Small Business Innovation Research (SBIR) Small Business Technology Transfer (STTR)

Process Acceleration:

Title 13, Code of Federal Regulations Sec. 107.865(b)-(d)

Regarding Investor Control of a Small Business

  • Presumption of Control. Control over a Small Business will be presumed to exist whenever you or the Investor Group own or control, directly or indirectly:
    1. At least 50 percent of the outstanding voting securities, if there are fewer than 50 shareholders; or
    2. More than 25 percent of the outstanding voting securities, if there are 50 or more shareholders; or
    3. A block of at least 20 percent of the outstanding voting securities, if there are 50 or more shareholders and no other party holds a larger block
  • Rebuttals to presumption of Control. A presumption of Control under paragraph (b) of this section is rebutted if:
    1. The management of the Small Business owns at least a 25 percent interest in the voting securities of the business; and
    2. The management of the Small Business can elect at least 40 percent (rounded down) of the board members of a corporation, general partners of a limited partnership or managers of a limited liability company, as appropriate, and the Investor Group can elect no more than 40 percent (rounded up). The balance of such officials may be elected through mutual agreement by management and the Investor Group.
  • Temporary Control permitted. You may acquire temporary Control:
    1. Where reasonably necessary for the protection of your investment;
    2. If there has been a material breach of the Financing agreement by the Small Business;
    3. If there has been a substantial change in the Small Business's operations or products during the past 2 years, or such a change is the intended result of the Financing, and the Investor Group's Financing constitutes the Small Business's major source of capital; or
    4. In the case of a Start-up Financing, if you or the Investor Group constitute the Small Business's major source of capital.