H.R. 3248 — American Ownership and Resilience Act

This section establishes definitions for purposes of the Act, including "covered business concern" (i.e., an independently owned and operated enterprise, regardless of size standard, where investments by venture capital firms, 1940 Act or 1980 Act companies, employee welfare benefit plans, pension plans, or tax-exempt trusts, foundations, or endowments do not affect independent status); "covered investment" (i.e., financing a sale of majority ownership in such a concern to an employee stock ownership plan (ESOP, as defined in IRC §4975(e)(7)) or eligible worker-owned cooperative (as defined in IRC §1042(c)) with an independent trustee for ESOP transactions, or providing additional capital without diluting such majority ownership); and "Department" (i.e., Department of Commerce). It further defines "employee welfare benefit plan" and "pension plan" by reference to ERISA §3 (29 U.S.C. 1002), including public and private plans subject to ERISA and similar government-established plans not covered by ERISA; and specifies qualifications for "independent financial advisor" and "independent trustee" to ensure lack of conflicts in ESOP transactions.

This section establishes an ownership investment facility administered by the Secretary to provide leverage to licensed ownership investment companies for covered investments, limited to $5 billion total per fiscal year (no more than 20% to Protégé OIC companies). For covered investments involving sales to an employee stock ownership plan (ESOP), the section requires (1) appointment of an independent trustee by the covered business concern prior to execution to evaluate the transaction and obtain a fairness opinion from an independent financial advisor assessing whether the price, terms, and financing costs are fair to the ESOP; (2) prohibition on personal financing by employees of the covered business concern (except for sales of their own ownership interests or reasonable cooperative contributions); (3) no control over the concern by the ownership investment company; (4) allocation of sale proceeds to ESOP participants as if all shares were fully allocated based on compensation (per IRC §415(c)(3)); (5) maintenance of ESOP share count at no less than initial levels during the investment company's interest (waivable by independent trustee); (6) retention of an independent trustee while the investment company holds an interest; (7) for subsidiary LLCs, ESOP majority interest, S corporation-level board governance, IRC §409(p)-compliant profits interests, and applicability of sale proceeds rules; and (8) preconditions for stock sales or specified corporate matters (per IRC §409(e)(3)), including independent trustee and fairness opinion requirements, plus participant direction rights.

This section establishes organizational requirements for ownership investment companies, including authorization as an incorporated body, limited liability company, or limited partnership under state law solely to perform functions under the Act, with succession for at least 30 years (if incorporated) or 10 years (if a limited partnership), and operations area subject to Department approval. It requires articles to specify the company's objects, name, operational areas, principal office location, and capital stock classes; permits additional consistent provisions; and subjects articles and amendments to Secretary approval. The section further directs the Secretary to issue licenses on a rolling basis via electronic submissions, provide application status reports within 90 days, and approve or disapprove completed applications within 90 days based on specified criteria, including compliance with minimum capital requirements under section 6(a) and (b); management qualifications and experience; financing needs in the area; owners' and management's reputation; and operational viability (disregarding projected leverage shortages). For ownership investment companies, it requires proof of managers' investment track record in employee stock ownership plans or eligible worker-owned cooperatives (or retention of advisors with at least five years of relevant experience) but prohibits rejection solely for lacking realized investments if unrealized covered investments demonstrate success; it also authorizes provisional licenses for up to one year for applicants not meeting minimum private capital who intend to raise private capital commitments and more precisely request leverage.

This section establishes the Protégé Ownership Investment Company (OIC) Program, under which a manager of an existing OIC may enter a Secretary-approved written agreement to mentor a Protégé OIC on (1) applying for an OIC license under section 4(c) and (2) post-licensure management. The Secretary may grant the Protégé OIC a license based on the mentor manager's investment track record. Participating managers may (1) hold a minority financial interest in companies managed by the Protégé OIC; (2) increase the maximum outstanding leverage available to any one licensed company under section 7(b)(6)(B)(i)(I) by $17,500,000; and (3) increase the maximum outstanding leverage available to any two or more commonly controlled licensed companies under section 7(b)(6)(B)(i)(II) by $35,000,000.

This section requires each licensee to maintain private capital of not less than $10,000,000 and directs the Secretary to determine the adequacy of such capital to ensure sound, profitable operation and prudent management, as well as the licensee's ability to make periodic payments on interest-bearing debt prior to licensing and financing requests. It further requires the Secretary to ensure that licensee management (including Protégé OICs) is sufficiently diversified from and unaffiliated with ownership to promote independence and objectivity in financial management and investment oversight.

This section authorizes ownership investment companies to borrow money and issue securities, promissory notes, or other obligations under conditions and limitations prescribed by the Secretary. It further authorizes the Secretary, when funded by appropriations acts, to guarantee such companies' debentures (pledging full faith and credit), which (1) are subordinate to other debts unless the Secretary determines otherwise; (2) have terms up to 15 years and interest rates based on Treasury yields plus an annual charge of up to 1.38% to achieve zero subsidy cost; and (3) are subject to leverage caps of $500 million (lesser of that or 100% of private capital) for a single non-Protégé OIC, $1 billion for commonly controlled non-Protégé OICs, and $100 million (lesser of that or 100% of private capital) for a Protégé OIC, excluding up to $75 million or 25% of private capital (whichever less) for certain U.S.-headquartered manufacturing investments in critical industries. The section restricts third-party debt to avoid federal risk, requires capital impairment reviews before leverage approval, and mandates nonrefundable leverage fees.

This section revises the financing authority previously applicable to small business investment company loans (15 U.S.C. 685) for ownership investment companies as follows: (1) authorizes provision of debt, synthetic equity, preferred stock, or equity capital—or combinations thereof—to covered business concerns under Department regulations (previously loans to small-business concerns); (2) requires that, before providing capital, companies may refinance all outstanding indebtedness to become the sole holder and that concerns agree not to incur future indebtedness without company approval and first refusal (except per regulations); (3) sets maximum interest rates for company shares by the Secretary (previously the SBA Administrator), permitting debenture issuers to base rates on outstanding debentures' coupon rates plus approved expenses, with initial determinations consulting SBA regulations; and (4) retains maximum loan maturities of 20 years, extendable or renewable by up to 10 years to aid orderly liquidation, with loans required to be of sound value or secured to assure repayment.

This section limits aggregate securities acquisitions and commitments by an ownership investment company—with outstanding financing from the Secretary under this Act—for any single covered business concern to 10% of the sum of the company's private capital and its total projected leverage as approved in its licensing business plan, absent Secretary approval.

This section authorizes the Securities and Exchange Commission (SEC), by rule and subject to prescribed terms and conditions, to exempt classes of securities issued by an ownership investment company from (1) registration requirements under title I of the Securities Act of 1933 (15 U.S.C. 77a et seq.); and (2) requirements under title III of the Trust Indenture Act of 1939 (15 U.S.C. 77aaa et seq.), if the SEC determines enforcement is not necessary in the public interest and for investor protection. The section further exempts such companies from capital structure limitations in section 18(a)(1)(A) and (B) of the Investment Company Act of 1940 (15 U.S.C. 80a–18(a)(1)(A)–(B)) (i.e., restrictions on senior securities representing indebtedness and assets coverage requirements), provided the senior security is guaranteed by the Department.

This section establishes leverage requirements prohibiting the Department from committing leverage to any licensee unless (1) the licensee's managers certify the names and fees of any attorneys, agents, or other persons engaged to expedite Department applications; and (2) the licensee agrees, for two years after assistance is rendered, not to employ, offer employment to, or retain for services any Department officer, attorney, agent, or employee who served in such capacity on the date of assistance or within the prior year and exercised discretion over granting assistance under the Act.

This section requires the Secretary to submit to Congress, not later than one year after the date of enactment of this Act and annually thereafter, a report detailing the operations of the Department under this Act, including Government losses sustained during the preceding fiscal year and estimated losses for the current fiscal year. The report must include the following: (1) plans to provide ownership investment company financing and licensing nationwide to all covered business concerns, including steps taken; (2) plans to support states seeking to increase the number of licensees; (3) steps to maximize recoupment of Government funds and ensure compliance with statutory and regulatory standards for the ownership investment company program; (4) recommendations to the Department of the Treasury for additional tax incentives to improve ownership investment company operations and encourage use by covered business concerns; (5) a Securities and Exchange Commission (SEC) report on actions to simplify regulatory requirements under federal securities laws and eliminate overlapping regulation among the SEC, Department, and other agencies; (6) SEC actions to simplify compliance with the Investment Company Act of 1940 and facilitate taxation as regulated investment companies under IRC §851; (7) number of ownership investment companies (including Protégé OICs) licensed, placed in liquidation, or surrendering licenses during the year, including leverage received; (8) amount of leverage received by ownership investment companies (including Protégé OICs) during the year; (9) sizes, geographic locations, and characteristics of licensed ownership investment companies (including Protégé OICs), including use of leverage for debt, synthetic equity, preferred equity, equity investments, or combinations in covered business concerns; (10) geographic dispersion of licensees per state relative to state population; (11) summary of employee stock ownership plans created by ownership investment companies (including Protégé OICs), including total active participants, total employees, employer securities value, total plan assets, contributions and distributions, median account balance, and participant demographics by race, gender, and state (to the extent available); and (12) summary of eligible worker-owned cooperatives created by ownership investment companies (including Protégé OICs), including number of member-owners, total employees, employer securities value, membership account assets and median balance, and membership demographics by race, gender, and state (to the extent available).

This section establishes authority for the Secretary to revoke or suspend licenses for false or misleading statements, willful or repeated violations of the Act or regulations, or violations of cease and desist orders. It authorizes the Secretary to issue cease and desist orders against licensees or other persons for noncompliance or violations, requiring corrective action and permitting license suspension until compliance. The section requires an order to show cause and hearing (or waiver) before revocation, suspension, or cease and desist orders; grants subpoena power for witness testimony and documents, with court enforcement; and provides for appeals within 30 days to the U.S. court of appeals for the circuit where the licensee has its principal place of business, where the court may affirm, modify, set aside the order, order additional evidence, or suspend the order pending review (with no automatic stay).

This section authorizes the Secretary to investigate potential violations of the Act by licensees or other persons, including powers to administer oaths, subpoena witnesses and documents from anywhere in the United States, and seek court enforcement for noncompliance (punishable as contempt). It requires the Department to examine each licensee at least once every two years to verify compliance with specified standards—such as engaging solely in lawful activities, avoiding prohibited conflicts of interest (under section 16), adhering to portfolio diversification limits (under section 9), refraining from relending or passive investments, and meeting covered investment requirements—with examination costs assessable to the licensee; permits waivers for up to one year or during suspension due to litigation or receivership; and requires licensees to submit reports as directed (exempting certain Investment Company Act registrants to avoid duplication). It further requires each licensee to submit written valuations of loans and investments semiannually (annually if no leverage outstanding or as otherwise directed), notify the Secretary within 30 days of any material adverse change in aggregate valuation or operations at fiscal quarter-end, and provide annual financial statements audited by an independent certified public accountant (approved by the Secretary) that reviews valuation procedures and confirms conformity with criteria.

This section authorizes the Secretary to apply to a U.S. district court for injunctions or orders enforcing compliance with the Act by licensees or others who have violated or are about to violate its provisions, rules, regulations, or orders, with courts required to grant such relief without bond upon a proper showing. The section grants courts exclusive jurisdiction over licensees and their assets in such proceedings, including authority to appoint a trustee or receiver (potentially the Secretary, upon request, absent special circumstances).

This section directs the Secretary to adopt regulations governing transactions with officers, directors, shareholders, partners, or members of licensees—or persons or concerns in which such individuals hold an interest—to control conflicts of interest detrimental to covered business concerns, licensees, their shareholders or members, or the purposes of this Act, including requirements for public disclosure. The section further requires the Secretary, in making any initial determination under such regulations, to consult existing Small Business Administration regulations on conflicts of interest under section 312 of the Small Business Investment Act of 1958 (15 U.S.C. 687d); and to promulgate the regulations in accordance with the implementation milestones set forth in section 3(l) of this Act.

This section establishes procedures for the Secretary to remove, suspend from office, or prohibit from further participation in the affairs of a licensee any management official (i.e., officer, director, general partner, manager, employee, agent, or other participant in management or conduct of licensee affairs) who has willfully and knowingly committed a substantial violation of the Act, regulations, or a final cease-and-desist order, or a substantial breach of fiduciary duty involving personal dishonesty. It requires written notice with facts and a hearing 30 to 60 days after service (unless adjusted for good cause or at Attorney General request), deems nonappearance as consent to removal, and makes a removal order effective 30 days after service on the licensee and official (immediately if by consent), subject to Secretarial or judicial modification. This section authorizes immediate suspension or prohibition if necessary to protect the licensee or Department interests, remaining in effect pending removal proceedings or dismissal of charges unless stayed by a district court upon application within 10 days. This section further permits suspension upon felony charges (via information, indictment, or complaint) involving dishonesty or breach of trust, remaining in effect until disposition or Secretarial termination; authorizes removal upon final conviction not subject to further review; and specifies that acquittal or other disposition does not preclude subsequent removal proceedings.

This section deems any violation of the Act or its regulations by a licensee—including by noncompliance or engaging in prohibited acts or practices—to also constitute a violation by any officer, director, employee, agent, or other person who directly or indirectly authorizes, orders, participates in, causes, counsels, aids, or abets such violation. This section prohibits any officer, director, employee, agent, or other participant in a licensee's management or affairs from engaging in any act or omission that breaches their fiduciary duty if it results in financial loss or other damage (or imminent danger thereof) to the licensee. This section further prohibits, absent the Secretary's written consent, (1) any person convicted of a felony or other criminal offense involving dishonesty or breach of trust, or found civilly liable in damages or enjoined by a court for acts or practices involving fraud or breach of trust, from serving as an officer, director, employee, agent, or participant in a licensee's affairs; and (2) any such person already serving in those capacities from continuing to do so upon a subsequent conviction or finding of liability or injunction.

This section establishes civil penalties of up to $100 per day against licensees that violate regulations or directives under the Act by failing to file required reports pursuant to section 12, unless the failure is due to reasonable cause and not willful neglect. It further authorizes the Secretary to exempt licensees from these penalties or impose alternative requirements if consistent with the public interest and protection of the Department.

This section establishes venue for enforcement suits or actions brought by the Department under sections 13, 15, 17, 19, or 23 of the Act in the federal district where the licensee maintains its principal office and authorizes service of process in any district where the defendant maintains its principal office, transacts business, or may be found.

This section authorizes the Secretary to issue trust certificates representing ownership of all or a fractional part of debentures issued by licensees and guaranteed by the Department under the Act, provided the certificates are backed by a Secretary-approved trust or pool composed solely of such guaranteed debentures. The Secretary may guarantee the timely payment of principal and interest on the trust certificates—limited to the principal and interest on the underlying debentures in the pool and reduced proportionally for any prepayments or defaults—with such guarantee backed by the full faith and credit of the United States and accruing interest only through the payment date on defaulted or prepaid debentures. (Debentures are debt obligations issued by small business investment companies (SBICs) to the Small Business Administration (SBA) to fund small business investments, with SBA providing a full faith and credit guarantee; trust certificates enable pooling and securitization of these debentures for sale to investors, similar to Ginnie Mae mortgage-backed securities.) The section further (1) prohibits the Secretary from charging fees for guarantees but allows approved agent fees; (2) provides for Secretary subrogation upon guarantee payments and unrestricted exercise of ownership rights in pooled debentures; (3) requires central registration of trust certificates, contracting with bonded agents for pooling, registration, and related banking functions, seller disclosures of terms and yield prior to sale, and Secretary regulation of brokers and dealers; and (4) permits book-entry or electronic registration.

This section requires the Secretary to issue guarantees under section 7 and trust certificates under section 21 at periodic intervals of not less than every 12 months, or more frequently as the Secretary deems appropriate considering the amount and number of such guarantees or certificates.

This section establishes miscellaneous provisions governing ownership investment companies, as follows: (1) authorizes such companies to cooperate with banks, investors, and lenders—including for generating business, servicing, and investigations on a fee basis; (2) directs the Secretary to prescribe regulations to carry out the Act; (3) provides for judicial forfeiture of rights, privileges, and franchises for violations, via suit by the United States in the district of the company's principal office at the instance of the Secretary or Attorney General; and (4) exempts the United States from liability on any obligations, stocks, or commitments of such companies.