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
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          |Author:   |Cooper                                                |
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          |Version:  |March 26, 2015                                        |
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          |Urgency:  |No                     |Fiscal:    |No               |
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          |Consultant|Nicole Billington                                     |
          |:         |                                                      |
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                    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:







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          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.



































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          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  








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          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  








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             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 --








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