2020 Rule 3a-8 Supporting Statement

OMB CONTROL NUMBER: 3235-0574
SUPPORTING STATEMENT

For the Paperwork Reduction Act Information Collection Submission for

Rule 3a-8

A.

JUSTIFICATION
1.

Necessity for the Information Collection

Adopted in 2003, rule 3a-8 (17 CFR 270.3a-8) under the Investment Company
Act of 1940 (the “Act”) (15 U.S.C. 80a), serves as a nonexclusive safe harbor from the
Act’s definition of investment company for certain bona fide research and development
companies (“R&D companies”). The rule is designed primarily to benefit R&D
companies that often raise and invest large amounts of capital to fund their research and
product development and may make strategic investments in other R&D companies to
develop products jointly. In the absence of rule 3a-8, these activities may cause an R&D
company to fall within the Act’s definition of investment company and fail to qualify for
an exclusion. 1
Among other things, rule 3a-8 requires that the board of directors of an R&D
company seeking to rely on the safe harbor adopt an appropriate resolution evidencing
that the company is primarily engaged in a non-investment business and record that
resolution contemporaneously in its minute books or comparable documents. 2 The
Commission believes that the involvement of the board of directors in determining
whether an R&D company may rely on the rule is necessary to ensure that reliance on the
rule is consistent with investor protection. The collection of information imposed by this
1

See sections 3(a)(1)(A) and 3(a)(1)(C) of the Act (15 U.S.C. 80a-3(a)(1)(A),
80a-3(a)(1)(C)).

2

Rule 3a-8(a)(6)(iv). This requirement is modeled on the requirement in rule 3a-2 under
the Act that provides a temporary exemption from the Act for transient investment
companies. 17 CFR 270.3a-2(a)(2).

requirement is voluntary because rule 3a-8 is an exemptive safe harbor, and therefore,
R&D companies may choose whether or not to rely on it. An R&D company seeking to
rely on the safe harbor would need to retain these records only as long as such records
must be maintained in accordance with state law.
Rule 3a-8 contains an additional requirement that is also a collection of
information within the meaning of the PRA. The board of directors of a company that
relies on the safe harbor under rule 3a-8 must adopt a written policy with respect to the
company's capital preservation investments. 3
2.

Purpose and Use of the Information Collection

The purposes of the information collection requirements in rule 3a-8 are to ensure
that: (i) the board of directors of an R&D company is involved in determining whether
the company should be considered an investment company and subject to regulation
under the Act; and (ii) adequate records are available for Commission review, if
necessary.
3.

Consideration Given to Information Technology

Rule 3a-8 does not require reporting of any information or the filing of any
documents with the Commission. The board of directors of an R&D company seeking to
rely on the rule would need to adopt a board resolution and record that resolution
contemporaneously in its minute books or comparable documents. Under the federal
securities laws, the Commission does not prescribe how R&D companies keep records of

3

17 CFR 270.3a-8(a)(7). The rule defines “capital preservation investment” as an
investment that is made to conserve capital and liquidity until the funds are used in the
issuer’s primary business or businesses. 17 CFR 270.3a-8(b)(4).

2

board resolutions or minutes of board meetings. Accordingly, an R&D company could
maintain these records electronically unless otherwise prohibited by state law.
4.

Duplication

Rule 3a-8 does not impose any requirements that are duplicated elsewhere in the
federal securities laws, and similar information is not available from other sources.
5.

Effect on Small Entities

The Commission staff estimates that approximately 29,999 companies may rely
on the rule, but anticipates that only a small percentage of these companies may be
considered small entities. The only significant alternative to the rule would be for an
R&D company to engage in its own analysis of existing statutory provisions and
Commission orders and interpretations to determine the R&D company's status under the
Act. The Commission therefore concludes that the rule, although it could affect small
entities, would be less burdensome than this alternative and, thus, would minimize any
impact upon, or cost to, small businesses. The Commission believes it could not adjust
the rule to lessen the burden on small entities of complying with the rule without
compromising the protection of investors in those small entities.
6.

Consequences of Not Conducting Collection

The information collection requirements of rule 3a-8 would apply to an R&D
company only if the R&D company relies on the rule. Under the rule, the board of
directors of an R&D company relying on the rule would need to adopt and record a
resolution that the company is engaged in a non-investment business only once, unless
the relevant circumstances change.

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7.

Inconsistencies with Guidelines in 5 CFR 1320.5(d)(2)

None.
8.

Consultation Outside of the Agency

The Commission requested public comment on the collection of information
requirements in rule 3a-8 before it submitted this request for extension and approval to
the Office of Management and Budget. The Commission received no comments in
response to its request.
9.

Payment or Gift

Not applicable.
10.

Confidentiality

Not applicable.
11.

Sensitive Questions

No information of a sensitive nature will be required under this collection of
information. The information collection does not collect personally identifiable
information (PII). The agency has determined that a system of records notice (SORN)
and privacy impact assessment (PIA) are not required in connection with the collection of
information.
12.

Burden of Information Collection

Commission staff estimates that approximately 29,999 R&D companies may take
advantage of rule 3a-8. 4 Given that the board resolutions and investment guidelines will

4

See National Science Foundation, National Center for Science and Engineering Statistics,
Business R&D and Innovation: 2016 (results published May 13, 2019).

4

generally need to be adopted only once (unless relevant circumstances change), 5 the
Commission believes that all the R&D companies that existed prior to the adoption of
rule 3a-8 adopted their board resolutions and established written investment guidelines in
2003 when the rule was adopted. We expect that R&D companies formed subsequent to
the adoption of rule 3a-8 would adopt the board resolution and investment guidelines
simultaneously with their formation documents in the ordinary course of business. 6
Therefore, we estimate that rule 3a-8 does not impose additional burdens.
Although Commission staff estimates that there is no annual paperwork burden
associated with the rule's requirements, the Commission requests authorization to
maintain an inventory of one burden hour for administrative purposes.
Table 1: Change in Burden Estimates

Rule
3a-8

Annual Number of Responses
Previously Proposed Change
approved
estimate
1
1
0

13.

Annual Time Burden (hours)
Previously Proposed Change
approved
estimate
1
1
0

Cost Burden (dollars)
Previously Proposed
approved
estimate
$0
$0

Change
$0

Cost to Respondents

Rule 3a-8 does not impose any paperwork related cost burden that is not
described above in Item 12 above.
14.

Cost to the Federal Government

No costs to the federal government are associated with rule 3a-8. The rule does
not require an R&D company to file any documents with the Commission.
5

In the event of changed circumstances, the Commission believes that the board resolution
and investment guidelines will be amended and recorded in the ordinary course of
business and would not create additional time burdens.

6

In order for these companies to raise sufficient capital to fund their product development
stage, Commission staff believes that they will need to present potential investors with
investment guidelines. Investors generally want to be assured that the company’s funds
are invested consistent with the goals of capital preservation and liquidity.

5

15.

Change in Burden

Rule 3a-8 has a current burden of 1 hour. Commission staff continues to estimate
that newly formed R&D companies adopt the required board resolution and investment
guideline in the ordinary course of business, and therefore results in an annual burden of
0 hours. We request authorization to maintain the inventory of one burden hour for
administrative purposes.
16.

Information Collection Planned for Statistical Purposes

Not applicable.
17.

Approval to Omit OMB Expiration Date

Not applicable.
18.

Exceptions to Certification Statement for Paperwork Reduction Act

Submission
Not applicable.
B.

COLLECTION OF INFORMATION EMPLOYING STATISTICAL METHODS

Not applicable.

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