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CALIFORNIA Amends Corporation Code

By Jim Hamilton

Senate Bill No. 1155 amends, adds and repeals Corporation Code provisions relating to capital access companies effective January 1, 2011.

Sec. 25102-Transactions exempted from qualification requirement. Language has been added to subsection (p) exempting an offer or sale of nonredeemable securities to accredited investors by a person licensed under the Capital Access Company Law provided that all purchasers either (1) have a preexisting personal or business relationship with the offeror or any of its partners, officers, directors, controlling persons, or managers, or (2) by reason of their business or financial experience or the business or financial experience of their professional advisers who are unaffiliated with and who are not compensated by the issuer or any affiliate or selling agent of the issuer, directly or indirectly, could be reasonably assumed to have the capacity to protect their own interests in connection with the transaction. The exemption is not available for any offering that is exempt or asserted to be exempt pursuant to Sec. 3(a)(11) of the Securities Act of 1933 (15 U.S.C. Sec. 77c(a)(11)) or Rule 147 (17 C.F.R. Sec. 230.147) or is conducted by means of any form of general solicitation or general advertising.

Sec. 28047-Small business firm defined. The definition of small business firm has been changed from meaning a person who meets specified criteria, including having fewer than 500 employees, to a person that, together with its affiliates, has a net worth of not more than $18,000,000 and an average net income after federal income taxes of no more than $6,000,000.

Sec. 28047.1-Smaller business firm defined. This new provision defines a smaller business firm to mean a person who transacts business on a regular and continuous basis in the state and, together with its affiliates, has a net worth of not more than $6,000,000, and an average net income after federal income taxes, excluding any carryover losses, for the preceding two years of no more than $2,000,000.

Sec. 28100-Enforcement; Commissioner's role. Language has been added to this section allowing the commissioner to administer and enforce the provisions of this division in a manner that facilitates the legislative purposes set forth in Sec. 28004, consistent with the protection of investors.

Sec. 28111-Licensee licensed as a small business investment company. This new provision states that if a licensee becomes licensed as a small business investment company and is subject to regulation by the Small Business Administration under the federal Small Business Investment Act of 1958, the commissioner my provide that a licensee in compliance with those federal regulations be deemed to be in compliance with the regulatory requirements under this division except those provisions required to exempt licensees from regulation under the federal Investment Company Act of 1940, and the provisions of Ch. 8 (commencing with Sec. 28550), Ch. 9 (commencing with Sec. 28600), Ch. 10, (commencing with Sec. 28650), Ch. 11 commencing with Sec. 28700), Ch. 12 (commenting with Sec. 28800), Ch. 13 (commencing with Sec. 28900) and Ch. 14 (commencing with Sec. 28950).

Sec. 28152-Qualification for license; Requirements; Findings concerning tangible net worth, investment funds and ability to meet expenses. Existing law has been amended at subsection (e), requiring that as a condition of licensure of a capital access company, a person who makes recommendations with respect to the investment of funds of the company be an investment adviser and not be subject to specified acts and omissions, convictions, and other legal actions, to requiring that no person with a specified relationship or connection with the applicant be subject to those acts, omissions, convictions, or other legal actions.

Sec. 28154-Transferability of license; Prohibition. Adds the language that except pursuant to Sec. 28551, no license will be transferable or assignable.

Sec. 28400-Limitation on business transactions. This section has been amended by adding that 20% of all financing assistance provided by a licensee will be through the purchase of securities of smaller business firms proposing to do business wholly or substantially in the state.

Secs. 28401, 28402, and 28403-Financing assistance to small Californian businesses; Best efforts-Financing assistance to franchisors-Financing assistance to non-Californian businesses strictly prohibited. These sections have been repealed.

Sec. 28404-Financing assistance to small businesses that provide
financing assistance prohibited. Subsection (a) has been removed stating that no licensee will provide financing assistance to any small business firm in which the primary business is to provide financing assistance.

Sec. 28820-Definitions. Definitions for adviser, closing services, and short-term financing assistance have been removed.

Sec. 28821-Financial and managerial assistance by licensee. Prior Section 28821 has been replaced with new Section 28821, requiring that a licensee must not provide financial or managerial assistance to, or for the benefit of, any person to the detriment of a small business firm or smaller business firm, the licensee, its shareholders, or partners.

Secs. 28822 through 28829. These sections have been repealed.

For more information, see http://www.sen.ca.gov/~newsen/senate.htm

Full post as published by Jim Hamilton's World of Securities Regulation on December 15, 2010 (boomark / email).