BILL ANALYSIS
SB 1155
Page 1
Date of Hearing: August 4, 2010
ASSEMBLY COMMITTEE ON APPROPRIATIONS
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:
SUMMARY
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
Companies.
3)Replace existing law conflict-of-interest provisions with
those used by the Small Business Administration for its
licensees.
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
transaction.
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.
COMMENTS
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
provisions.
Analysis Prepared by : Brad Williams / APPR. / (916) 319-2081