BILL ANALYSIS Senate Appropriations Committee Fiscal Summary Senator Christine Kehoe, Chair 1155 (Dutton/Price) Hearing Date: 04/26/2010 Amended: 04/12/2010 Consultant: Maureen Ortiz Policy Vote: BFI: 11-0 _________________________________________________________________ ____ BILL SUMMARY: SB 1155 makes changes to the Capital Access Company Law in order to streamline and increase access to early-stage funding to small businesses. _________________________________________________________________ ____ Fiscal Impact (in thousands) Major Provisions 2010-11 2011-12 2012-13 Fund Application process ------------unknown, likely less than $100--------- Special* potentially offset by fee revenue Audits ------------unknown, paid by licensees------------ Special* *Corporations Fund _________________________________________________________________ ____ STAFF COMMENTS: Applicants pay a fee of $2,000 to the Department of Corporations (DOC), and are responsible for the costs of the audits. The exact costs for this program are unknown and will be dependent on the number of capital access companies that are formed and apply for state licensure. For example, assuming 25 companies apply for licensure under the program, the department might need one personnel position, and fee revenue in this instance would be $50,000. The DOC would also incur some minor costs for developing the examination protocol. There will not be any additional costs for promulgating regulations since they were established when the program was first created in 1999. The federal Investment Company Act of 1940 regulates capital access companies with more than 100 shareholders. The National Securities Market Improvement Act, enacted by Congress in 1996, exempted certain business venture companies from the 1940 Act provided that a state program is enacted to provide licensing and oversight. No other states currently provide a licensing scheme for capital access companies. The Capital Access Company Law was established in California by SB 2189 (Vasconcellos) Chapter 668, Statutes of 1998. The program provides for the licensure and regulation of capital access companies by the Commissioner of Corporations. However, this program is currently dormant as no companies have to date been licensed. A company could apply for licensure if it had, among other criteria, a tangible net worth of at least $250,000 and funds of at least $5 million. The intent was to allow certain businesses seeking to become a Capital Access Company to submit an application to the Department of Corporations (DOC) in order to sell securities under the exemption granted to specified companies under the Investment Company Act of 1940. SB 1155 (Dutton/Price) Page 2 SB 1155 redefines a "small business firm" for purposes of the CAC Law as one that proposes to transact, or transacts, business on a regular and continuous basis in California and which, together with its affiliates, has a net worth of not more than $18 million and average net income as specified of no greater than $6 million during the preceding two years. The bill also adds a definition of "smaller business firm", as a person that has a net worth of not more than $6 million and average net income after federal income taxes no greater than $2 million. At least 20% of all financing assistance provided by a licensee must be through the purchase of securities of smaller business firms proposing to do business wholly or substantially in California. SB 1155 also authorizes the transfer or assignment of a CAC license upon approval of the Commissioner, updates the conflict of interest provisions, removes a prohibition against providing financing assistance to a small business firm whose primary business is providing financing assistance, and makes other technical related changes.