SB333: Bill Text

SB333,7,13 (a) An equity security of the qualified business.

SB333,7,15 (b) A debt security of the qualified business if the debt has a maturity of at least 5 years and if one of the following conditions is met:

SB333,7,16 1. The debt is unsecured.

SB333,7,18 2. The debt is convertible into equity securities or equity participation instruments such as options or warrants.

SB333,7,25 560.31 Certification of certified capital companies. (1) Application. The department shall promulgate rules establishing procedures under which a person may apply to become a certified capital company. The department shall grant or deny an application for certification under this section within 30 days of the date of application. If the department denies certification, the department shall include with the denial a detailed description of the grounds for the refusal, including suggestions for removal of those grounds.

SB333,8,3 (2) Requirements for certification. The department shall certify a person as a certified capital company if the department determines that all of the following conditions have been met:

SB333,8,6 (a) The person is a partnership, corporation, trust or limited liability company, whether organized for profit or not for profit, that has as its primary business activity the investment of cash in qualified businesses.

SB333,8,8 (b) The person has a net worth, at the time of application, of at least $500,000 and has at least $500,000 in cash, cash equivalents and marketable securities.

SB333,8,11 (c) The directors, officers, general partners, trustees, managers or members or persons having a similar function are familiar with the requirements of this subchapter.

SB333,8,13 (d) At least 2 officers, directors, general partners, trustees, managers or members each have at least 2 years of experience in the venture capital industry.

SB333,8,15 (e) The person has included, in any offering material involving the sale of securities, the statement required under s. 560.32 (1).

SB333,8,16 (f) The person has paid a nonrefundable application fee of $7,500.

SB333,8,19 560.32 Investments in certified capital companies. (1) Required disclosures in securities offerings. Any offering material involving the sale of securities of a certified capital company shall include all of the following statements:

SB333,8,24 (a) "By authorizing the formation of a certified capital company, the state does not necessarily endorse the quality of management or the potential for earnings of the company and is not liable for damages or losses to a certified investor in the company. Use of the word "certified" in an offering is not a recommendation or endorsement of the investment by the State of Wisconsin Department of Commerce."

SB333,9,9 (b) "Investments in a prospective certified capital company prior to the time the company is certified are not eligible for a certified capital company investment credit under section 76.635 of the Wisconsin Statutes. Investments in a certified capital company are not eligible for a certified capital company investment credit under section 76.635 of the Wisconsin Statutes unless the proposed investment is certified under section 560.32 (2) of the Wisconsin Statutes before the investment is made. In the event that certain statutory provisions are violated, the state may require forfeiture of unused certified capital company investment credits and repayment of used certified capital company investment credits."

SB333,9,17 (2) Certification of certified capital investments. (a) A person may apply to make a certified capital investment in a certified capital company by providing notice under this paragraph to the department on a form specified by the department. The notice shall include the name of the person, the name of the certified capital company, the amount of the investment and any other information specified by the department. The notice shall also include an undertaking by the person to make the investment within 5 days after the department notifies the person that the investment has been certified.

SB333,9,20 (b) The department may certify an investment under this subsection only if, after the certification, the department will not have certified a total of more than $50,000,000 in investments under this subsection.

SB333,9,24 (c) 1. Except as provided in subd. 2., the department may not certify an investment under this subsection if, after the certification, the investor, together with all affiliates of the investor, would have made more than $10,000,000 in certified capital investments in that year.

SB333,10,3 2. If, by November 1 of a year, the department has certified less than $50,000,000 in certified capital investments, the limitation under subd. 1. does not apply for the remainder of that year.

SB333,10,11 (3) Limitation on certified investor investment. A certified investor may not, individually, or with or through one or more affiliates, own 10% of more of the equity securities in, be a general partner or manager of, or otherwise control the investments of the certified capital company. This subsection does not preclude a certified investor from exercising its legal rights and remedies, including interim management of a certified capital company, in the event that a certified capital company is in default of its statutory or contractual obligations to the certified investor.

SB333,10,18 560.33 Qualified businesses. (1) Qualifications. A business is a qualified business if the department issues a written opinion under sub. (2) that the business is a qualified business, if the department fails to provide a certified capital company with a written opinion under sub. (2) within 10 working days after a request for an opinion is received by the department, or if all of the following requirements are met as of the time that a certified capital company, or any affiliate of the certified capital company, makes its first investment in the business:

SB333,10,20 (a) The business is headquartered in this state and its principal business operations are located in this state.

SB333,10,22 (am) The business is in need of venture capital and is unable to obtain conventional financing, as defined by the department by rule.

SB333,10,24 (b) The business has no more than 300 employes, at least 75% of whom are employed in this state.

SB333,11,4 (c) During its 2 most recent fiscal years, the business had, together with all of its consolidated affiliates, an average annual net income, after federal income taxes and excluding any carry-over losses, of not more than $6,000,000, as determined in accordance with generally accepted accounting principles.

SB333,11,6 (d) The business has, together with its consolidated affiliates, a net worth that is not in excess of $18,000,000.

SB333,11,8 (e) The business is not predominantly engaged in professional services provided by accountants, lawyers or physicians.

SB333,11,9 (f) The business is not engaged in the development of real estate for resale.

SB333,11,11 (g) The business is not engaged in banking or lending and does not make any loans to, or investments in, certified capital corporations.

SB333,12,3 (2) Department opinions and exceptions. A certified capital company may, prior to making an investment in a specific business, request a written opinion from the department that a business in which it proposes to invest is a qualified business. If the department determines that the business meets the requirements under sub. (1), the department shall issue a written opinion stating that the business is a qualified business. If the department determines that the business does not meet all of the requirements under sub. (1), the department may nonetheless issue a written opinion stating that the business is a qualified business if the department determines that the proposed investment in the business will further state economic development. Upon receiving a request, the department shall, within 10 working days, determine whether or not the business is a qualified business and provide the certified capital company with a written opinion stating its determination and providing an explanation of the reasons for its determination. If the department fails to provide the certified capital company with a written opinion within 10 working day after receiving a request for an opinion under this subsection with respect to a proposed investment, the business in which the certified capital company proposes to invest is a qualified business.

SB333,12,8 560.34 Operation of certified capital companies. (1) Qualified investment requirements. (a) In order for a certified capital company to prevent disqualification of one of its investment pools under s. 560.37, the certified capital company shall ensure that each of its investment pools makes qualified investments according to the following schedule:

SB333,12,10 1. Within 3 years after the investment date for a particular investment pool, at least 30% of the investment pool shall be placed in qualified investments.

SB333,12,12 2. Within 5 years after the investment date for a particular investment pool, at least 50% of the investment pool shall be placed in qualified investments.

SB333,12,21 (b) The department shall promulgate rules governing the extent to which a reinvestment of proceeds from a qualified investment in a qualified business may be counted toward the percentage requirements under par. (a) and s. 560.36 (3). These rules may provide that reinvested proceeds from short-term investments shall be only partially counted toward the percentage requirements under par. (a) and s. 560.36 (3). The rules may also provide that proceeds from an investment in a qualified business that are reinvested in that qualified business, or an affiliate of that qualified business, shall be only partially counted toward the percentage requirements under par. (a) and s. 560.36 (3).

SB333,13,2 (2) Nonqualified investments. All certified capital investments in a certified capital company that are not invested in qualified investments may be held or invested by the certified capital company as it considers appropriate, except that a certified capital company may not invest certified capital investments in an insurance company or in an affiliate of an insurance company.

SB333,13,6 (3) Diversification requirement. A certified capital company may not make a qualified investment in a person if, at the time of the investment, more than 15% of the total certified capital of the certified capital company would be invested in that person and affiliates of that person.

SB333,13,9 (4) Restrictions on management. No certified capital company may be managed or controlled by, or have a general partner that is, an insurance company or an affiliate of an insurance company.

SB333,13,12 560.35 Reporting requirements and fees. (1) Receipts of certified capital. As soon as practicable after the receipt of a certified capital investment, a certified capital company shall report all of the following to the department:

SB333,13,14 (a) The name of the certified investor from which the certified capital was received, including the certified investor's tax identification number.

SB333,13,15 (b) The amount of the certified capital investment.

SB333,13,17 (c) The date on which the certified capital investment was received by the certified capital company.

SB333,13,19 (d) The investment date for the investment pool of which the certified capital will be a part.

SB333,13,21 (2) Annual reports. On or before January 31 annually, a certified capital company shall report all of the following to the department:

SB333,13,23 (a) The amount of the certified capital company's certified capital at the end of the preceding year.

SB333,13,25 (b) Whether the certified capital company has invested more than 15% of its total certified capital in any one person.

SB333,14,3 (c) All qualified investments that the certified capital company has made during the previous calendar year and the investment pool from which each qualified investment was made.

SB333,14,14 (3) Financial statements. Within 90 days of the end of the certified capital company's fiscal year, the certified capital company shall provide to the department a copy of its annual audited financial statements, including the opinion of an independent certified public accountant. The audit shall address the methods of operation and conduct of the business of the certified capital to determine whether the certified capital company is complying with this subchapter and the rules promulgated under this subchapter, including whether certified capital has been invested in the manner required under s. 560.34. The financial statements provided under this subsection shall be segregated by investment pool and shall be separately audited on the basis to allow the department to determine whether the certified capital company is in compliance with s. 560.34 (1).

SB333,14,18 (4) Fees. On or before January 31 annually, a certified capital company shall pay a nonrefundable certification fee of $5,000 to the department, unless January 31 falls within 6 months of the date on which the certified capital company was certified under s. 560.31.

SB333,14,22 (5) Exemption from rights of inspection and copying. If the department determines that a document submitted by a certified capital company under this section contains a trade secret, as defined in s. 134.90 (1) (c) or a business secret, that document is not subject to the right of inspection and copying under s. 19.35.

SB333,14,24 560.36 Distributions. A certified capital company may make a distribution only if one of the following conditions is met:

SB333,14,25 (1) Qualified distribution. The distribution is a qualified distribution.

SB333,15,5 (2) Written determination. The department made a written determination that the distribution may be made without adversely affecting the ability of the certified capital company to place, in qualified investments, an amount equal to 100% of the certified capital in the investment pool from which the distribution is to be made.

SB333,15,8 (3) Placement of 100% of investments in qualified investments. The certified capital company has placed in qualified investments an amount equal to 100% of the certified capital investments in the investment pool.

SB333,15,11 (4) Debt payments. The distribution is a payment of principal or interest owed to a debt holder of a certified capital company, even if the debt holder is also a holder of equity and even if the indebtedness is a certified capital investment.

SB333,15,19 560.37 Compliance reviews; decertification; disqualification. (1) Annual compliance review. The department shall conduct an annual review of each certified capital company to determine if the certified capital company is complying with the requirements of this subchapter, to advise the certified capital company regarding the status of its investments as qualified investments and to ensure that no investment has been made in violation of this subchapter. The cost of the annual review shall be paid by each certified capital company according to a reasonable fee schedule adopted by the department.

SB333,15,25 (2) Disqualification of an investment pool. Any material violation of s. 560.34 (1) is a ground for disqualification of the noncomplying investment pool. If the department of commerce determines that the certified capital company is not in compliance with s. 560.34 (1) with respect to an investment pool, it shall send a written notice to the certified capital company and the department of revenue stating that the investment pool has been disqualified.

SB333,16,13 (3) Decertification of a certified capital company. Any material violation of s. 560.34 (2), (3) or (4) or 560.35 (1), (2), (3) or (4) is a ground for decertification of the noncomplying certified capital company. If the department determines that the certified capital company is not in compliance with s. 560.34 (2), (3) or (4) or 560.35 (1), (2), (3) or (4), the department shall send a written notice to the certified capital company that the certified capital company may be subject to decertification in 120 days from the date on which the notice was mailed, unless the certified capital company brings itself into full compliance with ss. 560.34 (2), (3) or (4) and 560.35 (1), (2), (3) and (4). If at the end of the 120-day period the certified capital company is not in compliance with ss. 560.34 (2), (3) or (4) and 560.35 (1), (2), (3) and (4), the department of commerce shall send a notice to the certified capital company and the department of revenue stating that the certified capital company has been decertified.

SB333,16,15 (4) Effect of decertification. Decertification of a certified capital company or an investment pool has the effects specified in s. 76.635 (4).

SB333,16,18 (5) Notices to certified investors. The department shall notify a certified investor when the certified capital company tax credit arising from a certified investment is no longer subject to recapture and forfeiture under s. 76.635 (4).

SB333, s. 4 Section 4. Nonstatutory provisions.

SB333,16,23 (1) Rule making. The department of commerce shall submit in proposed form the rules required under sections 560.31 (1) and 560.34 of the statutes, as created by this act, to the legislative council staff under section 227.15 (1) of the statutes no later than the first day of the 4th month after the effective date of this subsection.

SB333, s. 5 Section 5. Initial applicability.

SB333,17,5 (1) The treatment of section 76.635 of the statutes first applies to taxable years beginning on January 1 of the year in which this subsection takes effect, except that if this subsection takes effect on or after August 1 the treatment of that section first applies to taxable years beginning on January 1 of the year following the year in which this subsection takes effect.

SB333, s. 6 Section 6. Effective date.

SB333,17,8 (1) This act takes effect on the first day of the 7th month beginning after publication.

SB333,17,9 (End)