Best Practices for Independent Directors of Business Development Companies

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As business development companies (BDCs) grow in popularity, the role of their independent directors grows in importance. Here we look at the increasingly important role that BDC independent directors play and how their responsibilities differ from the responsibilities of independent directors to traditional investment companies.

WHAT ARE BUSINESS DEVELOPMENT COMPANIES? -

A BDC is a special type of closed-end investment company that Congress authorized in 1980 as a way to make capital more readily available to small, developing, financially troubled companies that do not have ready access to the public capital markets or to other forms of conventional financing. BDCs are subject to a more relaxed regulatory structure. In exchange, they must limit most of their investments to securities of private, smaller companies (“eligible portfolio companies”) and must make available “significant managerial assistance” to the issuers of those securities. The special nature of BDCs creates special challenges for their independent directors.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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