BILL ANALYSIS Ó SENATE COMMITTEE ON BUSINESS, PROFESSIONS AND ECONOMIC DEVELOPMENT Senator Jerry Hill, Chair 2015 - 2016 Regular Bill No: AB 1430 Hearing Date: June 6, 2016 ----------------------------------------------------------------- |Author: |Cooper | |----------+------------------------------------------------------| |Version: |March 26, 2015 | ----------------------------------------------------------------- ---------------------------------------------------------------- |Urgency: |No |Fiscal: |No | ---------------------------------------------------------------- ----------------------------------------------------------------- |Consultant|Nicole Billington | |: | | ----------------------------------------------------------------- Subject: California family owned businesses SUMMARY: Creates a definition for California family owned business in the Government Code. Existing law: 1) Defines a small business as "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 (GC) § 14837) 2) Defines a microbusiness as "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) 3) Defines a disabled veteran's business enterprise as "an enterprise that has been certified as meeting the qualifications established by Section 999 of the Military Code." (GC § 14837) This bill: AB 1430 (Cooper) Page 2 of ? 1) Makes various findings and declarations about California family owned businesses, including recognition that these businesses invest more in their employees in terms of training and benefits, promote more women to high-level management positions, and are less likely to lay off employees or downsize in tough economic times while also outlining the engagement in and commitment to local California communities made by these businesses. 2) Defines a "California family owned business" (CFOB) as a business that meets certain requirements. A CFOB must be 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 and must maintain its principal executive office in California and have been in business continuously for more than ten years. AB 1430 (Cooper) Page 3 of ? 3) Requires the business, in order to be defined as a CFOB, to also either be owned by a sole proprietorship, be 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 be a partnership of business entities owned by related persons domiciled in California who hold a majority of the equity interests. 4) Requires the business, in order to be defined as a CFOB, to be controlled by one individual or two or more related persons who exhibit strategic influence and control of the business by holding it as a sole proprietorship or by holding a majority of the voting interest. 5) Requires that the business, in order to be defined as a CFOB, demonstrates an intent to continuously operate as a family business in the future by either present ownership by two or more related persons, a previous transfer of ownership of equity interests between related persons, or being subject to a written agreement providing for a future transfer between related persons provided that the agreement was executed in good faith. 6) Defines "related person" as a person who is related by a common ancestor, pursuant to state or federal law up to four generations. Provides that any person related by greater than four generation is included if his or her ownership or operational involvement arose from an exercise of continuity across generations. Provides that related person 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 shall continue to be included in the event of the legal relationship being terminated by death or dissolution. FISCAL AB 1430 (Cooper) Page 4 of ? EFFECT: None. This bill is not keyed fiscal by Legislative Counsel. COMMENTS: 1. Purpose. The Family Business Association (FBA) is the sponsor of this bill. 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. The Author states that a standardized definition is needed in order to recognize the needs and contributions of family owned businesses. 2. Background. According to the March 2011 Annual Family Business Survey conducted by Family Enterprise USA, "Family businesses have a dramatically positive impact on their communities, and together they are a driving force of the American economy. Family-owned businesses generate 57% of the [Gross Domestic Product (GDP)] in the United States, employ 63% of our nation's workforce and are the societal stabilizers in most communities in the country." According to a 2012 report prepared for FBA and provided by the Author, Family Business and Their Impact on the California Economy, "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?[there are] estimates that family businesses account for approximately 20 to 35 percent of all California businesses, contribute 20 to 40 percent of the state's GDP, and provide between 20 percent and 40 percent of the state's jobs." The report also 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 the report states, "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." 3. Arguments in Support. Supporters write that this is a AB 1430 (Cooper) Page 5 of ? necessary bill; that establishing a statutory definition of a family owned business for the first time is important, in that it more clearly identifies the unique and distinct differences between family-owned enterprises from other businesses and allows decision makers to consider the special aspects of operating these businesses when considering future action. 4. Prior Related Legislation. AB 1260 (Medina of 2014) was almost identical to this bill. ( Status: The bill was vetoed by Governor Brown whose veto message is discussed below.) 5. Policy Questions. Last year, an almost identical bill, AB 1260 , was vetoed. In his veto message, Governor Brown wrote, "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." It remains unclear how adding a definition of California family owned business to the statute will provide any benefit to the state or those businesses that fall under the definition. Is it the Author's intention for this definition to serve as a precursor to these entities, defined in statute, receiving preference in government such as prioritization in government contracts and procurement? Does the Author intend for this definition to serve as a starting point for additional changes to the law intended to assist, benefit or recognize these entities? SUPPORT AND OPPOSITION: Support: Family Business Association (Sponsor) California Asian Pacific Chamber of Commerce Opposition: None on file as of May 31, 2016. -- END -- AB 1430 (Cooper) Page 6 of ?