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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. 51:3111 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 an14
investor that makes an investment of eligible capital and receives certification for a15
tax credit pursuant to the provisions of R.S. 51:3111, et seq. The credit shall be16
earned and vested in the year that the investment is made. The amount of the credit17
shall be equal to seventy-five percent of the amount of the investment. The premium18 HLS 11RS-1264 REENGROSSED
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tax credit shall be available for taxes charged on insurance premiums under R.S.1
22:831, 836, 838, and 842. Notwithstanding any other provision of law to the2
contrary, the premium tax credit shall not be available for taxes charged on insurance3
premiums under R.S. 22:345, 439, 833, 835, 837, and 1476.4
B. In any one taxable year, no more than twenty-five percent of the total5
premium tax credit which is earned with respect to a particular investment described6
in Subsection A of this Section may be used, provided that:7
(1) The taxpayer may not utilize credits in any taxable year in excess of its8
premium tax liability for such taxable year.9
(2) The tax credits shall not initially be applicable against premium tax10
liability generated in any calendar year until the third calendar year after the year in11
which the investment of eligible capital was made pursuant to the requirements of12
the Louisiana Entrepreneurial Assistance and Development Program as provided in13
R.S. 51:3111, et seq.14
(3) The premium tax credit shall not be applicable against any estimated15
premium tax payments on or before April 15, 2015.16
C. In accordance with the limitations provided in this Chapter, premium tax17
credits available under this Section may be carried forward for use in future years.18
D. Any investor who earns a premium tax credit pursuant to this Section19
shall be allowed to transfer such credits to any insurance company, which tax credits20
shall be subject to the forfeiture provisions of R.S. 51:3116. Within thirty days after21
the transfer of tax credits, the original holder of the tax credits shall notify the22
department in writing of the name of the new holder of the tax credits and the23
amount of tax credits transferred, the price of such credits, the date the transfer24
occurred, the tax identification number of the transferee, and the remaining balance25
of credits held by the transferor. In the event such notice is not received by the26
Department of Insurance within the thirty-day period, the transfer or sale shall be27
void.28 HLS 11RS-1264 REENGROSSED
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Section 2. Chapter 55 of Title 51 of the Louisiana Revised Statutes of 1950,1
comprised of R.S. 51:3111 through 3117, is hereby enacted to read as follows:2
§3111. Louisiana Entrepreneurial Assistance and Development Program; premium3
tax; tax credit; legislative oversight4
A. This Chapter may be cited as the "Louisiana Entrepreneurial Assistance5
and Development Program".6
Recognizing the need to bring venture and expansion capital to the7
entrepreneurs of Louisiana both to combat the current economic downtown and8
resulting difficulties in securing capital from traditional sources and to ensure the9
Louisiana-based development of the small- and medium-sized businesses that have10
traditionally created the vast majority of new jobs nationwide, the legislature deems11
it in the public interest to enact the Louisiana Entrepreneurial Assistance and12
Development Program (LEAD) to provide an incentive to attract venture and13
expansion capital to eligible businesses.14
B. As used in this Chapter:15
(1) "Allocation date" means the date a LEAD fund receives an investment16
of eligible capital equaling the amount of eligible capital allocated to its investors17
pursuant to R.S. 51:3112.18
(2) "Department" means the Department of Economic Development.19
(3) "Eligible business" means a business that:20
(a) At the time of a LEAD fund's initial investment therein:21
(i) Has one hundred or fewer full-time employees.22
(ii) Has at least eighty percent of its employees domiciled in Louisiana or at23
least eighty percent of its payroll paid to employees domiciled in Louisiana.24
(iii) Is not engaged in any of the following: retail sales, real estate25
development, gaming, natural resource extraction or exploration, the business of26
insurance, banking or lending, or the provision of professional services provided by27
accountants, lawyers, or physicians.28
(b) Meets at least one of the following requirements:29 HLS 11RS-1264 REENGROSSED
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(i) A net worth less than five million dollars at the time of a LEAD fund's1
initial investment therein.2
(ii) Fifteen million dollars or less in net income in the fiscal year3
immediately preceding such investment.4
(4) "Eligible capital" means an investment of cash by an investor in a LEAD5
fund that fully funds the purchase price of an equity interest in the LEAD fund or a6
debt instrument issued by a LEAD fund, at par value or a premium, that meets the7
following requirements:8
(a) Has an original maturity date at least five years after the date of issuance.9
(b) Has a repayment schedule that is not faster than a level principal10
amortization over five years.11
(c) Has no interest, distribution, or payment features tied to the LEAD fund's12
profitability or the success of its investments, until all requirements of R.S.13
51:3115(A) have been satisfied.14
(5) "LEAD fund" means a Louisiana partnership, corporation, trust, or15
limited liability company, whether organized on a profit or not-for-profit basis, that:16
(a) Is managed by at least two principals or persons domiciled in Louisiana17
that have at least five years of experience each in managing venture capital or private18
equity funds, with at least fifteen million dollars of such funds having been invested19
by persons that are unaffiliated with such principals or persons.20
(b) Has received an equity investment of capital other than eligible capital21
equal to at least two hundred fifty thousand dollars.22
(c) Is not, or will not be after the receipt of eligible capital, controlled by or23
under common control with, one or more insurance companies.24
(d) This Paragraph shall not be interpreted to preclude an insurance company25
from exercising its legal rights and remedies, including interim management of a26
LEAD fund with respect to a LEAD fund that is in default of its statutory or27
contractual obligations to the insurance company or establishing controls to ensure28
that the LEAD fund satisfies the requirements of this Chapter. An investment of29 HLS 11RS-1264 REENGROSSED
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eligible capital shall not result in insurance company control unless such investment1
exceeds forty million dollars per taxpayer.2
(6) "Match" means a cash investment in an eligible business either3
contemporaneous with or subsequent to an investment of eligible capital by a LEAD4
fund in such eligible business, other than an investment made with eligible capital5
either from the LEAD fund or another LEAD fund.6
(7) "Secretary" means the secretary of the Department of Economic7
Development.8
C. An investor that makes an investment of eligible capital in a LEAD fund9
that 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 department shall11
provide to the Joint Legislative Committee on the Budget a report reflecting the12
allocation of the two hundred million dollars which is authorized for this program13
for purposes of eligible capital and tax credits. The report shall be provided on14
January thirtieth and July thirtieth of each year and shall contain a listing of LEAD15
funds which have been issued certification and those which have been refused16
certification within the most recently completed six-month period. The report shall17
include a brief description of each LEAD fund and its allocation of eligible capital,18
investors and tax credits. The premium tax credit is earned in the year of investment19
of eligible capital and shall be subject to the rules on utilization set forth in R.S.20
22:832.1 and the forfeiture provisions of R.S. 51:3116.21
§3112. Application; certification; reporting22
A. On or before November 1, 2011, the secretary shall begin to accept23
applications for certification as a LEAD fund and for allocations of eligible capital24
and tax credits. Applications shall include all of the following:25
(1) The amount of eligible capital the applicant proposes to raise.26
(2) Evidence that the applicant satisfies the requirements of a "LEAD fund"27
as defined in R.S. 51:3111(B)(5).28 HLS 11RS-1264 REENGROSSED
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(3) An affidavit by each investor committing to an investment of eligible1
capital.2
(4) A business plan detailing the following:3
(a) The approximate percentage of eligible capital the applicant will invest4
in eligible businesses by the second, fourth, sixth, and eighth anniversaries of its5
allocation date.6
(b) The stage of development and industry segments listed by the North7
American Industrial Classification System code in which the applicant will invest.8
(c) The types of investments the applicant will make, including but not9
limited to debt, equity, convertible debt, and debt with equity-like features.10
(5) A revenue impact assessment prepared by an independent third party11
contracted by the department and paid for by the applicant demonstrating that the12
applicant's investments, if made in accordance with its business plan, will have a13
positive or neutral impact on state revenue taking into account the amount and timing14
of tax credits earned by investors of eligible capital in the LEAD fund and the one15
hundred percent match of the eligible capital invested by the applicant. The16
assessment shall include the applicant's estimate of the number of jobs that will be17
created or retained as a result of the applicant's investments and matching18
investments.19
(6) Any offering material involving the sale of securities of a LEAD fund,20
which offering material must include the following statements "The state of21
Louisiana is not liable for damages to an investor in an issuer participating in the22
Louisiana Entrepreneurial Assistance and Development (LEAD) Program. Use of23
the word 'Louisiana' or other terms used in conjunction with the LEAD Program in24
an offering does not constitute a recommendation or endorsement of the investment25
by the Louisiana Department of Economic Development."26
B.(1) Not later than the thirtieth day after the date on which an application27
for certification is received by the department, the secretary shall do one of the28
following:29 HLS 11RS-1264 REENGROSSED
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(a) Issue the certification and notify the applicant of the amount of eligible1
capital and associated tax credits allocated to its investors.2
(b) Refuse to issue the certification and communicate in detail to the3
applicant the grounds for the refusal from the department. If an amended application4
is received by the department within fifteen days of receipt of refusal from the5
department, the department shall have fifteen days therefrom by which to6
communicate its approval or refusal of such amended application to the applicant.7
(2) Applications for tax credits pursuant to this Section shall be accepted and8
approved on a first-come, first-served basis with all applications received on the9
same date deemed to be received simultaneously. No more than two hundred million10
dollars in eligible capital shall be allocated under this program. If applications for11
tax credits received by the department on any date exceed the total amount of12
approval authority remaining under this Chapter on such date, the eligible capital and13
associated tax credits shall be allocated on a per applicant basis with each applicant14
being allocated eligible capital and associated tax credits equal to the total amount15
of requests received for that day divided by the total amount of applicants filing16
applications on such date that have been approved. In the event this allocation17
results in one or more applicants receiving an allocation in excess of the amount18
which was requested, such excess shall be reallocated to the remaining applicants19
from that date on an equal basis until the entirety of the allocation has been fully20
distributed. All applicants that share common management or are under common21
control, whether such management or control is accomplished directly or indirectly,22
shall be treated as a single applicant.23
C. Any applicant who receives an allocation of eligible capital shall bear any24
cost, not to exceed fifteen thousand dollars per fiscal year for each applicant, which25
is allocated to it by the secretary to ensure that all costs of the Department of26
Economic Development associated with administering the program are reimbursed.27
The secretary shall allocate such costs based upon the proportion that the applicant's28
allocation of eligible capital bears to the total amount of eligible capital allocated.29 HLS 11RS-1264 REENGROSSED
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The amounts collected by the secretary shall be appropriated to the Department of1
Economic Development.2
D.(1) Upon the receipt of eligible capital each certified LEAD fund shall3
report to the secretary the following:4
(a) The name of each investor from whom eligible capital was received,5
including the investor's tax identification number.6
(b) The amount of eligible capital received from each investor.7
(c) The date on which the eligible capital was received.8
(2) If a LEAD fund does not receive an investment of eligible capital9
equaling the amount of eligible capital allocated to it pursuant to Paragraph (B)(1)10
of this Section prior to the fifth business day after receipt of certification, the LEAD11
fund shall notify the secretary by overnight common carrier delivery service and that12
portion of eligible capital allocated to the investor shall be forfeited. Any forfeited13
eligible capital shall be reallocated pursuant to Paragraph (B)(1) of this Section,14
provided that if such forfeited eligible capital was subject to an allocation under15
Paragraph (B)(2) of this Section, it shall be reallocated first to investors in the other16
LEAD funds affected by such allocation.17
§3113. Approval of LEAD fund investments in eligible businesses18
A. Prior to making any initial investment in a potential business, a LEAD19
fund shall request a written opinion from the department as to whether the business20
in which it proposes to invest is an eligible business, including whether such21
investment is consistent with the LEAD fund's business plan and satisfies the22
requirement provided in R.S. 51:3115(A)(2). If within fifteen days from the date of23
receipt of the request the department has neither granted nor denied the request, the24
proposed investment shall be deemed to be made in an eligible business that is25
consistent with the LEAD fund's business plan and that satisfies the requirement of26
R.S. 51:3115(A)(2) if a written opinion was requested as to satisfaction of that27
requirement. The denial of a request shall contain reasons for denial.28 HLS 11RS-1264 REENGROSSED
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B. A LEAD fund may not invest more than fifteen percent of its eligible1
capital in any one eligible business without prior approval of the secretary.2
§3114. LEAD fund; maintenance of certification; reporting3
A. To maintain certification, a LEAD fund shall:4
(1) Be in compliance with the investment parameters set forth in its business5
plan, provided a LEAD fund may apply to the secretary to amend its business plan6
based on unavoidable or reasonably unanticipated changes to various conditions,7
including but not limited to the general economic climate of the state or particular8
sectors of the economy, technological advances, and high employment and revenue9
growth opportunities, with approval for such changes not to be unreasonably10
withheld by the secretary.11
(2) Have invested twenty-five percent of its eligible capital in eligible12
businesses by the second anniversary of its allocation date.13
(3) Have invested fifty percent of its eligible capital in eligible businesses14
by the fourth anniversary of its allocation date.15
(4) Have invested one hundred percent of its eligible capital only in eligible16
businesses by the tenth anniversary of its allocation date and satisfied the17
requirement of R.S. 51:3115(A)(2). A LEAD fund shall invest eligible capital only18
in eligible businesses, bank deposits, certificates of deposit, or other debt securities19
issued or guaranteed by investment-grade issuers or money market, mutual, or20
exchange traded funds whose investments are limited to the foregoing.21
B. Not later than January thirty-first of each year, each LEAD fund shall22
report to the secretary and to the House Committee on Ways and Means and the23
Senate Committee on Revenue and Fiscal Affairs the following:24
(1) The amount of eligible capital remaining at the end of the preceding year25
to be invested in eligible businesses.26
(2) Each investment in an eligible business, its location, and two-digit North27
American Industrial Classification System code.28 HLS 11RS-1264 REENGROSSED
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(3) The percentage of eligible capital invested in businesses that meet the1
requirement of R.S. 51:3115(A)(2).2
(4) Distributions made by the LEAD fund in the preceding year.3
(5) The number of jobs created or retained as a result of the LEAD fund's4
investments in eligible businesses during the preceding year. Each LEAD fund shall5
provide to the secretary annual audited financial statements not later then June6
thirtieth each year.7
§3115. LEAD fund; distributions8
A. To make a distribution or payment, other than those listed in Subsection9
B of this Section, a LEAD fund must have the following:10
(1) Invested one hundred percent of its eligible capital in eligible businesses.11
(2) Invested at least fifty percent of its eligible capital in eligible businesses12
that are one of the following:13
(a) Engaged in the development of initial product or service offerings, such14
as prototype development or establishment of initial production or service processes.15
(b) Within one of the following industry segments: digital media/software16
development, next-generation automobiles, specialty health care, renewable17
energy/energy efficiencies, water management, or next-wave oil and gas, or other18
industry segments approved by the secretary.19
(3) Achieved a match amount, that when added to any investments in eligible20
businesses made by the LEAD fund in excess of one hundred percent of its eligible21
capital, equals at least one hundred percent of the LEAD fund's allocation of eligible22
capital.23
B. At any time, a LEAD fund may make any of the following:24
(1) Distributions related to the payment of any projected increase in federal25
or state taxes, including penalties and interest related to state and federal income26
taxes, of the equity owners of the LEAD fund resulting from the earning or other tax27
liability of the LEAD fund to the extent that the increase is related to the ownership,28
management, or operation of the LEAD fund.29 HLS 11RS-1264 REENGROSSED
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(2) Payments of interest and principal on the debt of the LEAD fund subject1
to the limitation of R.S. 51:3111(B)(4)(c).2
(3) Payments related to the reasonable costs and expenses of forming,3
syndicating, managing, and operating the fund, provided the distribution of payment4
is not made directly or indirectly to an investor that has invested eligible capital in5
the LEAD fund, including:6
(a) Reasonable and necessary fees paid for professional services, including7
legal and accounting services, which are related to the formation and operation of the8
LEAD fund.9
(b) An annual management fee in an amount that does not exceed two and10
one-half percent of the eligible capital of the LEAD fund, provided that a LEAD11
fund may not pay management fees after the tenth anniversary of its allocation date12
if it has not met the requirements set forth in R.S. 51:3114(A)(4).13
C. The state shall receive ten percent of any distribution, other than14
distributions described in Subsection B of this Section, and any distributions made15
to return an equity capital invested in the LEAD fund that is not eligible capital. The16
state's distribution percentage shall increase to:17
(1) Twenty percent if less than eighty percent, but more than sixty percent,18
of the jobs set forth in the LEAD fund's business plan are created or retained.19
(2) Forty percent when sixty percent or less of the jobs set forth in the LEAD20
fund's business plan are created or retained.21
§3116. LEAD fund; decertification and forfeiture22
A. The secretary shall review each annual report to ensure compliance with23
R.S. 51:3114 and 3115, a material violation of which shall be grounds for24
decertification of the LEAD fund. If the secretary determines that a LEAD fund is25
not in compliance with R.S. 51:3114 and 3115, the secretary shall notify the officers26
of the LEAD fund in writing that the LEAD fund may be subject to decertification27
after the one-hundred-twentieth day after the date of mailing the notice, unless the28 HLS 11RS-1264 REENGROSSED
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deficiencies are waived by the secretary or are corrected, and the LEAD fund returns1
to compliance with law.2
B. Decertification of a LEAD fund prior to its investment of at least fifty3
percent of its eligible capital in eligible businesses shall cause the forfeiture of all tax4
credits earned under this Chapter. Upon satisfaction of the requirement of R.S.5
51:3114(A)(3), tax credits earned under this Chapter are no longer subject to6
recapture or forfeiture.7
C. Upon satisfaction of the requirements of either R.S. 51:3114(A)(3) or (4),8
a LEAD fund shall provide notice to the department and the department shall, within9
sixty days of receipt of such notice, either confirm that the LEAD fund has satisfied10
such requirement as of such date or provide notice of noncompliance and an11
explanation of any existing deficiencies. If the department does not provide such12
notification within sixty days, the LEAD fund shall be deemed to have met the13
requirement of R.S. 51:3114(A)(3) or (4). Except for distributions made pursuant14
to R.S. 51:3115(C), a LEAD fund that has satisfied the requirement set forth in R.S.15
51:3114(A)(4) shall no longer be subject to the regulations hereunder.16
§3117. Louisiana Entrepreneurial Assistance and Development Program;17
administration18
The department shall maintain and interpret policy for, perform the19
regulatory and examination functions of, and provide for the implementation and20
administration of the Louisiana Entrepreneurial Assistance and Development21
Program. The department shall have the authority, subject to the Louisiana22
Administrative Procedure Act, to adopt rules concerning the implementation and23
regulation of the program and to issue advisory rulings, as requested, provided each24
advisory ruling is limited to the specific facts outlined in the advisory ruling request25
and may only be relied upon by the specific requesters of such ruling.26 HLS 11RS-1264 REENGROSSED
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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 who invest in LEAD
funds which in turn invest in "eligible businesses". The amount of the credit is equal to 75%
of the amount of the investment. The tax credit may not be taken before April 15, 2015, is
transferrable, and may be carried forward indefinitely.
Proposed law authorizes the Dept. of Economic Development, hereinafter "department", to
administer the program. The department is required to report to the Joint Legislative
Committee on the Budget on January 30th and July 30th of each year regarding LEAD funds
which have been issued certification or refused certification within the preceding six months.
The report shall contain a description of each fund, the amount of its allocation of eligible
capital, investors, and tax credits.
Proposed law defines "eligible business" as one with less than 100 full-time employees, at
least 80% of which are domiciled in the state or at least 80% of the payroll is paid to
employees domiciled in the state. The business shall not be engaged in the following
industries: retail sales, real estate development, gaming, natural resource extraction or
exploration, insurance, banking, accounting, legal, or medicine. The business shall have a
net worth of less than $5 million dollars and a net income of less than $ 15 million.
Proposed law defines "LEAD fund" as a La. partnership, corporation, trust, or limited
liability company that is managed by at least two persons who are domiciled in La. and have
at least five years' experience in managing venture capital or private equity funds.
Proposed law provides for an application process to be used by a LEAD fund which is
seeking to participate in the program and be certified to receive a portion of the $200 million
in eligible capital authorized for operation of the program. Proposed law provides the
minimum requirements for an application. Further, each applicant that receives an
allocation of eligible capital is required to reimburse the department for the cost incurred in
administering the program, in an amount not to exceed $15,000 per fund.
Proposed law requires that the department, within 30 days of receipt of a LEAD fund's
application, either issue or refuse a certification for the fund. Refusals must include the
grounds for the refusal.
Proposed law provides that applications for allocations of eligible capital, and thus, tax
credits, will be accepted and approved by the department on a first come first served basis.
Procedures are provided for instances where applications are received on the same day,
allotments are unused, or the program is oversubscribed.
Proposed law requires that before making an investment in an eligible business, a LEAD
fund shall request the opinion of the department as to the eligibility of the business.
Proposed law provides the conditions under which a LEAD fund may retain its certification,
which include the investment of certain amounts of its eligible capital over certain periods
of time. HLS 11RS-1264 REENGROSSED
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Proposed law requires each LEAD fund which receives an allocation of eligible capital to
report January 31st of each year to the secretary of the department and the House Committee
on Ways and Means and Senate Committee on Revenue and Fiscal Affairs with regard to
its investments made in the preceding year.
Proposed law provides the purposes for which, and conditions under which, distributions
may be made from a LEAD fund. Monies may be used by a LEAD fund to pay taxes,
expenses regarding the formation and operation of the fund, and the payment of management
fees equal to 2.5% of the eligible capital in the fund.
Proposed law requires that the state receive 10% of certain distributions from the fund,
which amount may increase based on the number of jobs resulting from execution of the
LEAD fund's business plan.
Proposed law authorizes the secretary of the department to review the annual report of each
LEAD fund and to decertify a LEAD fund which is determined to be noncompliant with law.
Proposed law authorizes the department to make rules in accordance with the Administrative
Procedure Act for the implementation and administration of the program.
(Adds R.S. 22:832.1 and R.S. 51:3111-3117)
Summary of Amendments Adopted by House
House Floor Amendments to the engrossed bill.
1. Added requirement that the Dept. of Economic Development report to the Joint
Legislative Committee on the Budget each January and July regarding LEAD
funds which have been issued certification or refused certification within the
preceding six months.
2. Added requirement that each LEAD fund report each January to the House
Committee on Ways and Means and Senate Committee on Revenue and Fiscal
Affairs regarding their investments made in the preceding year.
3. Deleted the $7,500 application fee.
4. Added requirement that each applicant that receives an allocation of eligible
capital shall be responsible for up to $15,000 of the cost incurred by the Dept. of
Economic Development associated with administering the program.