AB579: Bill Text

The bill subjects certified capital companies to a variety of reporting requirements and requires them to pay an annual fee of $5,000. The bill also limits the ability of certified capital companies to make distributions. A certified capital company may make a distribution only if the distribution will not adversely affect the ability of the certified capital company to place 100% of its initial capital in qualified businesses, if the distribution is used to pay debt or certain management fees or if the distribution is to pay the increased taxes of an investor resulting from the investor's investment in the certified capital company.

The bill requires the department of commerce to conduct an annual review of a certified capital company to determine whether the company is in compliance with the bill's provisions. The bill contains provisions for disqualifying a certified capital company's investment pool or decertifying the certified capital company, if the company violates certain of the bill's requirements. If the certified capital company is decertified or the investment pool is disqualified, the insurance company tax credits claimed for the investment in that certified capital company or pool are subject to recapture or forfeiture.

For further information see the state fiscal estimate, which will be printed as an appendix to this bill.

The people of the state of Wisconsin, represented in senate and assembly, do enact as follows:

AB579, s. 1 Section 1. 20.143 (1) (hm) of the statutes is created to read:

AB579,3,3 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.

AB579, s. 2 Section 2. 76.635 of the statutes is created to read:

AB579,3,5 76.635 Credit. (1) Definitions. In this section:

AB579,3,6 (a) "Certified capital company" has the meaning given in s. 560.30 (2).

AB579,3,7 (b) "Certified capital investment" has the meaning given in s. 560.30 (4).

AB579,3,8 (c) "Investment date" has the meaning given in s. 560.30 (6).

AB579,3,9 (d) "Investment pool" has the meaning given in s. 560.30 (7).

AB579,3,10 (e) "Qualified investment" has the meaning given in s. 560.30 (11).

AB579,3,16 (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.

AB579,4,2 (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.

AB579,4,9 (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 (1) (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 department of revenue, for deposit in the general fund, and may not claim more credit in respect to that investment pool.

AB579,4,19 (b) If a certified capital company fulfills the investment requirement under s. 560.34 (1) (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 (1) (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.

AB579,4,23 (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 department of revenue of the sale and includes with that notification a copy of the transfer documents.

AB579, s. 3 Section 3. Subchapter II of chapter 560 [precedes 560.30] of the statutes is created to read:

AB579,5,1 CHAPTER 560

AB579,5,2 SUBCHAPTER II

AB579,5,3 CERTIFIED CAPITAL COMPANIES

AB579,5,4 560.30 Definitions. In this subchapter:

AB579,5,6 (1) "Affiliate" means, with respect to a certified capital company or a certified investor, any of the following:

AB579,5,9 (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.

AB579,5,12 (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.

AB579,5,14 (c) A person directly or indirectly controlling, controlled by, or under common control with, the certified capital company or certified investor.

AB579,5,16 (d) A partnership in which the certified capital company or certified investor is a general partner.

AB579,5,19 (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.

AB579,5,21 (2) "Certified capital company" means a person certified by the department under s. 560.31.

AB579,5,22 (3) "Certified capital company tax credit" means the tax credit under s. 76.635.

AB579,6,2 (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.

AB579,6,4 (5) "Certified investor" means a person who makes a certified capital investment.

AB579,6,7 (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.

AB579,6,11 (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.

AB579,6,13 (8) "Qualified business" means a business which is a qualified business under s. 560.33.

AB579,6,20 (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 amoritization 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.

AB579,6,22 (10) "Qualified distribution" means a distribution or payment by a certified capital company to its equity holders for any of the following:

AB579,6,24 (a) The costs of forming, syndicating, managing or operating the certified capital company.

AB579,7,2 (b) An annual management fee that does not exceed 2.5% of the certified capital company's total certified capital.

AB579,7,4 (c) Reasonable and necessary fees paid for professional services related to the operation of the certified capital company.

AB579,7,8 (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.

AB579,7,10 (11) "Qualified investment" means an investment of cash in a qualified business for the purchase of any of the following:

AB579,7,11 (a) An equity security of the qualified business.

AB579,7,13 (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:

AB579,7,14 1. The debt is unsecured.

AB579,7,16 2. The debt is convertible into equity securities or equity participation instruments such as options or warrants.

AB579,7,23 560.31 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.

AB579,8,3 (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:

AB579,8,6 (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.

AB579,8,8 (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.

AB579,8,11 (c) The directors, officers, general partners, trustees, managers or members or persons having a similar function are familiar with the requirements of this subchapter.

AB579,8,13 (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.

AB579,8,15 (e) The person has included, in any offering material involving the sale of securities, the statement required under s. 560.32 (1).

AB579,8,16 (f) The person has paid a nonrefundable application fee of $7,500.

AB579,8,19 560.32 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:

AB579,8,24 (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."

AB579,9,9 (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."

AB579,9,17 (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.

AB579,9,20 (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.

AB579,9,24 (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.

AB579,10,3 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.

AB579,10,11 (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.

AB579,10,18 560.33 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:

AB579,10,20 (a) The business is headquartered in this state and its principal business operations are located in this state.

AB579,10,22 (am) The business is in need of venture capital and is unable to obtain conventional financing, as defined by the department by rule.

AB579,10,24 (b) The business has no more than 300 employes, at least 75% of whom are employed in this state.

AB579,11,4 (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.

AB579,11,6 (d) The business has, together with its consolidated affiliates, a net worth that is not in excess of $18,000,000.

AB579,11,8 (e) The business is not predominantly engaged in professional services provided by accountants, lawyers or physicians.

AB579,11,9 (f) The business is not engaged in the development of real estate for resale.

AB579,11,11 (g) The business is not engaged in banking or lending and does not make any loans to, or investments in, certified capital corporations.

AB579,12,3 (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.

AB579,12,8 560.34 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:

AB579,12,10 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.

AB579,12,12 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.

AB579,12,21 (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).

AB579,13,2 (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.

AB579,13,6 (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.

AB579,13,9 (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.

AB579,13,12 560.35 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:

AB579,13,14 (a) The name of the certified investor from which the certified capital was received, including the certified investor's tax identification number.

AB579,13,15 (b) The amount of the certified capital investment.

AB579,13,17 (c) The date on which the certified capital investment was received by the certified capital company.

AB579,13,19 (d) The investment date for the investment pool of which the certified capital will be a part.

AB579,13,21 (2) Annual reports. On or before January 31 annually, a certified capital company shall report all of the following to the department:

AB579,13,23 (a) The amount of the certified capital company's certified capital at the end of the preceding year.

AB579,13,25 (b) Whether the certified capital company has invested more than 15% of its total certified capital in any one person.