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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