BILL ANALYSIS �
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|Hearing Date:June 16, 2014 |Bill No:AB |
| |1260 |
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SENATE COMMITTEE ON BUSINESS, PROFESSIONS
AND ECONOMIC DEVELOPMENT
Senator Ted W. Lieu, Chair
Bill No: AB 1260Author:Medina
As Amended:January 29, 2014 Fiscal: No
SUBJECT: California family owned business.
SUMMARY: Creates a definition for California family owned business in
the Government Code and states Legislative intent to create a
definition for this business structure in order to provide a framework
to better understand and address the role family owned businesses play
within the California economy.
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 Code."
(GC 14837)
This bill:
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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
agreement was executed in good faith.
FISCAL EFFECT: None. This bill is not keyed fiscal by Legislative
Counsel.
COMMENTS:
1. Purpose. The Family Business Association (FBA) is the sponsor of
this measure. According to the Author, California law already
recognizes small businesses, disabled veteran-owned business
enterprises, micro-enterprises, and disadvantaged business
entities, among others, but does not recognize family owned
businesses, even though they play an important role within the
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California economy. According to the Author, federal law
recognizes family owned businesses and applies the definition
within the tax code.
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 necessary
bill, establishing a statutory definition of a family owned
business for the first time which 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. Arguments in Opposition. The Department of General Services (DGS)
is opposed to this bill. DGS believes that "this bill is not
necessary at this time, and we also have concerns about the
proposed definition". DGS writes that "this bill proposes to
create a statutory definition that serves no current legal or
programmatic purpose". According to DGS, defining the term
"California family owned business" is premature given that there
are no immediate plans to conduct research on family owned
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businesses and that the proposed definition is ill suited for a
voluntary survey.
5. Proposed Author's Amendments. At the request of some family owned
businesses, the Author has agreed to take amendments to better
reflect the nature of these businesses' operations in California.
On page 2, line 35, after "persons" insert ", or is a partnership
of business entities owned by related persons."
On page 3, line 2, after "persons" insert ", or a partnership of
business entities owned by related persons domiciled in California
who hold a majority of the equity interests."
SUPPORT AND OPPOSITION:
Support:
Family Business Association (Sponsor)
Holt of California
Gorrill Ranch
Nor-Cal Beverage Co. Inc.
Pacific Coast Building Products
Opposition:
Department of General Services
Consultant:Sarah Mason