3 Larger BDCs 4 BDC ETFs 5 See also 6 References 7 External linksRegulation and tax structure editElection means the BDC must subject itself to all relevant provisions of the Investment Company Act which a limits how much debt a BDC may incur b prohibits most affiliated transactions c requires a code of ethics and a comprehensive compliance program and d requires regulation by the Securities and Exchange Commission SEC and subject to regular examination like all mutual funds and closed end funds BDCs are also required to file quarterly reports annual reports and proxy statements with the SEC Some BDCs are publicly traded while others are not BDCs are usually taxed as regulated investment companies RIC under the Internal Revenue Code Like real estate investment trusts REITs as long as the RIC meets certain income diversity and distribution requirements the company pays little or no corporate income tax As a pass through tax structure RICs must distribute at least 90 percent of taxable income as dividends to investors Most BDCs distribute 98 percent of their taxable income to avoid all corporate taxation RICs fall under section 851 of the Internal Revenue Code REITs fall under section 856 At least two BDCs have stated that they intend to be taxed as a REIT 3 4 Because income is not taxed at the corporate level distributions to investors are generally taxable for investors based on the type of income earned by the BDC For example ordinary income to the BDC is taxable for investors at ordinary income rates while capital gains income to the BDC is generally taxable for investors at capital gains rates Historically BDCs are listed on a national stock exchange like the NYSE or NASDAQ Recently as is common for REITs some BDCs have declined to list on an exchange Unlisted BDCs are required to follow the same regulatory structure as listed BDCs Distinctiveness editBDCs are similar to venture capital VC or private equity PE funds since they provide investors with a way to invest in small companies and participate in the sale of those investments However VC and PE funds are often closed to all but wealthy investors BDCs on the other hand allow anyone who purchases a share to participate in the open market This feature often attracts money to newly public BDCs thereby giving them a faster way to raise capital for investments than VC funds 5 Larger BDCs editAmong the largest BDCs by market value are in alphabetical order Apollo Investment Corp Nasdaq AINV needs update Ares Capital Corp Nasdaq ARCC Main Street Capital Nasdaq MAIN BlackRock Kelso Capital Corp Nasdaq BKCC FS KKR Capital Corp NYSE FSK Gladstone Investment Corp Nasdaq GAIN Golub Capital BDC Inc Nasdaq GBDC Hercules Technology Growth Capital Nasdaq HTGC Horizon Technology Finance Corporation Nasdaq HRZN KCAP Financial Inc Nasdaq KCAP Medley Capital Corp NYSE MCC PennantPark Investment Corp Nasdaq PNNT Prospect Capital Corp Nasdaq PSEC Some BDCs are non traded with 1 billion or more of assets under management 6 The largest non traded BDCs are as follows FS Investment Corporation II FS Energy amp Power Fund FS Investment Corporation III Business Development Corp of America TCW Direct Lending LLC CiON Investment Corporation Sierra Income CorpBDC ETFs editFor public equity investors looking to invest in a fund focused on BDCs there are two options VPC Virtus Private Credit Strategy ETF BIZD VanEck BDC Income ETFSee also editPrivate equity Publicly traded private equity History of private equity and venture capital Venture capital trustReferences edit Election to Be Regulated as Business Development Company Archived from the original on 2008 05 27 BDCs win leverage cap increase after US 1 3trn budget signed Reuters 2018 03 23 Retrieved 2019 10 08 BDC in registration electing REIT taxation BDC electing REIT taxation Business Development Company BDC investinganswers com List of Non Traded BDCs BDCStocks com BDC Stocks Archived from the original on 9 July 2017 Retrieved 3 July 2017 External links editBDC Buzz BDC Sector Articles and Research Understanding high yield BDCs Introduction to BDCs for small investors BDC Reporter for BDC news and tracking information 1 The BDC Universe Daily data on all public BDCs Business Development Company Retrieved from https en wikipedia org w index php title Business Development Company amp oldid 1194658445, wikipedia, wiki, book, books, library,
