BILL ANALYSIS Ó
AB 1430
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Date of Hearing: May 5, 2015
ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS
Susan Bonilla, Chair
AB 1430
(Cooper) - As Amended March 26, 2015
SUBJECT: California family owned businesses.
SUMMARY: Provides a definition for a "California family owned
business."
EXISTING LAW:
1)Defines a "small business" to mean an independently owned and
operated business that is not dominant in the field of
operation, the principal office of which is located in
California, the officers of which are domiciled in California,
and which, together with affiliates, has 100 or fewer
employees, and average annual gross receipts of ten million
dollars or less over the previous three years, or is a
manufacturer, as specified. (Government Code Section (GC)
14837)
2)Defines a "microbusiness" to mean a small business which
together with affiliates has average annual gross receipts of
two million five hundred thousand dollars or less over the
previous three years or is a manufacturer, as specified. (GC
14837)
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3)Defines a "disabled veteran's business enterprise" to mean an
enterprise that has been certified as meeting the
qualifications established by Section 999 of the Military and
Veterans Code. (GC 14837)
THIS BILL:
4) Defines a "California family owned business" as a business
that meets all of the following requirements:
a) Is organized as a privately held business by one
individual or two or more related persons, or is a
partnership of business entities owned by related persons;
b) Maintains its principal executive office in California;
c) Has been in business for more than ten continuous years;
d) One of the following apply:
i) Is owned by a sole proprietorship;
ii)Is a business entity owned by one individual or two or
more related persons domiciled in California who hold a
majority of the equity interests; or,
iii)Is a partnership of business entities owned by related
persons domiciled in California who hold a majority of
the equity interests;
e) The business is controlled by one individual or two or
more related persons who exhibit strategic influence and
control of the business by holding the business as a sole
proprietorship or by holding a majority of the voting
interest;
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f) Demonstrates an intent to continuously operate as a
family owned business in the future through any of the
following:
i) Present ownership by two or more related persons;
ii)A previous transfer of ownership or equity interests
between related persons; or,
iii)Is subject to a written agreement providing for a
future transfer between related persons provided that the
agreement was executed in good faith.
5)Defines "related person" for the purpose of this law as
"including a person who is related by a common ancestor,
pursuant to state and federal law up to four generations. Any
person related by greater than four generations is included if
his or her ownership or operational involvement arose from an
exercise of continuity of generations, as specified. "Related
persons" also includes a parent, stepparent, brother, sister,
stepbrother, stepsister, half-brother, half-sister, adopted
person, person born out of wedlock, stepchild, foster child,
uncle, aunt, niece, nephew, first cousin, and any person
denoted by the prefix "grand" or "great." A spouse, domestic
partner, and the spouse or domestic partner of any person that
qualifies as a person related by a common ancestor, pursuant
to state or federal law up to four generations, is also
included within the definition of "related persons" and will
continue to be included in the event of the legal relationship
being terminated by death or dissolution.
6)Specifies that the definition of "California family owned
business," as specified above, only applies to provisions in
which the definition is explicitly cross-referenced.
7)Makes findings and declarations relative to the unique and
valuable characteristics of California family owned
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businesses.
FISCAL EFFECT: None. This bill is keyed non-fiscal by the
Legislative Counsel.
COMMENTS:
Purpose. This bill is sponsored by the Family Business
Association . According to the author, "Research has shown
that family-owned businesses have unique characteristics that
distinguish them from other businesses; however, there is
currently no standardized definition for family-owned
business. A standardized definition is needed in order to
recognize the needs and contributions of family owned
businesses."
Background. According to the Family Business Association,
"Family businesses generate 57% of the nation's GDP, employ
63% of the workforce and create 75% of all new jobs.
California's 1.4 million family businesses employ 7 million
Californians." However, as noted by the author, there is not
a standard, uniform definition to describe a family-owned
business. According to the study released by the Blue Sky
Consulting Group titled Family Business and Their Impact of
the California Economy, it was reported that "in terms of
their impact on the economy, family businesses represent a
considerable share of economic activity at both the state and
national level. While the exact measure of their contribution
varies significantly depending upon the definition used, a
targeted definition that includes only those businesses most
commonly understood to represent family businesses results in
estimates that family businesses account for approximately 20
to 35% of all California businesses, contribute 20 to 40% of
the state's GDP, and provide between 20% and 40% of the
state's jobs."
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In addition, that study found that definitional problems around
the term "family-owned business" provide measurement
challenges when trying to assess the full economic benefit of
these businesses. As noted in the report, "While much research
has been conducted in the past few decades on family
businesses and their impact on the economy, no commonly
accepted definition has emerged as to what exactly constitutes
a family business." An article titled Family Businesses'
Contribution to the U.S. Economy: A Closer Look in the Family
Business Review also noted, "?the even greater challenge in
quantifying family businesses' collective impact is there is
no concise, measureable, agreed-upon definition for a family
business. Experts in the field use many different criteria to
distinguish these businesses, such as percentage of ownership,
strategic control, involvement of multiple generations, and
the intention for the business to remain in the family."
Because there is no common definition, researches outcomes
about the significance of these businesses may vary because of
different interpretations of the term. Currently, a single
standard definition for a "California family owned business"
is not available, nor is there a consistent definition used
across all states or at the federal level for a family owned
business. This bill seeks to codify a definition for
"California family-owned business" in statute; however it does
not specify the use for the definition.
Business Designations in California. Current California law
recognizes small businesses, microbusinesses, disabled
veteran-owned business enterprises, and disadvantaged business
entities. These designations may also come with tangible
benefits, such as contracting preferences. This bill does not,
by itself, provide such benefits.
Previous Related Legislation. AB 1260 (Medina) of 2013, would
have established a definition of a "California family owned
business." Note: This bill was vetoed by Governor Brown for
the reason discussed below.
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ACR 42 (Daly), Chapter 25, Statutes of 2012, declares April 11,
2013, as Family Business Day in California and would encourage
the growth and prosperity of family-owned businesses within the
state.
ARGUMENTS IN SUPPORT:
The Family Business Association writes in support, [This bill]
is a necessary bill that sets out, for the first time in state
statute, a definition of a family owned business. Having one
standardized definition will assist policy makers to determine
the effect and impact of policies if they have already agreed on
the definition of Family Owned Business. Additionally, it will
assist in better quantifying the impact of these businesses on
the economy.
Importantly, [this bill] will again let California lead the
nation statutorily defining a family owned business so that
decision makers will be able to consider the special challenges
of operating these businesses when considering future actions.
Specifically, having one uniform definition of Family Owned
Business will assist policy makers when implementing specific
policy issues such as tax and estate succession. It will also
be helpful in local jurisdictions who may consider including
"California Family Owned Businesses" in a "buy local" promotion
or procurement program."
ARGUMENTS IN OPPOSITION:
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None on file.
POLICY ISSUE FOR CONSIDERATION:
AB 1260 (Medina) of the 2012 legislative session, would have
established a definition for "California family owned business"
and was passed by this Committee on January 14, 2014 on a 12-0
vote. The provisions of AB 1260 were substantially similar to
those contained in this bill; however, the Governor ultimately
vetoed that bill and cited concerns in his veto message about
the necessity of the bill. According to the Governor's veto
message, "Family-owned businesses have an important role in our
state and local economies and I am supportive of efforts that
recognize their vital contributions. I am concerned, however,
that adding a definition of 'California Family Owned Business'
in statute with no legal or programmatic purpose will not
achieve the bill's intended purpose."
Because this bill is substantially similar to AB 1260, the
Committee may wish to inquire of the author what steps have been
taken to alleviate the Governor's concerns as presented in his
veto message.
This bill attempts to define a family-owned business in
California in statute without any specification for its intended
purpose. Because there is nothing attached to the use of this
definition, it may be difficult to assess whether or not the
definition, as proposed by this bill, will be appropriate for
any future use. The Committee may wish to inquire of the author
any intended purpose for this definition in the future.
REGISTERED SUPPORT:
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The Family Business Association (sponsor)
California Asian Pacific Chamber of Commerce
REGISTERED OPPOSITION:
None on file.
Analysis Prepared by:Elissa Silva / B. & P. / (916) 319-3301