Legislature(2009 - 2010)BELTZ 105 (TSBldg)
03/18/2010 01:30 PM Senate LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| SB300 | |
| SB292 | |
| SB304 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 300 | TELECONFERENCED | |
| *+ | SB 292 | TELECONFERENCED | |
| *+ | SB 304 | TELECONFERENCED | |
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
SENATE LABOR AND COMMERCE STANDING COMMITTEE
March 18, 2010
2:19 p.m.
MEMBERS PRESENT
Senator Joe Paskvan, Chair
Senator Bettye Davis
Senator Con Bunde
MEMBERS ABSENT
Senator Joe Thomas, Vice Chair
Senator Kevin Meyer
COMMITTEE CALENDAR
SENATE BILL NO. 300
"An Act relating to loan participations and development finance
projects of the Alaska Industrial Development and Export
Authority; and relating to loans from the rural development
initiative fund."
- MOVED SB 300 OUT OF COMMITTEE
SENATE BILL NO. 292
"An Act relating to the registration and operation of
pawnbrokers and to the exemption for pawnbrokers under the
Alaska Small Loans Act; and providing for an effective date."
- MOVED CSSB 292(L&C) OUT OF COMMITTEE
SENATE BILL NO. 304
"An Act adopting the Alaska Entity Transactions Act; relating to
changing the form of entities, including corporations,
partnerships, limited liability companies, business trusts, and
other organizations; amending Rule 79, Alaska Rules of Civil
Procedure, and Rules 602(b)(2), 602(c), and 605.5, Alaska Rules
of Appellate Procedure; and providing for an effective date."
- HEARD AND HELD
PREVIOUS COMMITTEE ACTION
BILL: SB 300
SHORT TITLE: AIDEA LOANS
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
02/26/10 (S) READ THE FIRST TIME - REFERRALS
02/26/10 (S) L&C, FIN
03/18/10 (S) L&C AT 1:30 PM BELTZ 105 (TSBldg)
BILL: SB 292
SHORT TITLE: PAWNBROKERS
SPONSOR(s): HUGGINS
02/24/10 (S) READ THE FIRST TIME - REFERRALS
02/24/10 (S) L&C, JUD
03/18/10 (S) L&C AT 1:30 PM BELTZ 105 (TSBldg)
BILL: SB 304
SHORT TITLE: ENTITY TRANSACTIONS ACT
SPONSOR(s): LABOR & COMMERCE
03/08/10 (S) READ THE FIRST TIME - REFERRALS
03/08/10 (S) L&C, JUD
03/18/10 (S) L&C AT 1:30 PM BELTZ 105 (TSBldg)
WITNESS REGISTER
TED LEONARD, Executive Director
Alaska Industrial Development and Export Authority (AIDEA)
Department of Commerce, Community and Economic Development
(DCCED)
POSITION STATEMENT: Supported SB 300.
MARK DAVIS, Economic Development Officer
Alaska Industrial Development and Energy Authority (AIDEA)
Department of Commerce, Community and Economic Development
(DCCED)
POSITION STATEMENT: Presented detailed explanation of SB 300.
CATHY JEANS, Systems Branch Manager
Division of Investments
Department of Commerce, Community and Economic Development
(DCCED)
POSITION STATEMENT: Supported SB 300.
JOSH TEMPLE
Staff to Senator Huggins
Alaska State Legislature
Juneau, AK
POSITION STATEMENT: Commented on SB 292 for the sponsor.
NOEL LOWE
Alaska Fast Cash
Wasilla, AK
POSITION STATEMENT: Supported SB 292.
JOHN MINNICK
A-1 Pawn Shop
Wasilla, AK
POSITION STATEMENT: Supported SB 292.
FERNANDO PENA, Director
Government Affairs
Cash America
POSITION STATEMENT: Supported SB 292.
ALEX VAUGHN
Cash America
POSITION STATEMENT: Supported SB 292.
MIKE GERAGHTY, Private Practice Attorney
Commissioner, Uniform Law Commission
State of Alaska
POSITION STATEMENT: Supported SB 292.
ACTION NARRATIVE
2:19:37 PM
CHAIR JOE PASKVAN called the Senate Labor and Commerce Standing
Committee meeting to order at 2:19 p.m. Present at the call to
order were Senators Davis, Bunde, and Paskvan.
SB 300-AIDEA LOANS
2:21:03 PM
CHAIR PASKVAN announced SB 300 to be up for consideration.
2:21:13 PM
TED LEONARD, Executive Director, Alaska Industrial Development
and Export Authority (AIDEA), Department of Commerce, Community
and Economic Development (DCCED), said they had been working on
a strategic plan to improve the Authority's effectiveness and
this bill takes the first steps in allowing them better use of
capital for businesses and helps them better invest in projects
as they move forward. The first section modernizes the way
interest rates are set for loans that are actually funded
through their own internal funds - in essence, pretending they
are going out to market and asking at what rate it would buy a
bond from them. He said for a period of time there was no
municipal bond market because of the financially tumultuous
market, so their rates went up to 9.5-10 percent in seven
months.
He said the second part of the bill helps the Authority help
businesses expand. This one is an incentive rebate program which
allows the agency certain loans or investments into areas that
are economically distressed or for businesses that would be
startups that would add true new jobs to the economy to the tune
of 100 basis points (1 percent) of the loan for a term of five
years. This would help give businesses that are investing in
needs the state identifies a better cash flow for five years.
2:24:44 PM
The third section of the bill is to clarify whether AIDEA can
invest in a project partially rather than having to own and
operate the whole project. This is important when looking at
infrastructure development in the future that these projects
could be in the billions of dollars, which would be far beyond
AIDEA's capacity to own, and that layering of funding and
working with partners like a Native corporation or an investment
bank would be the best way to move forward. It would also spread
the risk to the private sector.
2:25:55 PM
The fourth and fifth sections deal with their Rural Development
Initiative Fund (RDIF) and how to better promote it.
SENATOR BUNDE asked what impact 1 percent would have on AIDEA's
bottom line.
MR. LEONARD replied that 1 percent shouldn't affect it.
Additionally, they are partitioning off that risk by allowing
only 5 percent of their loan portfolio to be used in this
program. He added that for the most part, AIDEA makes money when
it is loaning money rather than investing its own internal
funds.
SENATOR BUNDE said it would be 1 percent less money coming in
and he wondered what that impact would be.
MR. LEONARD calculated that 5 percent of their portfolio would
be about $15-16 million and 100 basis points of that would be
about $150,000.
2:28:11 PM
MARK DAVIS, Economic Development Officer, Alaska Industrial
Development and Energy Authority (AIDEA), Department of
Commerce, Community and Economic Development (DCCED), explained
that the first change in SB 300 is to AS 44.88.159(e) and that
is about how they set the minimum rate for the commercial
finance program, known as the loan participation program. This
program works by having banks bring clients in to AIDEA, and
AIDEA participates with the bank. That provides a filter for
credit evaluation and underwriting. It has been a successful
program creating 4,720 jobs since 2002 and about 2900
construction jobs. The portfolio stands at $376 million now and
they have $24 million pending in applications. Unfortunately, he
said, the minimum rate had become uncompetitive over time,
because by statute it is tied to a bond rate. In fact, AIDEA has
not floated a bond since 1987 to raise money for this program.
So he explained that under current statute they contact Goldman
Sacks every month and have them calculate what it would cost
AIDEA to float a bond to fund the program and that sets the
rate. In 2008 the markets collapsed and the municipal bond
market is still collapsed. So, in the mid-2009, AIDEA's rate was
calculated to be 9.64 percent at a time when the commercial rate
for money was 5.48 percent. As of the end of February their rate
was 1.33 percent over what it would be if they used the market
rate. This costs companies that want to use their loan
participation program - more than an extra point for really no
benefit.
MR. DAVIS said that AIDEA is charged with making money, but it
is actually charging a little bit too much. The economic benefit
of these large construction projects is pretty obvious; they
also provide long-term jobs.
So, he said, instead of using the bond market AIDEA is proposing
to use the nationally recognized market index. That does two
things. First, it ties their minimum rate to the cost of money.
He reminded them that they could have a higher rate for the
purposes of underwriting; they could also calculate credit risk
into the portfolio, which they do. So, not every loan gets the
minimum rate. They might look at the Federal Home Loan Bank of
Seattle, a well recognized rate in the Northwest, treasury
bills, the Federal Farm Credit Banks Funding Corporation Funding
Index (the other major federal index used in the United States),
or Fannie Mae. If they use those, it would also be more
transparent. Right now everyone has to wait every month for
Goldman Sacks to recalculate. Tying the rate to an index would
help business planning because a customer or a bank could just
look at an index and figure out what their rate would be.
MR. DAVIS said this would protect their dividend by setting a
floor for the five-year rate of return on the interest rates; so
it would actually protect the agency's economic performance.
He said the second change the creation of a potential rebate on
that same loan participation program that would be no more than
1 percent of the interest rate charged going back to the
customer through the bank. They would provide that rebate if the
project creates jobs, furthers rural development or meets other
economic criteria, which would be set by regulation. He said
their proposals and regulations would probably be development in
stressed areas following the Recovery Zone Act federal
standards, for startup companies, new technology or alternative
energy. He said protecting the Authority is important, so they
would cap it at 5 percent of the total loan participation
portfolio and the rebate would be only for the first five years
of the loan. It is designed to help a business start up; after
that they would float up to the full rate. It's a pretty
limited rebate, but he said having worked as a private
transaction attorney in the state, he found that it's usually
the first five years that are the tough ones before things cash
flow efficiently.
2:32:57 PM
MR. LEONARD emphasized that this is a rebate, so the businesses
in this program would have to show proof of hiring those 50
people every year in order to get the rebate.
MR. DAVIS said he found that the United State has 44 other
entities similar to AIDEA and several of them have this kind of
program. They also put reporting requirements in place for all
their loan participations through regulation asking how many
construction jobs were used with this loan program and how many
permanent jobs to get a better feel for the impact on the
economy. The rebate program would work in conjunction with the
strategic plan to target the loan participation program towards
economic development and job creation.
He said as they face the recession, the two-fold approach is to
preserve the jobs you have and to find out legitimate ways to
create new jobs. Large term retail and commercial construction
can be useful here and that is what this program is being used
for.
MR. DAVIS said the final thing would be to change the other side
of AIDEA which is the development finance program. That is the
program in AIDEA that owns big projects like the Red Dog Mine or
the Skagway Ore Terminal. Right now the statute, AS
44.88.080(5), is a little unclear. It says they can "acquire an
interest in a project as necessary or appropriate." However, he
said, AS 44.88.010(a) says they can incur debt "to own and
operate facilities" and the definition of facility under AS
44.88.909 says a plant or facility.
Throughout the years, Mr. Davis said, the interchange between
those three statutes has been interpreted that AIDEA has to own
a discreet portion of a project. As they approach more modern
financing, it's their view that AIDEA should be able to own an
indivisible interest in a project. That would mean they could
invest 20 percent into a project like hydro, renewable wind
farms or other projects that meet their criteria. For example,
they were in negotiations yesterday with the US Department of
Energy to qualify under Section 17.05 financing and this bill
would allow them to have more access to federally guaranteed
loans - another benefit. It would also let AIDEA have partners,
so someone else could also look at the same project - to do the
math to make sure that it works. A consortium of partners
usually makes it a safer investment. If other people aren't
interested, you have to ask yourself why you would be
interested. He explained that this would be a change, but it is
already consistent with the statute that says they can own an
interest. It's more of a clarification.
2:36:18 PM
CHAIR PASKVAN asked if he believed these changes would advance
the underlying purpose of AIDEA's initial authority.
MR. DAVIS answered yes. The statutes, with regard to the partial
interest, already says AIDEA can own an interest in a project as
necessary, but the definition of project is inconsistent. He
didn't think a definition should override statutory purpose, but
that is kind of what had happened here.
As for the loan participation program, when the Legislature used
the bond rating to float bonds, they envisioned two things:
first that they would actually go the market to raise money for
the loan participation program, which they have not done. And
secondly, the municipal bond market for the last 30 years was a
fairly low rate, so it made sense to tie it to a low rate, but,
unfortunately in our country the municipal bond market is no
longer a competitive rate. In this sense they are just
modernizing but with the same purpose. The rebate program is
consistent with the goal of alleviating unemployment and
creating economic development, which is in the preamble of their
statutes.
CHAIR PASKVAN asked if any portion of the first three sections
of SB 300 materially increases the risk to AIDEA's funds
overall.
MR. DAVIS replied no; the rebate program is limited to 5 percent
of their portfolio as a firewall and it's at AIDEA's discretion.
And it only goes for 5 years of a probably 25-year loan. This is
a useful tool to get a project going - to make something pencil
out when otherwise it wouldn't pencil out. There is no risk to
changing a rate; having a lower rate that makes sense allows
them to do more business. They are not forced to use that
minimum.
MR. LEONARD added that putting in the floor for their five-year
annualized rate of return sets a clearer definition of how low
their rates can go and protects their bottom line even more.
2:39:20 PM
SENATOR BUNDE asked if their list of organizations they might
use to establish a minimum interest rate is a flexible group.
Would they require it to be changed from year to year?
MR. DAVIS answered that the way the bill reads they could set up
by regulation and they would look at each rate and put out in
regulation their proposal. They would get back comments from
banks and financial institutions that use it. Right now they
would probably want to use the Federal Home Loan Bank, which is
the bank that Alaska's banks want to borrow from when they don't
want to go to the Federal Reserve Board window. So, it's a rate
that they use already and it's a rate that is favorable to
borrowers but isn't so low they can't make money.
2:40:27 PM
SENATOR BUNDE asked why they removed the section that prohibited
someone from receiving an additional loan until the original
loan had been repaid on page 3, line 25.
CHAIR PASKVAN responded that Cathy Jeans would answer that and
they were just about at that point.
2:41:12 PM
MR. LEONARD remarked the way the way the Rural Development
Initiative Fund (RDIF) fund works is that originally AIDEA
funded that fund and it is run by the Division of Investments
and is in their financial statements.
2:41:33 PM
MR. DAVIS said it evolved into a revolving fund, which is
excellent.
2:41:53 PM
CATHY JEANS, Systems Branch Manager, Division of Investments,
Department of Commerce, Community and Economic Development
(DCCED), said her agency administers a number of state loan
programs including the Rural Development Initiative Fund that
would be amended by sections 4 and 5. She explained that their
RDIF program was established in 2000 to provide loans to small
businesses, creating jobs in rural communities around the state.
It is based on a similar program that was operated for many
years by the former Department of Community and Regional
Affairs. She said they administer the program for AIDEA and the
portfolio currently consists of about 40 loans totaling about
$4.1 million in debt. The program is set up as a revolving loan
fund which means all repayments and earnings that come back into
the fund are retained in it and all operating expenses are paid
out of it. They currently have about $1.5 million available to
lend.
She said the changes proposed in SB 300 come about as a result
of input from the public as well as internal discussions that
focused on improvements that could be made to this program. So
section 4 removes the restriction that a borrower can have only
one loan at a time and increases the dollar amount that is
allowed under the program from $100,000 per person to $150,000
and from $200,000 to $300,000 for two or more persons. Section 5
allows them to reduce the minimum interest rate that can be
charged from 6 percent to 4 percent. They do support the changes
because they believe these changes will increase utilization of
the program, thereby increasing jobs and economic benefits to
rural communities.
MS. JEANS said they submitted a zero fiscal note because
overseeing the changes had no administrative cost.
2:44:26 PM
SENATOR BUNDE asked why allow people to have more than one loan
after what has happened recently with toxic mortgages in the
U.S. Maybe people "would get in over their head."
MS. JEANS replied back when the program first started in 2000,
people could get a loan, but maybe they paid if off after five
or six years, but they want to get another one and couldn't. So
they thought by removing the number of loans one could have at
one time and increasing the dollar amount because things cost a
lot more these days would give them more opportunity to expand
and start up their business.
SENATOR BUNDE asked what their process is for judging whether a
person could get more money. The section clearly said they can't
have another loan until the first one was paid off.
MS. JEANS answered they can get do that now, but when they can't
get another loan if they already have one under the current
statute.
SENATOR BUNDE said his concern is that if they already have a
loan, they could start pyramiding and get under water with
another loan.
MS. JEANS replied that their agency would evaluate the loss and
credit risk again if the borrower were to fill out another
application. They would look at how much capital they were
putting into the process and other types of financing records.
2:47:18 PM
MR. LEONARD added when this provision was originally discussed
with the Division of Investments, it was a challenge to decide
if startup businesses should they come in when they start or a
couple of years down the line. If they had the first loan for
$50,000, for example, they would be stuck for the five years -
even if they were being very successful and expanding, they
couldn't come back to this program. So they set a limit of
$150,000 for the increase, but if the business had good credit
and was expanding, the idea was to give them the flexibility to
increase their investment and keep moving forward.
2:48:50 PM
CHAIR PASKVAN, finding no further comments, closed public
testimony.
2:48:56 PM
SENATOR BUNDE said he wished they could hear from the banking
community.
CHAIR PASKVAN noted letters of support in their packets from Key
Bank, Wells Fargo, First National Bank Alaska, Alaska USA
Federal Credit Union, Alaska Bankers' Association, Alaska
Pacific Bank, Mt. McKinley Bank, and more.
SENATOR BUNDE said he liked to have those things on the record.
SENATOR DAVIS moved to report SB 300 from committee with
individual recommendations and attached fiscal note(s). There
were no objections and it was so ordered.
2:50:28 PM
CHAIR PASKVAN announced an at ease from 2:50 p.m. to 2:51 p.m.
SB 292-PAWNBROKERS
2:51:57 PM
CHAIR PASKVAN called the meeting back to order and announced SB
292 to be up for consideration.
SENATOR BUNDE moved to bring CSSB 292(), 26-LS1487\S, before the
committee. There were no objections and it was so ordered.
2:52:17 PM
JOSH TEMPLE, Staff to Senator Huggins, sponsor of SB 292, said
it is an act relating to the registration and operation of
pawnbrokers, to the exemption for pawnbrokers under the Alaska
Small Loans Act, and to the exclusion of pawnbrokers under
certain definitions in the Uniform Commercial Code and providing
for an effective date. He explained that currently in Alaska
statute only a few paragraphs deal with pawnbrokers and from
city to city and borough to borough pawnbroker regulation would
create an even standard across Alaska. It would protect
consumers and businesses in Alaska.
MR. TEMPLE said this effort started four years ago and has had a
lot of input. It basically codifies what good pawnshops are
currently doing and good pawnshops support it.
He explained that basically pawnshops loan people money on items
they bring in for collateral. When people get some money, they
pay off their loan with a little interest and get their
collateral item back. That licensing would now fall to the
Division of Community and Economic Development. This bill
restricts who pawnbrokers can work with. They must be 18 years
or older, they have to be sober and have a valid form of I.D.,
and they can't be pawning stolen items. The pawnbroker must keep
a written or electronic log of these transactions for a period
of one year and they must give receipts, called transaction
agreements, for their transactions. SB 292 includes restrictions
on interest and fees and requires pawnbrokers to safely store
any items they use as collateral. It offers guidelines for
people who come in and aren't able to pay for their item in the
appropriate amount of time including a 30-day grace period. If a
service member pawns an item and gets deployed, that item and
any interest in it gets frozen in the pawnshop until he gets
back from deployment when it goes back to the original
agreement.
MR. TEMPLE said this bill limits employees that can be hired in
a pawnshop. A person with a felony or a misdemeanor dealing with
dishonesty can't be hired. It offers guidelines to both police
and to the property owners that find their property in a
pawnshop. It requires pawnshops to give weekly inventory
reporting to local law enforcement agencies. It also allows for
the department to discipline pawnbrokers who end up going
against these regulations. He said the thing to remember is that
good pawn shops already do these things. This bill would
eliminate a lot of confusion and offer protection from the
unethical few that will always be out there and protect
consumers of those businesses in Alaska.
SENATOR BUNDE asked if records have to be kept for one year
after redemption or from the time something is pawned.
MR. TEMPLE answered that the record has to be maintained well
for one year from the date it was pawned in case the police need
to come back and check for stolen property.
SENATOR BUNDE asked if there was any discussion of raising the
$500 maximum loan amount for articles that are worth more.
MR. TEMPLE answered yes. Independent pawn brokers have agreed
that the best thing for them is to keep it at $500, but they are
in discussion with the bigger pawn brokers that might be able to
afford more.
SENATOR BUNDE reflected that AIDEA is increasing the amount of
their loans in the previous bill because the world has changed
and things cost more. He encouraged the sponsor to look at that
number.
3:01:01 PM
NOEL LOWE, Alaska Fast Cash, Wasilla, supported SB 292. They
also supported raising the loan maximum amount from $500 to
$750.{
JOHN MINNICK, A-1 Pawn Shop, Wasilla, supported SB 292.
3:02:50 PM
FERNANDO PENA, Director, Government Affairs, Cash America,
supported SB 292. He said they operate five pawnshops in
Anchorage. He reminded them that this bill had been introduced
in 2008 and the original spirit and intent had been preserved.
He said that Alaska is the only state in the U.S. that doesn't
have comprehensive pawn shop regulations. They are trying to be
proactive for both consumers and operators. People will know
what to expect. This mirrors the best practices of the Lower 48
states. It also provides for due process for stolen property and
honors the military by not having them lose their property while
they are deployed overseas.
3:06:38 PM
ALEX VAUGHN, Cash America, supported SB 292 and said he would
answer questions.
3:07:35 PM
CHAIR PASKVAN closed public testimony.
SENATOR BUNDE moved to report CSSB 292(L&C), version S, from
committee with individual recommendations and attached fiscal
note(s). There were no objections and it was so ordered.
3:08:07 PM
CHAIR PASKVAN announced an at ease from 3:08 p.m. to 3:09 p.m.
SB 304-ENTITY TRANSACTIONS ACT
3:09:36 PM
CHAIR PASKVAN called the meeting back to order at 3:09 p.m. and
announced SB 304 to be up for consideration. He wanted to begin
the discussion on what a model entities transaction act is and
what is intended.
3:10:21 PM
MIKE GERAGHTY, Private Practice Attorney, said he is a Uniform
Law Commissioner for the State of Alaska. He said the Uniform
Law Commission is a body that was formed over 100 years ago with
the general goal of trying to develop uniform laws for
consideration and enactment by the various states. He said as a
Republic of 50 states it is not difficult to imagine the mayhem
that could be wreaked if businesses or individuals had to cope
with erratically different laws as they cross state lines. So,
the goal of the Commission has been to draft and enact these
types of laws in particular to enhance commerce and economic
development by making them more uniform.
In 1914, the Uniform Law Commission first enacted the Uniform
Partnership Act. Today familiar entities such as partnerships,
limited partnerships, limited liability partnerships, limited
liability companies and corporations form the basic entities
under American law that provide the means to aggregate capital,
limit liability where applicable and provide a structure to
organize and govern an enterprise whether it be for profit or
non profit.
Most of this work has been done by the Uniform Law Commission in
collaboration with the American Bar Association, but the
development of these model acts and uniform acts has made
American law particularly efficient for entrepreneurs. Anyone
who establishes and develops a business has choices available
for the entity and they can choose the entity form that would
best benefit their business. As a business grows, these options
also allow for some changes in form to the business. For
example, a small enterprise may choose to be a partnership
initially, but once it grows it has the opportunity to
reorganize as a corporation when the business is big enough to
warrant the advantages of the corporate form. He emphasized that
this is also true for non-profit businesses. Today, a great
array of these same organizational forms can be used for non-
profit businesses such as limited liability companies and
limited partnerships. Flexibility in development of these
business entities along with a well developed body of law has
really made America law the envy of the rest of the world.
3:14:23 PM
MR. GERAGHTY said the Model Entity Transactions Act (META) is a
significant development in the growth of these various entities.
Today changing entity form has no real comprehensive statutory
framework whether it's for merger of entities, conversion of one
entity to another, exchange of interests, or changing the
location of an entity (domestication).
Some of the more recent model acts like the Model Corporations
Code have provisions dealing with mergers of corporations and
like kind entities (partnerships with partnerships and
corporations with corporations), but SB 304 allows for the
conversion of one entity to another and all in one statutory
framework.
He explained that the problem with conversions and mergers is
that many times it involves dissolving one entity to accomplish
a desired end. Technically, one would have to wind down one
business satisfying creditors and interest holders and
potentially incurring adverse tax consequences in the process of
forming a new business. This is a burden when the object is not
to dissolve the business, but to simply continue it in another
form or another location. "The hazards of the process are many
and they are costly."
He said a statute that allows these events to occur without
dissolving at least one of the entities involved would certainly
increase efficiency and lower costs for entrepreneurs and for
business in general. A general statute which is not limited to
corporations or partnerships is highly desirable to accomplish
this goal and to allow cross-entity transactions. That is what
SB 304 is intended to accomplish and what it does accomplish.
3:16:39 PM
MR. GERAGHTY explained that SB 304 addresses four types of
transactions: a merger of one entity with another entity, a
conversion which is changing one entity to another type of
entity (for example, a partnership to a corporation), an
interest exchange (where, for example, all the holders of units
in a limited partnership exchange all the units in that limited
partnership for shares in a corporation), and a domestication
(where for example, a businessman owns a business in California
and moves with his family to Alaska and he doesn't want to end
his business in California, but he finds that it would be more
advantageous to have it registered as an Alaskan corporation, so
he wants to change the location).
He said each one of these transactions has to have a plan that
is approved by the interest holders (shareholders or debt
holders, for instance). One of the goals is to make sure that no
interest is extinguished in the process of any of these SB 304
transactions. For instance, if a partnership decides it's better
to do business as a corporation and were to convert to a
corporation, this bill is very careful to preserve that debt and
that interest. So the bill cannot be used to circumvent
obligations or to evade them; the same is true for shareholders.
3:19:19 PM
The bill doesn't run afoul of whatever agreement partners or
shareholders may have. If it requires two-thirds of a vote of
partners to affect something, that is honored. If the provision
is that all partners would have to agree to the conversion, that
is what is protected. It protects the rights of dissenters and
interest holders so that the cross entity transactions do not
prejudice or harm those legitimate interests.
3:20:22 PM
He summarized that overall the purpose of the bill is to set up
some procedures that ends up with an entity that continues the
business of the previous entities that it succeeds without
extinguishing obligations and it does it in a seamless and non-
disruptive transfer and it does it without having to dissolve
one of the businesses to accomplish the conversion. It's good
for business and non-profit ventures alike.
3:21:35 PM
MR. GERAGHTY said these transactions involve a plan that has to
be approved by everyone and it involves filing various
disclosures with the Department of Commerce and Economic
Development. Once the plan is approved there has to be a
permanent record for transparency.
In closing, he said three issues merit the committee's
consideration. One is that Alaska has the Uniform Partnership
Act, Limited Liability Company Act, et cetera on its books that
already provide for mergers and such, but only for like-kind
transactions. This addresses those types of transactions, but
cross-entity transactions, as well. The bill is complex and must
be coordinated carefully with existing statutes so that there
are no inconsistencies.
3:24:08 PM
CHAIR PASKVAN thanked him for getting this issue off and running
and finding no further business to come before the committee, he
adjourned the meeting at 3:24 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 304 Back-Up.pdf |
SL&C 3/18/2010 1:30:00 PM |
SB 304 |
| SB 304 Bill.pdf |
SL&C 3/18/2010 1:30:00 PM |
SB 304 |