SB 1155

Bill Subjects

Abstract

Existing law, the Capital Access Company Law, provides for the licensure and regulation by the Commissioner of Corporations of capital access companies to enable those entities to provide risk capital and management assistance to small businesses in the state, exempt from the requirements of the federal Investment Company Act of 1940. Under existing law, a capital access company is only authorized to engage in the business of providing financing assistance through the purchase of securities of small business firms doing business or proposing to do business wholly or substantially in this state, and providing managerial and technical assistance to these firms, subject to certain exceptions. Existing law defines a "small business firm" as a person meeting specified criteria, including, without limitation, having fewer than 500 employees. This bill would redefine a small business firm as a person that, together with its affiliates, has a net worth of not more than $18,000,000 and average net income after federal income taxes, as specified, no greater than $6,000,000. The bill would also define a "smaller business firm" as a person that, together with its affiliates, has a net worth of not more than $6,000,000 and average net income after federal income taxes, as specified, no greater than $2,000,000, and would require that at least 20% of all financing assistance provided by a licensee shall be through the purchase of securities of smaller business firms proposing to do business wholly or substantially in this state. Existing federal law provides for licensure and regulation of small business investment companies by the Small Business Administration. This bill would provide that, if a capital access company becomes a small business investment company, specified federal regulations shall supersede regulatory requirements under the Corporations Code, except as specified, and that a violation of those federal regulations would constitute a violation of this act. Existing law requires, as a condition of licensure of a capital access company, that a person who makes recommendations with respect to the investment of funds of the company be an investment adviser, as specified, and not be subject to specified acts and omissions, convictions, and other legal actions. This bill would instead require that no person with a specified relationship or connection with the applicant be subject to those acts, omissions, convictions, or other legal actions. This bill would also revise and recast provisions of the Capital Access Company Law relating to conflicts of interest. Existing state law requires a capital access company to use its best efforts to provide financing assistance to small business firms doing business or proposing to do business wholly or substantially in this state, and makes related prohibitions and exceptions to providing services to persons out of state. Existing state law also prohibits a capital access company from providing financing assistance to a small business firm whose primary business is providing financing assistance. Existing federal law requires a California capital access company to state in its organizational documents that its activities are limited to providing financial or managerial services to enterprises doing business, or proposing to do business, in this state. This bill would eliminate those state law prohibitions. Existing law makes it unlawful for any person to offer or sell in this state any security in an issuer transaction unless the sale has been qualified or unless the security or transaction is exempt or not subject to qualification, as specified. Under existing law, an offer or sale of nonredeemable securities to accredited investors by a person licensed pursuant to the Capital Access Company Law is exempt from these qualification requirements. This bill would maintain that exemption provided that all purchasers either have a preexisting personal or business relationship with the offeror, as specified, or by reason of their business or financial experience or the business or financial experience of their specified professional advisers could be reasonably assumed to have the capacity to protect their own interests in connection with the transaction. The bill would specify that this exemption is not available under certain circumstances.