BILL ANALYSIS                                                                                                                                                                                                    

                                                                  SB 1155
                                                                  Page  1

          Date of Hearing:   August 4, 2010

                                Felipe Fuentes, Chair

              SB 1155 (Dutton and Price) - As Amended:  August 2, 2010 

          Policy Committee:                             Banking and  
          Finance      Vote:                            12-0          

          Urgency:     No                   State Mandated Local Program:  
          No     Reimbursable:              


          This bill modifies the Capital Access Company Law (CACL),  
          bringing it into closer alignment with federal provisions used  
          by the Small Business Administration for its licensees. Key  
          provisions of the bill:

          1)Revise the definition of a small business firm (for purposes  
            of being eligible for financial assistance from capital access  
            companies), using net-worth instead of numbers of employees as  
            the main criteria.

          2)Exempt businesses from CACL if they are approved as Small  
            Business Investment Companies by the federal Small Business  
            Administration, and provides for state enforcement of the  
            federal regulations governing Small Business Investment  

          3)Replace existing law conflict-of-interest provisions with  
            those used by the Small Business Administration for its  

          4)Maintain existing-law provisions authorizing sales of  
            securities by persons licensed under the CAC law to certain  
            accredited investors, but add the requirement that the  
            accredited investors either have a preexisting personal or  
            business relationship with the seller or have the capacity to  
            protect their own interests in connection with the  

           FISCAL EFFECT


                                                                  SB 1155
                                                                  Page  2

          If the bill were to result in the formation of additional  
          capital access companies, the Department of Corporations would  
          incur minor costs, likely less than $100,000 (special fund) for  
          licensing related activities. Added costs would be partly or  
          completely offset by fee revenues from the licensees.  


           1)Rationale. This bill is intended to streamline the CACL, with  
            the goal establishing CACL investment companies that can  
            provide funding for small start-up businesses.  The authors  
            asserts that, with the credit crunch, there is a lack of funds  
            from larger venture capital funds for small start up ventures  
            and that CACL companies can fill this void.  

           2)Background  . Existing federal law (The Investment Company Act  
            of 1940) generally requires investment companies with more  
            than 100 shareholders to register with, and be regulated by,  
            the Securities and Exchange Commission (SEC). Companies  
            registered with the SEC are subject to numerous reporting,  
            financial, and auditing requirements. In 1996, Congress passed  
            the National Securities Markets Improvement Act, which was  
            intended to update federal law and provide for more efficient  
            regulation of financial companies. The 1996 Act included an  
            exemption from SEC registration and reporting requirements for  
            investment companies meeting specific requirements. Such  
            companies can only raise money from accredited investors  
            (defined as investors meeting income, net worth, and other  
            requirements) and can provide assistance only to small  
            businesses operating predominately within the same state.

            In response to the federal exemption, California enacted the  
            CACL in 1998 to facilitate the formation of public venture  
            capital funds to assist small California businesses. As noted  
            above, although the CACL law has been in effect for over a  
            decade, no companies are currently licensed under its  

           Analysis Prepared by  :    Brad Williams / APPR. / (916) 319-2081