BILL ANALYSIS �
AB 1260
Page 1
Date of Hearing: January 14, 2014
ASSEMBLY COMMITTEE ON BUSINESS, PROFESSIONS AND CONSUMER
PROTECTION
Susan A. Bonilla, Chair
AB 1260 (Medina) - As Amended: January 6, 2014
SUBJECT : California family owned business.
SUMMARY : Defines a "California family owned business".
Specifically, this bill :
1)Defines a "California family owned business" as a business
that meets all of the following requirements:
a) Is independently operated as a privately held business
by family members;
b) Maintains its principal executive office in California;
c) Has been in business continuously for more than 10
years;
d) Is conducted by a sole proprietorship owned by a family
member domiciled in California, or by an entity in which
the family members domiciled in California hold at least 20
percent of the equity interests;
e) A family member or members exhibit strategic influence
and control of the business that is conducted by the sole
proprietorship owned by a family member or an entity in
which family members hold a majority of the voting
interest; and,
f) Demonstrates an intent to continuously operate as a
family owned business in the future through any of the
following means:
i) Present ownership by multiple family members;
ii) A previous transfer of ownership or equity interests
between family members; or,
iii) Being subject to a written agreement providing for a
future transfer between family members provided that the
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agreement was executed in good faith.
2)Defines "family member" for the purpose of this law as
"includ[ing] a person who is related by a common ancestor,
pursuant to state or 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 across generations as described in
[section 1)F) above]. A family member also includes a person
that qualifies as related in accordance with the rules for
determining relationship and inheritance rights for purposes
of intestate succession according to Section 21115 of the
Probate Code."
3)States that "[i]t is the intent of the Legislature to enact
legislation that would aid, counsel, assist, and protect the
interests of California family owned businesses in order to
preserve free competitive enterprise and support family owned
enterprises."
4)Makes legislative findings and declarations relative to the
unique and valuable characteristics of California family owned
businesses.
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)
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
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Code." (GC 14837)
FISCAL EFFECT : None. This bill is keyed non-fiscal by the
Legislative Counsel.
COMMENTS :
1)Purpose of this bill . This bill would simply create a formal
definition for a "California family owned business". The
author believes that a legal definition will serve as the
basis for better data collection on the contribution that
family-owned businesses make to the California economy, and
perhaps facilitate more direct efforts to support and promote
family-owned businesses in the state. This measure is
sponsored by the Family Business Association.
2)Author's statement . According to the author, "[r]esearch 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."
3)Family-owned businesses in the California economy . 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 May 2012 study authored by Blue Sky Consulting
Group titled Family Business and Their Impact of 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
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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."
4)Business designations in California . State law currently
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, but by creating a
formal definition for a California family owned business,
State or local government would be able to include such
businesses if so desired.
5)Questions for the Committee . As a threshold matter, the
Committee may wish to consider whether or not it would be
premature to enact a definition into statute without also
codifying the expected use of that definition. Data gathering
by parties other than the State would not require a statutory
definition per se, and any definition put into statute might
need to be altered later depending on whether it is applied to
tax incentives, contracting preferences, hiring goals, or
other economic development uses.
Separately, the criteria provided by this bill make a
distinction between equity ownership interests and voting
interests, presumably because businesses may sell or assign
equity interests in the company in order to raise capital or
secure debt while retaining the associated voting rights.
Those criteria require that family members hold at least a
majority of the voting interest in the company regardless of
where they live, and that family members living in California
hold at least 20 percent of the equity interest in the
business.
Recognizing that a company with multiple stockholders may
result in some shares being held by family members living
outside of California, whether temporarily or permanently, the
Committee may wish to consider whether or not a higher
threshold of ownership by Californians would be appropriate
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for a company explicitly termed a "California family owned
business."
Accordingly, the Committee and author may wish to consider
amending the bill to increase the equity ownership threshold
for those with a California domicile from 20 percent to a
majority of the equity interests:
Amend page 2, line 36 to strike the words "at least 20
percent" and insert "a majority"
6)Arguments in support . The Family Business Association (FBA)
writes in support, "AB 1260 is a necessary bill that sets out,
for the first time in state statute, a definition of a family
owned business. FBA believes that a statutory definition of a
family owned business is important for California because a
family owned businesses is distinct in many ways from other
businesses?.Importantly, [this bill] will let California lead
the nation by being the first to statutorily define a family
owned business so that decision makers are able to consider
the special challenges of operating these businesses when
considering future actions."
REGISTERED SUPPORT / OPPOSITION :
Support
Family Business Association (sponsor)
Holt of California
Mape's Ranch and Lyons' Investments
Nor-Cal Beverage Co. Inc.
Opposition
None on file.
Analysis Prepared by : Hank Dempsey / B.,P. & C.P. / (916)
319-3301