Publicly filing firms may elect regulation as BDCs if they meet certain requirements of the Investment Company Act.
Under the legislation, a BDC must invest at least 70% of its assets in nonpublic US companies with market values of less than $250 million.
Election means the BDC must subject itself to all relevant provisions of the Investment Company Act, which (a) limits how much debt a BDC may incur, (b) prohibits most affiliated transactions, (c) requires a code of ethics and a comprehensive compliance program, and (d) requires regulation by the Securities and Exchange Commission (SEC) and subject to regular examination, like all mutual funds and closed-end funds.
As a pass-through tax structure, RICs must distribute at least 90 percent of taxable income as dividends to investors.
This feature often attracts money to newly public BDCs, thereby giving them a faster way to raise capital for investments than VC funds.