BILL NUMBER: SBX8 51INTRODUCED BILL TEXT INTRODUCED BY Senator Dutton FEBRUARY 12, 2010 An act to repeal and add Division 3 (commencing with Section 28000) of Title 4 of the Corporations Code, relating to capital access companies. LEGISLATIVE COUNSEL'S DIGEST SB 51, as introduced, Dutton. Capital access companies. Existing law, the Capital Access Company Law, provides for the licensure and regulation by the Commissioner of Corporations of capital access companies to enable those entities to provide risk capital and management assistance to small businesses in the state, exempt from the requirements of the federal Investment Company Act of 1940. A violation of the Capital Access Company Law may be punishable as a crime or by the imposition of civil penalties, as specified. This bill would repeal and recast the provisions of the Capital Access Company Law. The bill would require the commissioner to administer and enforce the Capital Access Company Law. The bill would establish procedures for the licensure of applicants to operate as a capital access company, including requiring the commissioner to determine whether an applicant meets specified requirements before issuing a license. The bill would authorize the commissioner to issue regulations and orders in administering the Capital Access Company Law. The bill would prohibit a person from acquiring control of a licensee without the prior approval of the commissioner. The bill would require the establishment of a capital access company advisory council, as specified, which would be required to adopt rules and regulations relative to the licensure and regulation of capital access companies. The bill would also establish unspecified fees to be paid to the commissioner when, among other things, an application is filed with the commissioner or when a licensee or any affiliate of a licensee is examined. The California Constitution authorizes the Governor to declare a fiscal emergency and to call the Legislature into special session for that purpose. The Governor issued a proclamation declaring a fiscal emergency, and calling a special session for this purpose, on January 8, 2010. This bill would state that it addresses the fiscal emergency declared by the Governor by proclamation issued on January 8, 2010, pursuant to the California Constitution. Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. Division 3 (commencing with Section 28000) of Title 4 of the Corporations Code is repealed. SEC. 2. Division 3 (commencing with Section 28000) is added to Title 4 of the Corporations Code, to read: DIVISION 3. Capital Access Company Law 28000. This division shall be known and may be cited as the Capital Access Company Law. 28001. This division shall be liberally construed to accomplish its purposes. 28002. The Legislature finds all of the following: (a) It is necessary to increase job opportunities in the state. (b) Promoting the establishment, growth, and expansion of small business firms in this state is an efficient way to increase job opportunities in the state. (c) Small business firms are unable to grow and create job opportunities unless they have access to risk capital. (d) Congress has exempted from the provisions of the federal Investment Company Act of 1940 certain companies that are not in the business of issuing redeemable securities, the operations of which are subject to state regulation governing entities that provide financial or managerial assistance to enterprises doing business or proposing to do business in the state. (e) Therefore, in order for the state to obtain the full benefits of that exemption, it is necessary that the state provide for the licensure and regulation of capital access companies, to permit these companies to operate pursuant to the exemption from regulation under the federal Investment Company Act of 1940. 28003. (a) The purpose of this division is to provide for the licensure and regulation of capital access companies that will provide risk capital and management assistance primarily to business firms in the state, to enable those companies to operate pursuant to the exemption from regulation under the Investment Company Act of 1940. (b) The purposes of this division as set forth in subdivision (a) constitute standards that the commissioner shall observe in administering the provisions of this division. 28004. The following definitions shall apply for the purposes of this division, unless the context otherwise requires: (a) "Affiliate" means any person, other than a natural person, controlling, controlled by or under common control with, another specified person, directly or indirectly through one or more intermediaries. (b) "Commissioner" means the Commissioner of Corporations. (c) "Control" means possession, direct or indirect, of the power to vote the majority or more of any class of the voting securities issued by a specified person, or to direct or cause the direction of the management and policies of that specified person, whether through the ownership of voting securities, by contract, or otherwise. (d) "License" means a license issued under this division authorizing a business entity to transact business as a capital access company. (e) "Licensee" means a business entity that is licensed under this division. (f) "Person" means any natural person, proprietorship, joint venture, partnership, trust, business trust, syndicate, association, joint stock company, corporation, limited liability company, government, agency of any government, or any other organization." Person," when used with respect to acquiring control of or controlling a specified person, includes any combination of two or more persons acting in concert. (g) "Resident business" means any person that transacts business, or proposes to transact business, on a regular and continual basis at one or more places of business in the state. (h) "Security" has the meaning set forth in Section 25019. (i) "Small business investment company" means any licensee that is licensed by the United States Small Business Administration to operate under the federal Small Business Investment Act of 1958 (Public Law 85-699, as amended) and regulations thereunder. (j) "To provide financing assistance to a person" means (1) to lend money or otherwise extend credit to the person, (2) to purchase securities issued by the person, either directly or indirectly through a registered broker-dealer, or (3) to lease property to the person. (k) "To provide managerial assistance to a person" means to provide management or technical advice, or management or technical services, to the person. 28005. (a) Each applicant for a license to operate as a capital access company under this division shall submit to the commissioner an application in a form and including any documentation as may be prescribed by the commissioner. (b) (1) Not later than 90 days after the initial receipt by the commissioner of an application under this section, the commissioner shall provide the applicant with a written report detailing the status of the application and any requirement remaining for completion of the application. (2) Within a reasonable time after receiving a completed application submitted in accordance with this subdivision and in accordance with any requirements as the commissioner may prescribe by regulation, the commissioner shall do one of the following: (A) Approve the application and issue a license for operation to the applicant if the requirements of this section are satisfied. (B) Disapprove the application and notify the applicant in writing of the disapproval and the reasons for the disapproval. (c) In reviewing and processing any application under this section, the commissioner shall determine whether the applicant meets the following requirements: (1) The applicant is any form of business entity, including, without limitation, a corporation, partnership, or limited liability company organized under the laws of the state or any foreign jurisdiction. (2) The organizational documents of the applicant state that its activities are limited to the promotion of economic, business, or industrial development in the state through the provision of financial or managerial assistance to resident businesses and any other activities that are incidental or necessary to carry out that purpose. (3) Immediately following each sale of the securities of the licensee by the licensee or any underwriter for the licensee, not less than 80 percent of the securities of the licensee being offered in that sale, on a class-by-class basis, are held by persons who reside, or who have a substantial business presence, in the state. (4) The securities of the licensee are sold, or proposed to be sold, by the licensee or by any underwriter for the licensee, solely to accredited investors, as that term is defined in Section 2(a)(15) of the federal Securities Act of 1933, as amended (15 U.S.C. Sec. 77a), or to any other persons that the Securities and Exchange Commission, as necessary or appropriate in the public interest and consistent with the protection of investors, may permit by rule, regulation, or order, and the licensee does not purchase any securities issued by an investment company as defined in Section 3 of the federal Investment Company Act of 1940 or by any company that would be an investment company except for the exclusions from the definition of the terms "investment company" under paragraph (1) or (7) of Section 3(a) of the federal Investment Company Act of 1940, other than the following: (A) Any debt security that is rated investment grade by not less than one nationally recognized statistical rating organization. (B) Any security issued by a registered open-end investment company that is required by its investment policies to invest not less than 65 percent of its total assets and securities described in subdivision (a) or securities that are determined by that registered open-end investment company to be comparable in quality to securities described in subdivision (a). 28006. The commissioner shall administer the provisions of this division. 28007. (a) The commissioner may from time to time issue any regulations and orders that are, in his or her opinion, necessary to carry out the provisions of this division. (b) Regulations and orders issued under this division may, among other things, define any term used in this division, as well as any term not used in this division. (c) For purposes of regulations and orders issued under this division, the commissioner may classify persons, transactions, and other matters within his or her jurisdiction, and may prescribe different regulations or orders for different classes. (d) The commissioner may waive any provision of any regulation or order issued under this division in any case where, in his or her opinion, the provision is not necessary in the public interest. 28008. Whenever the commissioner issues an order or license under this division, he or she may impose any conditions that are, in his or her opinion, necessary to carry out the provisions and purposes of this division. 28009. Every final order, decision, license, or other official act of the commissioner under this division is subject to judicial review in accordance with law. 28010. No person shall, except with the prior approval of the commissioner, acquire control of a licensee. 28011. (a) A capital access company advisory council shall be appointed to adopt regulations under this division with the participation and advice of the commissioner. (b) The advisory council shall consist of seven persons, five of whom shall be appointed by the Governor. One member shall be appointed by the Senate Committee on Rules, and one member shall be appointed by the Speaker of the Assembly. At least four persons appointed to the advisory council shall have a minimum of 10 years of direct experience in venture capital investment. (c) The members of the advisory council shall not receive a salary for their services but shall be reimbursed for their actual and necessary travel and other expenses incurred in the performance of their duties. 28012. (a) The advisory council shall adopt rules and regulations to effectuate the purposes of this division, including, but not limited to, guidelines to be used by the commissioner in processing and evaluating license applications and regulatory procedures to ensure compliance with this division. The advisory council shall establish guidelines to evaluate the performance of licensees under this division. (b) The advisory council shall adopt temporary guidelines within six months of its initial meeting. The adoption of these temporary guidelines shall not be subject to the procedures specified in Chapter 3.5 (commencing with Section 11340) of Division 3 of Title 2 of the Government Code. (c) Upon adoption of the temporary guidelines, the commissioner may approve issuance of licenses pursuant to this division. Licensees licensed pursuant to this division shall comply with the temporary guidelines, the requirements of this division, and, when adopted, the formal rules and regulations. (d) Formal rules and regulations implementing this division shall be adopted pursuant to Chapter 3.5 (commencing with Section 11340) of Division 3 of Title 2 of the Government Code and, upon adoption, shall supersede the temporary guidelines adopted pursuant to subdivision (b). (e) On and after January 1, 2010, or upon an earlier date as the advisory council completes its duties pursuant to this division, the commissioner shall periodically review the effectiveness of the rules and regulations adopted pursuant to this division and adopt changes as necessary. (f) The commissioner shall administer and enforce this division and the rules and regulations adopted pursuant to this division and may exercise any power conferred under Chapter 2 (commencing with Section 25530) of Part 6 of Division 1. 28013. If the licensee becomes licensed as a small business investment company and is subject to regulation by the Small Business Administration under the federal Small Business Investment Act of 1958, the regulations under that act shall supersede all of the regulatory requirements under this division except those provisions required to exempt licensees from regulation under the federal Investment Company Act of 1940. 28014. The commissioner may honor applications from interested persons for interpretive opinions regarding any provision of this division or of any regulation or order issued under this division. 28015. Fees shall be paid to, and collected by, the commissioner as follows: (a) The fee for filing with the commissioner an application for a license shall be ____ dollars ($____). (b) The fee for filing with the commissioner an application for any other matter, including acquiring control of a licensee, approval to merge with another corporation, approval for a licensee to purchase all or substantially all of the business of another person or licensee to sell all or substantially all of its business, shall be____ dollars ($____). (c) The fee for filing with the commissioner any other notice or application shall be ____ dollars ($____). (d) Whenever the commissioner examines any licensee or any affiliate of a licensee, the licensee shall pay, within 10 days after receipt of a statement from the commissioner, ____ dollars ($____) per day for each examiner engaged in the examination. If it is necessary for any examiner engaged in the examination to travel outside the state, the travel expenses for the examiner shall be paid by the licensee. (e) No fee for filing an application with the commissioner shall be refundable, regardless of whether the application is approved, denied, withdrawn, or abandoned. SEC. 3. This act addresses the fiscal emergency declared by the Governor by proclamation on January 8, 2010, pursuant to subdivision (f) of Section 10 of Article IV of the California Constitution.