1997 WISCONSIN ACT 215
An Act to create 20.143 (1) (hm), 76.635 and subchapter II of chapter 560 [precedes 560.30] of the statutes; relating to: creating a certified capital company program for companies that make certain types of investments, providing tax credits to persons who make certain investments in certified capital companies, granting rule-making authority and making an appropriation.
The people of the state of Wisconsin, represented in senate and assembly, do enact as follows:
215,1
Section 1
. 20.143 (1) (hm) of the statutes is created to read:
20.143 (1) (hm) Certified capital companies. All moneys received under subch. II of ch. 560 for the cost of administering subch. II of ch. 560.
215,2
Section 2
. 76.635 of the statutes is created to read:
76.635 Credit. (1) Definitions. In this section:
(a) “Certified capital company" has the meaning given in s. 560.30 (2).
(b) “Certified capital investment" has the meaning given in s. 560.30 (4).
(c) “Investment date" has the meaning given in s. 560.30 (6).
(d) “Investment pool" has the meaning given in s. 560.30 (7).
(e) “Qualified investment" has the meaning given in s. 560.30 (11).
(2) Credit. An insurer that makes a certified capital investment may credit against the fees due under s. 76.60, 76.63, 76.65 or 76.66, for 10 years beginning with the year of the investment, either 10% of that investment or the amount by which the sum of the insurer's certified capital investments and the insurer's qualified investments exceeds the insurer's qualified investments in the taxable year before the insurer first claimed the credit under this section, whichever is less.
(3) Carry-forward. If the credit under sub. (2) is not entirely offset against the fees under s. 76.60, 76.63, 76.65 or 76.66 otherwise due, the unused balance may be carried forward and credited against those fees in the following years to the extent that it is not offset by those fees otherwise due in all the years between the year in which the investment was made and the year in which the carry-forward credit is claimed.
(4) Recapture. (a) If a certified capital company is decertified, or an investment pool is disqualified, under s. 560.37 before the certified capital company fulfills the investment requirement under s. 560.34 (1m) (a) 1. with respect to the investment pool, any insurer that has received a credit under this section with respect to that investment pool shall repay that credit to the commissioner of insurance, for deposit in the general fund, and may not claim more credit in respect to that investment pool.
(b) If a certified capital company fulfills the investment requirement under s. 560.34 (1m) (a) 1. with respect to an investment pool but the certified capital company is decertified, or an investment pool is disqualified, under s. 560.37 before the certified capital company fulfills the investment requirement under s. 560.34 (1m) (a) 2. for that investment pool, any insurer that has received a credit under this section with respect to that investment pool shall repay all credits that were claimed for taxable years after the taxable year that includes the 3rd anniversary of the investment date of the investment pool and may claim no more credits for taxable years after the taxable year that includes the 3rd anniversary of the investment date of the investment pool.
(5) Sale of credit. An insurer may sell a credit under this section to another insurer that is subject to taxation under this subchapter if the insurer notifies the commissioner of insurance of the sale and includes with that notification a copy of the transfer documents.
(6) Nullification of credit precluded. This state may not impose a new tax or change an existing tax in order to nullify the credit created under this section.
215,3
Section 3
. Subchapter II of chapter 560 [precedes 560.30] of the statutes is created to read:
CHAPTER 560
SUBCHAPTER II
CERTIFIED CAPITAL COMPANIES
560.30 Definitions. In this subchapter:
(1) “Affiliate" means, with respect to a certified capital company or a certified investor, any of the following:
(a) A person who, directly or indirectly, owns, controls, or holds power to vote, 10% or more of the outstanding voting securities or other voting ownership interests of the certified capital company or certified investor.
(b) A person, 10% of whose outstanding voting securities or other voting ownership interests are directly or indirectly owned, controlled or held with power to vote by the certified capital company or certified investor.
(c) A person directly or indirectly controlling, controlled by, or under common control with, the certified capital company or certified investor.
(d) A partnership in which the certified capital company or certified investor is a general partner.
(e) A person who is an officer, director or agent of the certified capital company or certified investor, or is an immediate family member of such an officer, director or agent.
(2) “Certified capital company" means a person that has been certified by the department under s. 560.31 and that has not been decertified under s. 560.37 (3) or (3m).
(3) “Certified capital company tax credit" means the tax credit under s. 76.635.
(4) “Certified capital investment" means an investment in a certified capital company that is certified under s. 560.32 (2) and that fully funds either the investor's equity interest in a certified capital company, a qualified debt instrument that a certified capital company issues, or both.
(5) “Certified investor" means a person who makes a certified capital investment.
(6) “Investment date" means, with respect to each investment pool, the date on which the last certified capital that is part of that investment pool was invested in the certified capital company.
(7) “Investment pool" means the aggregate of all investments of certified capital in a certified capital company that are made as part of the same transaction, except that investments received more than 30 days apart may not be considered part of the same investment pool.
(8) “Qualified business" means a business which is a qualified business under s. 560.33.
(9) “Qualified debt instrument" means a debt instrument that a certified capital company issues at par value or at a premium; that has an original maturity date of at least 5 years from the date on which it was issued; that has a repayment schedule that is no faster than a level principal amortization and, until the certified capital company may make distributions other than qualified distributions, the interest, distribution or payment features of which are not related to the certified capital company's profitability or the performance of its investment portfolio.
(10) “Qualified distribution" means a distribution or payment by a certified capital company to its equity holders for any of the following:
(a) The costs of forming, syndicating, managing or operating the certified capital company.
(b) An annual management fee that does not exceed 2.5% of the certified capital company's total certified capital.
(c) Reasonable and necessary fees paid for professional services related to the operation of the certified capital company.
(d) A projected increase in federal or state taxes, including penalties and interest on those taxes, of the equity owners of the certified capital company if those amounts are related to the certified capital company's ownership, management or operation.
(11) “Qualified investment" means an investment in a qualified business by a certified capital company that meets the requirements under s. 560.34 (1).
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.
(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:
(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.
(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.
(c) The directors, officers, general partners, trustees, managers or members or persons having a similar function are familiar with the requirements of this subchapter.
(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.
(e) The person has included, in any offering material involving the sale of securities, the statement required under s. 560.32 (1).
(f) The person has paid a nonrefundable application fee of $7,500.
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:
(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."
(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."
(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.
(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.
(c) Prior to the first day of the 13th month beginning after the effective date of this paragraph .... [revisor inserts date], 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 more than $10,000,000 in certified capital investments.
(d) If, as a result of the limitations under par. (b) or (c), the department may not certify the full amount requested in applications for certified capital investments submitted under par. (a), the department shall allocate the amounts available for certification in order of priority based on the date on which the application was filed. If the amounts available for certification are insufficient to certify the full amount of all applications for certified capital investments that are submitted on the same day, the department shall prorate the available amount on the basis of the amount that the investor has committed to invest in the certified capital company under par. (a).
(3) Limitation on certified investor investment. A certified investor may not, individually, or with or through one or more affiliates, own 10% or 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.
560.33 Qualified businesses. (1) Qualifications. A business is a qualified business 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:
(a) The business is headquartered in this state and its principal business operations are located in this state.
(am) The business is in need of venture capital and is unable to obtain conventional financing, as defined by the department by rule.
(b) The business has no more than 100 employes, at least 75% of whom are employed in this state.
(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 $2,000,000, as determined in accordance with generally accepted accounting principles.
(d) The business has, together with its consolidated affiliates, a net worth that is not in excess of $5,000,000.
