[S. 545, 85th Cong., 1st sess.]

A BILL To repeal section 204 (d) of the Small Business Act of 1953 relating to the Loan Policy Board of the Small Business Administration

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That section 204 (d) of the Small Business Act of 1953, as amended (15 U. S. C. 633 (d)), is hereby repealed.

SEC. 2. Subsections (e) and (f) of section 204 of the Small Business Act of 1953, as amended, are hereby redesignated as subsections (d) and (e), respectively.

[S. 719, 85th Cong., 1st sess.]

A BILL To make capital more readily available for financing small business and thus to promote, foster, and develop the domestic and foreign commerce of the United States, and for other purposes

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

TITLE

SECTION 1. This Act may be cited as the "National Investment Company Act of 1957."

DECLARATION OF POLICY

SEC. 2. It is the policy of the Congress

(a) to foster the development and growth of independent small-business enterprises with the objective of enabling them to make their maximum contribution to productive investment and employment and to the economic stability and growth of the Nation;

(b) to make capital for such enterprises more readily available in adequate amounts and on reasonable terms;

(c) to facilitate maximum participation of private financial institutions and investors in financing these enterprises; and

(d) to supplement the existing facilities of banks and other private financial institutions by providing for the establishment of privately owned national investment companies.

TITLE I-NATIONAL INVESTMENT COMPANIES

ORGANIZATION OF NATIONAL INVESTMENT COMPANIES

SEC. 101. (a) National investment companies may be formed for the purpose of operating under this title by any number of persons not less than five, who shall subscribe to the articles of incorporation of any such company; except that any company in whose stock one or more Federal Reserve banks invest shall be formed by a Federal Reserve bank, which alone shall subscribe to the articles of incorporation. The total number of national investment companies formed by Federal Reserve banks pursuant thereto shall not exceed the number of Federal Reserve banks and branches thereof.

(b) The articles of incorporation of any national investment company shall specify in general terms the objects for which the company is formed, the name assumed by such company, the area or areas where its operations are to be carried on, the place where its principal office is to be located, and the amount and classes of its shares of capital stock; and the articles may contain any other provisions not inconsistent with this title that the company may see fit to adopt for the regulation of its business and the conduct of its affairs, including provision for cumulative voting in election of directors. Such articles and any amendments thereto adopted from time to time shall be subject to the approval of the Board of Governors of the Federal Reserve System (hereinafter called the "Board").

(c) The articles of incorporation and amendments thereto shall be forwarded to the Board for consideration and approval or disapproval. In determining whether to approve the establishment of such a company and its proposed articles of incorporation, the Board shall give due regard, among other things, to the need for the financing of independent small-business enterprises in the area in which the proposed company is to commence business, the general character of the proposed management of the company, the number of such com

panies previously organized in the United States, and the volume of their operations. After consideration of all relevant factors, the Board may in its discretion approve the articles of incorporation and issue a permit to begin business. (d) Upon issuance of such permit, the company shall become and be a body corporate, and as such, and in the name designated in its articles, shall have

power

(1) to adopt and use a corporate seal;

(2) to have succession for a period of thirty years, unless extended as provided in this section, or unless sooner dissolved by the act of the shareholders owning two-thirds of the stock or by an Act of Congress, or unless its franchise becomes forfeited by some violation of law or regulation issued hereunder;

(3) to make contracts;

(4) to sue and be sued, complain, and defend in any court of law or equity;

(5) by its board of directors, to appoint such officers and employees as may be deemed proper, define their authority and duties, fix their compensation, require bonds of such om them as it deems advisable and fix the penalty thereof, dismiss such officers or employees, or any thereof, at pleasure and appoint others to fill their places;

(6) to adopt bylaws regulating the manner in which its stock shall be transferred, its officers and employees appointed, its property transferred, and the privileges granted to it by law exercised and enjoyed;

(7) to establish branch offices or agencies subject to the approval of the Board;

(8) to acquire, hold, operate, and dispose of any property (real, personal, or mixed) whenever necessary or appropriate to the carrying out of its lawful functions;

(9) to act as depository or fiscal agent of the United States when sodesignated by the Secretary of the Treasury;

(10) to operate in such Federal Reserve district or districts or Territories or possessions of the United States as may be specified in its articles of incorporation and approved by the Board; and

(11) to exercise the other powers set forth in this title and such incidental powers as may be reasonably necessary to carry on the business for which the company is established.

(e) The board of directors of each national investment company shall consist of nine members all of whom shall be elected annually by the holders of the shares of stock of the company.

CAPITAL-STOCK PROVISIONS

SEC. 102. (a) Each company organized under this title shall have a paid-in capital and surplus equal to at least $5,000,000 before it shall commence business. In order to facilitate the formation of national investment companies, each Federal Reserve bank is hereby authorized, notwithstanding any other provisions of law, to invest in the shares of stock of one or more such companies formed by any Federal Reserve bank under section 101 hereof, but with a view to the ultimate disposal of such stock to banks and other private investors as herein provided. Each Federal Reserve bank which forms a national investment company shall invest in shares of stock of such company in an amount equal to at least $5,000,000, or an amount which, when added to the amounts, if any, of shares subscribed by other Federal Reserve banks, member banks, nonmember banks, financial institutions, corporations, partnerships, or other persons, shall equal the sum of $5,000,000. In no event shall any Federal Reserve bank invest in shares of national investment companies if as a result thereof it will hold an amount of such shares aggregating more than 2 percent of the aggregate amount of the combined capital and surplus of all its member banks or $5,000,000, whichever is the greater.

(b) The shares of stock in any national investment company shall be eligible for purchase by member banks of the Federal Reserve System, nonmember banks, financial institutions, corporations, partnerships, or other persons. Each member bank is hereby authorized, notwithstanding any other provision of Federal law, to acquire and hold an amount of such shares equal to not more than 2 percent of the capital and surplus of member bank. Upon the demand of any such eligible purchaser, a Federal Reserve bank which holds shares of stock in a national investment company shall, with the approval of the Board, including

approval as to price, sell to such eligible purchaser all or a portion of such shares.

(c) The aggregate amount of shares in any such company or companies which may be owned or controlled by any stockholder, or by any group or class of stockholders, may be limited by the Board; and no one stockholder, other than a Federal Reserve bank, shall at any time, without the approval of the Board, own or control more than 10 percent of the total outstanding shares of any such company.

BORROWING POWER

SEC. 103. Each national investment company shall have authority to borrow money and to issue its debentures, bonds, promissory notes, or other obligations under such general conditions and subject to such limitations and regulations as the Board may prescribe, but in no event shall any such company issue obligations which would cause the amount outstanding at any one time to exceed the amount of its capital stock and surplus.

ELIGIBLE ENTERPRISES

SEC. 104. The Board, after consultation with the Secretary of Commerce, shall promulgate standards to determine the eligibility of business enterprises for the purposes of this title. In promulgating such standards, which may differ according to the type of financing or other relevant factors, the Board shall give consideration to

(a) the policies set forth in section 2; and

(b) the extent to which such enterprises have reasonable access to facilities for credit and equity financing.

LOANS AND INVESTMENTS

SEC. 105. (a) Each national investment company shall have authority to make or acquire loans with or without security to business enterprises which are eligible under this title, or to purchase obligations of such enterprises. Such loans, purchases, or other acquisitions may be made either directly or in cooperation with banks or other lending institutions, through agreements to participate or by the purchase of participations, commitments to purchase, or otherwise, as the company may determine.

(b) Each national investment company shall have authority to acquire, and to resell to the issuer or to others, the income debentures or bonds, common or preferred stocks, or other capital shares of business enterprises eligible under this title.

AGGREGATE LIMITATIONS

SEC. 106. Without the approval of the Board, the aggregate amount of obligations and securities acquired and for which commitments may be issued by any national investment company under the provisions of this title which exceed the sum of $1,000,000 for any single enterprise shall not exceed 33% percent of the combined capital and surplus and maximum indebtedness of such national investment company authorized by this title.

EXEMPTIONS

SEC. 107. (a) The loans of any national banking association which are required by any national investment company, in the making of which such company participates, or for any part of which a commitment to purchase is issued hereunder shall not be subject to the limitations on real-estate loans prescribed in section 24 of the Federal Reserve Act, as amended (12 U. S. C. 371).

(b) Section 3 of the Securities Act of 1933, as amended (15 U. S. C. 77 C), is hereby amended by inserting at the end thereof the following new subsection (c): "(c) The Commission may from time to time by its rules and regulations, and subject to such terms and conditions as may be prescribed therein, add to the securities exempted as provided in this section any class of securities issued by a national investment company under the National Investment Company Act of 1957, if it finds, having regard to the purposes of that Act, that the enforcement of this title with respect to such securities is not necessary in the public interest and for the protection of investors."

(c) Section 304 of the Trust Indenture Act of 1939 (15 U. S. C. 77 ddd) is hereby amended by adding the following subsection (e):

"(e) The Commission may from time to time by its rules and regulations, and subject to such terms and conditions as may be prescribed therein, add to the securities exempted as provided in this section any class of securities issued by a national investment company under the National Investment Company Act of 1957, if it finds, having regard to the purposes of that Act, that the enforcement of this title with respect to such securities is not necessary in the public interest and for the protection of investors."

TAX PROVISIONS

SEC. 108. (a) Section 851 (a) (1) of the Internal Revenue Code of 1954 is amended by inserting before the word "registered" the following: "chartered under the National Investment Company Act of 1957 as a national investment company or is".

(b) Section 851 (b) (2) of the Internal Revenue Code of 1954 is amended by inserting immediately after the words "90 percent" the following: "(75 percent in the case of a national investment company chartered under the National Investment Company Act of 1957)”.

(c) Section 851 of the Internal Revenue Code of 1954 is amended by adding at the end thereof a new subsection as follows:

"(f) EXEMPTION OF NATIONAL INVESTMENT COMPANIES FROM LIMITATIONS OF SUBSECTION (b) (4).—If the Board of Governors of the Federal Reserve System determines that it is necessary and appropriate to accomplishment of the purposes of the National Investment Company Act of 1957 that any national investment company chartered under such Act be exempt from the requirements of this subsection (b) (4), it shall certify such determination to the Secretary or his delegate and, in such event, the limitations prescribed in subsection (b) (4) shall not apply to such national investment company."

(d) (1) Section 852 (a) of the Internal Revenue Code of 1954 is amended by adding at the end thereof the following: "The investment company taxable income of a regulated investment company which is a national investment company chartered under the National Investment Company Act of 1957 shall, for purposes of paragraph (1), be increased by the amounts described in subsection (d) (3) (D) and decreased by the amounts described in subsection (d) (5) (B)." (2) Section 852 of the Internal Revenue Code of 1954 is amended by adding at the end thereof a new subsection as follows:

"(d) NATIONAL INVESTMENT COMPANY RESERVE.

"(1) RESERVE GENERALLY.-A regulated investment company which is a national investment company chartered under the National Investment Company Act of 1957 may, under regulations prescribed by the Secretary or his delegate establish and maintain a reserve subject to the limitations provided in this subsection.

"(2) LIMITATION ON RESERVE.-The amount of the reserve shall not at any time exceed the lesser of

"(A) 50 percent of the invested capital of the company as defined in paragraph (7), or

"(B) the accumulated earnings and profits determined as of the close of the taxable year.

"(3) CHARGES TO RESERVE.-The reserve shall be charged as of the end of the taxable year (whether or not such charge produces a minus amount in the reserve) with the following:

"(A) the net capital loss for the taxable year (as defined in section 1222 (10));

"(B) the net operating loss for the taxable year (as defined in section 172 (c));

"(C) the Federal income taxes attributable to the amount added to the reserve under paragraph (5); and

"(D) such amount as may be necessary by reason of the limitation provided in paragraph (2).

"(4) MANDATORY ADDITIONS TO THE RESERVE.-There shall be added to the reserve as of the close of the taxable year the following:

"(A) an amount equal to the excess of the net capital gain for the taxable year computed without regard to section 1212 (relating to capital loss carry-over) over the net capital gain for the taxable year; and

"(B) an amount equal to the excess of the taxable income for the taxable year computed without regard to section 172 (relating to the

net operating loss deduction) over the taxable income for the taxable year.

"(5) DISCRETIONARY ADDITION TO THE RESERVE.-In any year in which an amount (other than the amount described in paragraph (4) is added to the reserve; the company shall, in the computation of its investment company taxable income be allowed

"(A) a deduction equal to such amount of the addition to the reserve as does not cause the aggregate amount of the reserve (including such addition) to exceed 20 percent of the invested capital of the company as defined in paragraph (7); and

"(B) the dividends received credit provided in section 243 but such credit shall not exceed 85 percent of the portion of amounts added to the reserve under this subparagraph which is not deductible from investment company taxable income under subparagraph (A).

"(6) REDUCTION OF TERMINATION OF RESERVE.-In the event of a reduction or termination of the reserve in connection with a partial or complete liquidation of the company (or of any company to which the reserve has been transferred in an exchange upon which gain was not recognized by reason of any provision of this subtitle) the gain realized by a stockholder upon any such liquidation shall, to the extent of the pro rata share of the reserve, be considered as a gain from the sale or exchange of property held for less than six months.

"(7) INVESTED CAPITAL.-For purposes of paragraph (2), the term 'invested capital' means the sum, determined as of the close of the taxable year, of

"(A) the amount of money or property (included in an amount equal to its unadjusted basis without regard to the value of the property as of March 1, 1913, except that if such basis is a substituted basis, it shall be adjusted, with respect to the period before the property was paid in, by an amount equal to adjustments proper under section 312 (f) for determining earnings and profits) previously paid in for stock, or as paid-in surplus or as a contribution to capital, reduced by the amount of distributions not out of earnings and profits in the year of distribution and not out of accumulated earnings and profits; and

"(B) the amount of the outstanding indebtedness (not including interest) of the company which is evidenced by a bond, note, bill of exchange, debenture, certificate of indebtedness, mortgage, or deed of trust, except that indebtedness not represented by a bond or debenture shall not be included in excess of an amount equal to the average daily amount of indebetedness not so represented which was outstanding during the taxable year."

(e) Each national investment company established under this title, including its franchise, capital, reserves, and surplus, its income, its real property, its tangible and intangible personal property, its obligations (both as in principal and income derived therefrom), shall be subject to taxation, in the same manner and to the same extent as a State-chartered institution of similar character by any State, county, municipality, or local taxing authority or by any Territory. dependency, or possession of the United States; and its real property shall be subject to special assessments for local improvements.

MISCELLANEOUS

SEC. 109. (a) Wherever practicable the operations of a national investment company shall be undertaken in cooperation with banks or other financial institutions, and any servicing or initial investigation required for loans or acquisitions of securities by the company under the provisions of this title may be handled through such blanks or other financial institutions on a fee basis.

(b) Each national investment company may make use, wherever practicable, of the advisory services of the Federal Reserve System and of the Department of Commerce which are available for and useful to industrial and commercial businesses, and may provide consulting and advisory services on a fee basis and have on its staff persons competent to provide such services. Subject to the supervision and direction of the Board, any Federal Reserve bank is authorized to act as a depository or fiscal agent for any company organized under this title. Such companies may invest funds not reasonably needed for their current operations in direct obligations of, or obligations guaranteed as to principal and interest by the United States.