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Regulatory Capital: A Comprehensive Guide to Its Legal Definition
Definition & Meaning
Regulatory capital refers to the amount of capital that a business, particularly a small business investment company (SBIC), must maintain as required by the Small Business Administration (SBA). This capital typically includes private capital contributions but excludes non-cash assets unless they have been converted to cash or specifically approved by the SBA. Additionally, any questionable commitments from investors are not counted as regulatory capital.
Table of content
Legal Use & context
This term is primarily used in the context of small business investment companies, which are regulated by the SBA. Regulatory capital is essential for these companies to ensure they have sufficient financial backing to support small businesses. Legal professionals may encounter this term in financing agreements, compliance documents, and investment evaluations. Users can utilize legal templates from US Legal Forms to help manage related documentation effectively.
Key legal elements
Real-world examples
Here are a couple of examples of abatement:
For instance, a small business investment company receives a cash investment from an investor, which counts as regulatory capital. However, if the investor contributes equipment instead of cash, that contribution will not be considered regulatory capital unless it is sold and the proceeds are converted to cash (hypothetical example).
Relevant laws & statutes
Regulatory capital is defined under 13 CFR 107.50, which outlines the requirements for small business investment companies as regulated by the SBA. This regulation is crucial for ensuring that these companies maintain adequate financial resources.
Comparison with related terms
Term
Definition
Key Differences
Private Capital
Funds contributed by private investors.
Regulatory capital includes only approved private capital, excluding non-cash assets.
Non-Cash Assets
Assets that are not liquid cash, such as property or equipment.
Non-cash assets are excluded from regulatory capital unless converted to cash.
Common misunderstandings
What to do if this term applies to you
If you are involved with a small business investment company, ensure that you understand how regulatory capital is calculated. Consider using US Legal Forms to access templates for compliance documents. If your situation is complex, consulting with a legal professional may be necessary to navigate the requirements effectively.
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Definition: Capital required by the SBA for small business investment companies.
Includes: Private capital contributions.
Excludes: Non-cash assets unless converted to cash or approved.
Regulatory Source: 13 CFR 107.50.
Key takeaways
Frequently asked questions
Regulatory capital is the amount of capital that small business investment companies must maintain as required by the SBA, primarily consisting of private capital contributions.
Non-cash assets are excluded to ensure that the capital is liquid and readily available for investment purposes.
Consulting with a legal professional and utilizing legal templates can help ensure compliance with regulatory capital requirements.