Business Development Company (BDC):
A BDC is a publicly traded, non-diversified closed-end investment company, which is typically taxed
as a regulated investment company (RIC) under Subchapter M of the Internal Revenue Code.
A BDC makes investments in private companies in the form of debt (loans) or equity
securities. It seeks to generate current income, return of capital and/or capital
gains in a tax-efficient manner. Like mutual funds, BDCs are highly regulated entities.
Benefits of the BDC Structure to Shareholders:
Access to private investments without requirement of accredited investor status
Shareholders in publicly-traded BDCs receive Form 1099-DIV and are not required to file K-1s
Daily liquidity through listing on a national exchange that provides shareholders the flexibility to enter or exit the investment when desired
Monthly distribution of net investment income and net realized capital gains to shareholders
RICs that meet dividend paid deduction, gross income qualification and diversification requirements receive flow-through tax treatment and are typically not taxed at the investment company level. Shareholders are taxed on BDC's distributions
Sarbanes-Oxley compliant; Majority of directors on board are independent;
Debt-to-equity leverage is limited to a maximum of 1 to 1, far lower
than typical bank leverage. Quarterly portfolio valuations
approved by independent directors
RIC requirements for portfolio company diversification typically result in less position concentration than traditional private equity funds
Quarterly SEC financials; Entire portfolio publicly disclosed in the Schedule of Investments with each portfolio company valued at fair market value quarterly