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Regular Session, 2011
HOUSE BILL NO. 629
BY REPRESENTATIVE ELLINGTON
TAX CREDITS: Creates the La. Entrepreneurial Assistance and Development (LEAD)
Program for tax credits for venture capital investments
AN ACT1
To enact R.S. 22:832.1 and Chapter 55 of Title 51 of the Louisiana Revised Statutes of2
1950, to be comprised of R.S. 51:3110 through 3117, relative to tax credits; to3
establish the Louisiana Entrepreneurial Assistance and Development Program to4
provide a credit against insurance premium tax for certain venture capital investors;5
to provide for administration of the program by the Department of Economic6
Development; to provide for applications and to establish criteria for approval; to7
establish criteria for investments; to provide for reporting; to provide for other8
requirements and limitations; and to provide for related matters.9
Be it enacted by the Legislature of Louisiana:10
Section 1. R.S. 22:832.1 is hereby enacted to read as follows:11
§832.1. Insurance Premium Tax; Louisiana Entrepreneurial Assistance and12
Development Program; tax credit for investors13
A. There is hereby authorized a tax credit against premium tax for an investor14
that makes an investment of eligible capital and receives certification for a tax credit15
pursuant to the provisions of R.S. 51:3110, et seq. The credit shall be earned and16
vested in the year that the investment is made. The amount of the credit shall be17
equal to seventy-five percent of the amount of the investment. The premium tax18
credit shall be available for, but not limited to, taxes charges on insurance premiums19
under R.S. 22:831, 836, 838, and 842. Notwithstanding any other provision of law20 HLS 11RS-1264 ORIGINAL
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to the contrary, the premium tax credit shall not be available for taxes charged on1
insurance premiums under R.S. 22:345, 439, 833, 835, 837, and 1476.2
B. In any one taxable year, no more than twenty-five percent of the total3
premium tax credit which is earned with respect to a particular investment described4
in Subsection A of this Section may be used, provided that:5
(1) The taxpayer may not utilize credits in any taxable year in excess of its6
premium tax liability for such taxable year.7
(2) The tax credits shall not initially be applicable against premium tax8
liability generated in any calendar year until the third calendar year after the year in9
which the investment of eligible capital was made pursuant to the requirements of10
the Louisiana Entrepreneurial Assistance and Development Program as provided in11
R.S. 51:3110, et seq.12
(3) The premium tax credit shall not be applicable against any estimated13
premium tax payments on or before April 15, 2015.14
C. In accordance with the limitations provided in this Chapter, premium tax15
credits available under this Section may be carried forward for use in future years.16
D. Any investor who earns a premium tax credit pursuant to this Section shall17
be allowed to transfer such credits to any insurance company, which tax credits shall18
be subject to the forfeiture provisions of R.S. 51:3116. Within thirty days after the19
transfer of tax credits, the original holder of the tax credits shall notify the20
department in writing of the name of the new holder of the tax credits and the21
amount of tax credits transferred, the price of such credits, the date the transfer22
occurred, the tax identification number of the transferee, and the remaining balance23
of credits held by the transferor. In the event such notice is not received by the24
Department of Insurance within the thirty-day period, the transfer or sale shall be25
void.26
Section 2. Chapter 55 of Title 51 of the Louisiana Revised Statutes of 1950,27
comprised of R.S. 51:3110 through 3117, is hereby enacted to read as follows:28 HLS 11RS-1264 ORIGINAL
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§3110. Louisiana Entrepreneurial Assistance and Development Program1
This Chapter may be cited as the "Louisiana Entrepreneurial Assistance and2
Development Program".3
A. Recognizing the need to bring venture and expansion capital to the4
entrepreneurs of Louisiana both to combat the current economic downtown and5
resulting difficulties in securing capital from traditional sources and to ensure the6
Louisiana-based development of the small- and medium-sized businesses that have7
traditionally created the vast majority of new jobs nationwide, the legislature deems8
it in the public interest to enact the Louisiana Entrepreneurial Assistance and9
Development Program (LEAD) to provide an incentive to attract venture and10
expansion capital to eligible businesses.11
B. As used in this Chapter:12
(1) "Allocation date" means the date a LEAD fund receives an investment of13
eligible capital equaling the amount of eligible capital allocated to its investors14
pursuant to R.S. 51:3112;15
(2) "Department" means the department of economic development;16
(3) "Eligible business" means a business that:17
(a) At the time of a LEAD fund's initial investment therein:18
(i) Has one hundred or fewer full-time employees;19
(ii) Has at least eighty percent of its employees domiciled in Louisiana or at20
least eighty percent of its payroll paid to employees domiciled in Louisiana; and21
(iii) Is not engaged in any of the following: retail sales, real estate22
development, gaming, natural resource extraction or exploration, the business of23
insurance, banking or lending, or the provision of professional services provided by24
accountants, lawyers, or physicians; and25
(b) Has either:26
(i) A net worth less than five million dollars at the time of such investment;27
or28 HLS 11RS-1264 ORIGINAL
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(ii) Fifteen million dollars or less in net income in the fiscal year1
immediately preceding such investment;2
(4) "Eligible capital" means an investment of cash by an investor in a LEAD3
fund that fully funds the purchase price of an equity interest in the LEAD fund or a4
debt instrument issued by a LEAD fund, at par value or a premium, that:5
(a) Has an original maturity date at least five years after the date of6
issuance;7
(b) Has a repayment schedule that is not faster than a level principal8
amortization over five years; and9
(c) Has no interest, distribution, or payment features tied to the LEAD fund's10
profitability or the success of its investments, until all requirements of R.S.11
51:3115(A) have been satisfied.12
(5) "LEAD fund" means a Louisiana partnership, corporation, trust, or limited13
liability company, whether organized on a profit or not-for-profit basis, that:14
(a) Is managed by at least two principals or persons domiciled in Louisiana15
that have at least five years of experience each in managing venture capital or private16
equity funds, with at least fifteen million dollars of such funds having been invested17
by persons that are unaffiliated with such principals or persons, (b) has received an18
equity investment of capital other than eligible capital equal to at least two hundred19
fifty thousand dollars, and (c) is not, or will not be after the receipt of eligible capital,20
controlled by or under common control with, one or more insurance companies.21
This Subparagraph of this definition shall not be interpreted to preclude an insurance22
company from exercising its legal rights and remedies, including interim23
management of a LEAD fund with respect to a LEAD fund that is in default of its24
statutory or contractual obligations to the insurance company or establishing controls25
to ensure that the LEAD fund satisfies the requirements of this Chapter. An26
investment of eligible capital shall not result in insurance company control unless27
such investment exceeds forty million dollars per taxpayer;28 HLS 11RS-1264 ORIGINAL
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(6) "Match" means a cash investment in an eligible business either1
contemporaneous with or subsequent to an investment of eligible capital by a LEAD2
fund in such eligible business, other than an investment made with eligible capital3
either from the LEAD fund or another LEAD fund.4
(7) "Secretary" means the secretary of the Department of Economic5
Development.6
§3111. Louisiana Entrepreneurial Assistance and Development Program; premium7
tax; tax credits 8
An investor that makes an investment of eligible capital in a LEAD fund that9
is approved by the department pursuant to R.S. 51:3112 shall earn a vested credit10
against premium tax liability as provided in R.S. 22:832.1. The premium tax credit11
is earned in the year of investment of eligible capital, and shall be subject to the rules12
on utilization set forth in R.S. 22:832.1 and the forfeiture provisions of R.S. 51:3116.13
§3112. Application; certification; reporting14
A. On or before November 1, 2011, the secretary shall begin to accept15
applications for certification as a LEAD fund and for allocations of eligible capital16
and tax credits. Applications shall include:17
(1) The amount of eligible capital the applicant proposes to raise;18
(2) A non-refundable application fee of seven thousand five hundred dollars;19
(3) Evidence that the applicant satisfies the requirements of a "LEAD fund"20
as defined in R.S. 51:3110(B)(5).21
(4) An affidavit by each investor committing to an investment of eligible22
capital;23
(5) A business plan detailing:24
(a) The approximate percentage of eligible capital the applicant will invest25
in eligible businesses by the second, fourth, sixth, and eight anniversaries of its26
allocation date;27 HLS 11RS-1264 ORIGINAL
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(b) The stage of development and industry segments listed by the North1
American Industrial Classification System code in which the applicant will invest;2
and3
(c) The types of investments the applicant will make, including but not4
limited to debt, equity, convertible debt, and debt with equity-like features;5
(6) A revenue impact assessment prepared by an independent third party6
contracted by the department and paid for by the applicant demonstrating that the7
applicant's investments, if made in accordance with its business plan, will have a8
positive or neutral revenue impact on the state taking into account the amount and9
timing of tax credits earned by investors of eligible capital in the LEAD fund and the10
match of one hundred percent of the eligible capital invested by the applicant. The11
assessment shall include the applicant's estimate of the number of jobs that will be12
created or retained as a result of the applicant's investments and matching13
investments; and14
(7) Any offering material involving the sale of securities of a LEAD fund,15
which offering material must include the following statements "The state of16
Louisiana is not liable for damages to an investor in an issuer participating in the17
Louisiana Entrepreneurial Assistance and Development (LEAD) Program. Use of18
the word 'Louisiana' or other terms used in conjunction with the LEAD Program in19
an offering does not constitute a recommendation or endorsement of the investment20
by the Louisiana Department of Economic Development."21
B.(1) Not later than the thirtieth day after the date on which an application22
for certification is received by the department, the secretary shall either:23
(a) Issue the certification and notify the applicant of the amount of eligible24
capital and associated tax credits allocated to its investors, or25
(b) Refuse to issue the certification and communicate in detail to the26
applicant the grounds for the refusal from the department. If an amended application27
is received by the department within fifteen days of receipt of refusal from the28 HLS 11RS-1264 ORIGINAL
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department, the department shall have fifteen days therefrom by which to1
communicate its approval or refusal of such amended application to the applicant.2
(2) Applications for tax credits pursuant to this Section shall be accepted and3
approved on a first-come, first-served basis with all applications received on the4
same date deemed to be received simultaneously. No more than two hundred million5
dollars in eligible capital shall be allocated under this program. If applications for6
tax credits received by the department on any date exceed the total amount of7
approval authority remaining under this Chapter on such date, the eligible capital and8
associated tax credits shall be allocated on a per applicant basis with each applicant9
being allocated eligible capital and associated tax credits equal to the total amount10
of requests received for that day divided by the total amount of applicants filing11
applications on such date that have been approved. In the event this allocation12
results in one or more applicants receiving an allocation in excess of the amount13
which was requested, such excess shall be reallocated to the remaining applicants14
from that date on an equal basis until the entirety of the allocation has been fully15
distributed. All applicants that share common management or are under common16
control, whether such management or control is accomplished directly or indirectly,17
shall be treated as a single applicant.18
C.(1) Upon the receipt of eligible capital each certified LEAD fund shall19
report to the secretary the following:20
(a) The name of each investor from whom eligible capital was received,21
including the investor's tax identification number;22
(b) The amount of eligible capital received from each investor; and23
(c) The date on which the eligible capital was received.24
(2) If a LEAD fund does not receive an investment of eligible capital25
equaling the amount of eligible capital allocated to it pursuant to Subsection (B)(1)26
of this Section prior to the fifth business day after receipt of certification, the LEAD27
fund shall notify the secretary by overnight common carrier delivery service and that28
portion of eligible capital allocated to the investor shall be forfeited. Any forfeited29 HLS 11RS-1264 ORIGINAL
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eligible capital shall be reallocated pursuant to Subsection (B)(1) of this Section,1
provided that if such forfeited eligible capital was subject to an allocation under R.S.2
51:3112(B)(2), it shall be reallocated first to investors in the other LEAD funds3
affected by such allocation.4
§3113. Approval of LEAD fund investments in eligible businesses5
A. Prior to making any initial investment in a potential business, a LEAD6
fund shall request a written opinion from the department as to whether the business7
in which it is proposes to invest is an eligible business, including whether such8
investment is consistent with the LEAD fund's business plan and satisfies the9
requirement provided in R.S. 51:3115(A)(2). If within fifteen days from the date10
of receipt of the request the department has neither granted nor denied the request,11
the proposed investment shall be deemed to be made in an eligible business that is12
consistent with the LEAD fund's business plan and that satisfies the requirement of13
R.S. 51:3115(A)(2) if a written opinion was requested as to satisfaction of that14
requirement. The denial of a request shall contain reasons for denial.15
B. A LEAD fund may not invest more than fifteen percent of its eligible16
capital in any one eligible business without prior approval of the secretary.17
§3114. LEAD fund; maintenance of certification; reporting18
A. To maintain certification, a LEAD fund shall:19
(1) Be in compliance with the investment parameters set forth in its business20
plan, provided a LEAD fund may apply to the secretary to amend its business plan21
based on unavoidable or reasonably unanticipated changes to various conditions,22
including but not limited to the general economic climate of the state or particular23
sectors of the economy, technological advances, and high employment and revenue24
growth opportunities, with approval for such changes not to be unreasonably25
withheld by the secretary;26
(2) Have invested twenty-five percent of its eligible capital in eligible27
businesses by the second anniversary of its allocation date;28 HLS 11RS-1264 ORIGINAL
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(3) Have invested fifty percent of its eligible capital in eligible businesses1
by the fourth anniversary of its allocation date; and2
(4) Have invested one hundred percent of its eligible capital in eligible3
businesses by the tenth anniversary of its allocation date and satisfied the4
requirement of R.S. 51:3115(A)(2). A LEAD fund shall only invest eligible capital5
in eligible businesses, bank deposits, certificates of deposit, or other debt securities6
issued or guaranteed by investment-grade issuers or money market, mutual, or7
exchange traded funds whose investments are limited to the foregoing.8
B. Not later than January thirty-first of each year, each LEAD fund shall9
report to the secretary:10
(1) The amount of eligible capital remaining at the end of the preceding year11
to be invested in eligible businesses;12
(2) Each investment in an eligible business, its location, and two-digit North13
American Industrial Classification System code;14
(3) The percentage of eligible capital invested in businesses that meet the15
requirement of R.S. 51:3115(A)(2);16
(4) Distributions made by the LEAD fund in the preceding year; and17
(5) The number of jobs created or retained as a result of the LEAD fund's18
investments in eligible businesses during the preceding year. Each LEAD fund shall19
provide to the secretary annual audited financial statements not later then June20
thirtieth, annually.21
§3115. LEAD fund; distributions22
A. To make a distribution or payment, other than those listed in Subsection23
B of this Section, a LEAD fund must have:24
(1) Invested on hundred percent of its eligible capital in eligible businesses;25
(2) Invested at least fifty percent of its eligible capital in eligible businesses26
that are either27 HLS 11RS-1264 ORIGINAL
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(a) Engaged in the development of initial product or service offerings, such1
as prototype development or establishment of initial production or service processes,2
or3
(b) Within one of the following industry segments: digital media/software4
development, next-generation automobiles, specialty health care, renewable5
energy/energy efficiencies, water management, or next-wave oil and gas, or other6
industry segments approved by the secretary; and7
(3) The LEAD fund shall have achieved a match amount, that when added8
to any investments in eligible businesses made by the LEAD fund in excess of one9
hundred percent of its eligible capital, equals at least one hundred percent of the10
LEAD fund's allocation of eligible capital.11
B. At any time, a LEAD fund may make:12
(1) Distributions related to the payment of any projected increase in federal13
or state taxes, including penalties and interest related to state and federal income14
taxes, of the equity owners of the LEAD fund resulting from the earning or other tax15
liability of the LEAD fund to the extent that the increase is related to the ownership,16
management, or operation of the LEAD fund;17
(2) Payments of interest and principal on the debt of the LEAD fund subject18
to the limitation of R.S. 51:3110(B)(4)(c); or19
(3) Payments related to the reasonable costs and expenses of forming,20
syndicating, managing, and operating the fund, provided the distribution of payment21
is not made directly or indirectly to an investor that has invested eligible capital in22
the LEAD fund, including: (i) reasonable and necessary fees paid for professional23
services, including legal and accounting services, related to the formation and24
operation of the LEAD fund; and (ii) an annual management fee in an amount that25
does not exceed two and one-half percent of the eligible capital of the LEAD fund,26
provided that a LEAD fund may not pay management fees after the tenth anniversary27
of its allocation date if it has not met the requirements set forth in R.S.28
51:3114(A)(4).29 HLS 11RS-1264 ORIGINAL
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C. The state shall receive ten percent of any distribution, other than1
distributions described in Subsection B of this Section, and any distributions made2
to return an equity capital invested in the LEAD fund that is not eligible capital. The3
state's distribution percentage shall increase to (1) twenty percent if less than eighty4
percent, but more than sixty percent, of the jobs set forth in the LEAD fund's5
business plan are created or retained, and (2) forty percent when sixty percent or less6
of the jobs set forth in the LEAD fund's business plan are created or retained.7
§3116. LEAD fund; decertification and forfeiture8
A. The secretary shall review each annual report to ensure compliance with9
R.S. 51:3114 and 3115, a material violation of which shall be grounds for10
decertification of the LEAD fund. If the secretary determines that a LEAD fund is11
not in compliance with R.S. 51:3114 and 3115, the secretary shall notify the officers12
of the LEAD fund in writing that the LEAD fund may be subject to decertification13
after the one-hundred-twentieth day after the date of mailing the notice, unless the14
deficiencies are waived by the secretary or are corrected, and the LEAD fund returns15
to compliance with law.16
B. Decertification of a LEAD fund prior to its investment of at least fifty17
percent of its eligible capital in eligible businesses shall cause the forfeiture of all tax18
credits earned under this Chapter. Upon satisfaction of the requirement of R.S.19
51:3114(A)(3), tax credits earned under this Chapter are no longer subject to20
recapture or forfeiture.21
C. Upon satisfaction of the requirements of either R.S. 51:3114(A)(3) or (4),22
a LEAD fund shall provide notice to the department and the department shall, within23
sixty days or receipt of such notice, either confirm that the LEAD fund has satisfied24
such requirement as of such date or provide notice of noncompliance and an25
explanation of any existing deficiencies. If the department does not provide such26
notification within sixty days, the LEAD fund shall be deemed to have met the27
requirement of R.S. 51:3114(A)(3) or (4). Except for distributions made pursuant28 HLS 11RS-1264 ORIGINAL
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to R.S. 51:3115(C), a LEAD fund that has satisfied the requirement set forth in R.S.1
51:3114(A)(4) shall no longer be subject to the regulations hereunder.2
§3117. Louisiana Entrepreneurial Assistance and Development Program;3
administration4
The department shall maintain and interpret policy for, perform the5
regulatory and examination functions of, and provide for the implementation and6
administration of the Louisiana Entrepreneurial Assistance and Development7
Program. The department shall have the authority, subject to the Louisiana8
Administrative Procedure Act, to adopt rules concerning the implementation and9
regulation of the program and to issue advisory rulings, as requested, provided each10
advisory ruling is limited to the specific facts outlined in the advisory ruling request11
and may only be relied upon by the specific requesters of such ruling. 12
DIGEST
The digest printed below was prepared by House Legislative Services. It constitutes no part
of the legislative instrument. The keyword, one-liner, abstract, and digest do not constitute
part of the law or proof or indicia of legislative intent. [R.S. 1:13(B) and 24:177(E)]
Ellington HB No. 629
Abstract: Establishes the La. Entrepreneurial Assistance and Development Program for tax
credits against insurance premium tax for venture capital investors.
Proposed law establishes the La. Entrepreneurial Assistance and Development Program for
tax credits against insurance premium tax for venture capital investors. The amount of the
credit is equal to 75% of the amount of eligible investments. The tax credit must be taken
in the year in which it is earned, it is transferrable and may not be carried forward.
Proposed law provides for application and certification of investors for participation in the
program and receipt of tax credits.
Proposed law authorizes the Dept. of Economic Development to administer the program.
(Adds R.S. 22:832.1 and R.S. 51:3110-3117)