2023 California Code › Corporations Code - CORP › TITLE 4 - SECURITIES › DIVISION 3 - CAPITAL ACCESS COMPANIES › CHAPTER 12 - Crimes and Criminal Penalties › ARTICLE 2 - Conflicts of Interest › Section 28821.

28821. (a)  A licensee shall not provide financial or managerial assistance to, or for the benefit of, any person to the detriment of a small business firm or smaller business firm, the licensee, its shareholders, or partners. Unless a licensee obtains a prior written exemption from the commissioner for special instances in which providing financial assistance may further the purposes of this division despite presenting a conflict of interest, a licensee shall not directly or indirectly do any of the following:
(1) Provide financial assistance to any of the licensee’s associates.
(2) Provide financial assistance to an associate of another licensee, if one of the licensee’s associates has received or will receive any direct or indirect financial assistance or a commitment from that licensee or a third licensee, including financial assistance or commitments received under any understanding, agreement, or cross dealing, reciprocal or circular arrangement.
(3) Borrow money from any of the following:
(A) A small business firm or smaller business firm to which the licensee has provided financial assistance.
(B) An officer, director, or owner of at least a 10-percent equity interest in the business.
(C) A close relative of a person described in subparagraph (B).
(4) Provide financial assistance to a small business firm or smaller business firm to discharge an obligation to a licensee’s associate or to make other funds available to pay the obligation, except if the obligation is to an associate lending institution and is a line of credit or other obligation incurred in the normal course of business.
(5) Provide financial assistance to a small business firm or smaller business firm for the purpose of purchasing property from a licensee’s associate.
(b) Without the commissioner’s prior written approval, a licensee’s associates shall not, directly or indirectly, do either of the following:
(1) Borrow money from any person described in paragraph (3) of subdivision (a).
(2) Receive from a small business firm or smaller business firm any compensation in connection with any financial assistance a licensee provides or anything of value for procuring, attempting to procure, or influencing a licensee’s action with respect to that financial assistance.
(c) (1) Without the commissioner’s prior written approval, a licensee shall not provide financial assistance to any business in which the licensee’s associate has either a voting equity interest, or total equity interests, including potential interests, of at least 5 percent.
(2) If a licensee and its associate provide financial assistance to the same small business firm or smaller business firm, whether at the same time or different times, a licensee shall demonstrate to the commissioner’s satisfaction that the terms and conditions are, or were, fair and equitable to the licensee, taking into account any differences in the timing of each party’s financial transactions.
(3) Financial assistance that meets either of the following criteria is exempt from the prior approval requirement in paragraph (1) and shall be presumed to be fair and equitable to the licensee for the purposes of paragraph (2):
(A) The licensee’s associate is a lending institution that is providing financing under a credit facility in order to meet the operational needs of a small business firm or smaller business firm, and the terms of that financing are usual and customary.
(B) The licensee’s associate invests in the small business firm or smaller business firm on the same terms and conditions and at the same time as the licensee.
(d) To protect a licensee’s investment, a licensee may designate an associate to serve as an officer, director, or other participant in the management of a small business firm or smaller business firm. The licensee shall identify this associate in the licensee’s records maintained and made available for the commissioner’s review. Without the commissioner’s prior written approval, the associate shall not do any of the following:
(1) Have any other direct or indirect financial interest in the small business firm or smaller business firm that exceeds, or has the potential to exceed, 5 percent of the firm’s equity.
(2) Have served for more than 30 days as an officer, director, or other participant in the management of the small business firm or smaller business firm before the licensee provided the financial assistance.
(3) Receive any income or anything of value from the small business firm or smaller business firm unless it is for the licensee’s benefit, with the exception of director’s fees, expenses, and distributions based upon the associate’s ownership interest in the small business firm or smaller business firm.
(Repealed and added by Stats. 2010, Ch. 516, Sec. 14. (SB 1155) Effective January 1, 2011.)