04/27/2007 01:30 PM Senate JUDICIARY

               SB 141-LIMITED LIABILITY COMPANIES                                                                           
                                                                                                                                
2:16:35 PM                                                                                                                    
CHAIR FRENCH announced the consideration of SB 141.                                                                             
                                                                                                                                
SENATOR McGUIRE, sponsor  of SB 141, said the bill  is by request                                                               
of  industry.  It will  clarify  that  an organization  providing                                                               
professional services  can organize its business  using a limited                                                               
liability  company  (LLC).  This  will  end  speculation  on  the                                                               
authority of  the use  of an LLC  for professional  services. She                                                               
noted that  a group  of professionals meet  to talk  about recent                                                               
court decisions  and statutes  that have  passed in  other states                                                               
for  the  purpose  of keeping  Alaska  current.  The  legislature                                                               
decides  whether the  policies  that are  suggested comport  with                                                               
what it thinks is appropriate, she added.                                                                                       
                                                                                                                                
2:19:40 PM                                                                                                                    
SENATOR McGUIRE  explained that  SB 141 is  designed to  keep the                                                               
state's  trust   and  estate  planning   laws  up  to   date  and                                                               
competitive,  thereby  continuing  to  bring  more  business  and                                                               
revenue  into the  state. To  date  Alaska has  received over  $2                                                               
million  in  direct  revenue  through  increased  life  insurance                                                               
premium taxes,  corporate taxes, and  LLC and LP  filings. Alaska                                                               
competes in these markets with at  least 7 other states that have                                                               
enacted similar legislation,  she said. Also, SB  141 will delete                                                               
AS 10.50.150(d) to allow a founder of  an Alaskan LLC to be a co-                                                               
manager without having the assets  of the company included in the                                                               
founder's gross estate for purposes of calculating federal tax.                                                                 
                                                                                                                                
2:22:00 PM                                                                                                                    
DAVID SHAFTELL,  Attorney, said he  is a  member of the  group to                                                               
which  the  sponsor referred.  It  includes  attorneys and  trust                                                               
officers who have  worked since 1996 to improve  trust and estate                                                               
statutes.  A  number  of significant  bills  have  passed  giving                                                               
Alaska the opportunity to be a leader in this area, he said.                                                                    
                                                                                                                                
MR.  SHAFTELL said  SB  141 deals  with  two technical  subjects.                                                               
First,  it  clarifies  that  professionals   can  use  a  limited                                                               
liability  company   as  a  business  entity.   The  Division  of                                                               
Corporations wisely  has overlooked that statutory  ambiguity and                                                               
approved  the  formation of  LLCs.  Although  that has  been  the                                                               
administrative  practice,  he said  some  of  us worry  about  it                                                               
ending up in court.                                                                                                             
                                                                                                                                
2:24:55 PM                                                                                                                    
CHAIR FRENCH commented he doesn't  know how the language could be                                                               
wrongly construed,  but he'll  accept the  suggestion to  add the                                                               
phrase, "including the rendering of a professional service."                                                                    
                                                                                                                                
MR.  SHAFTELL acknowledged  the point  and turned  to Section  2,                                                               
which deals with  an extremely technical subject  that has caused                                                               
great  concern  among  estate  planners.  Under  26  U.S.C.  Sec.                                                               
2036(a)(2),  if  a  person  forms   a  trust  or  family  limited                                                               
liability partnership  (LLP) or a  family LLC and  retains powers                                                               
to effect  the enjoyment of  interests that the person  has given                                                               
away or sold,  then all those interests will be  pulled back into                                                               
the founder's  estate and  taxed at  his or  her death.  To avoid                                                               
this  problem  a  special  manager  must  be  appointed  to  have                                                               
authority over distributions and liquidation  of the LLC. To make                                                               
this effective, AS 10.50.150(d) must be deleted.                                                                                
                                                                                                                                
2:29:18 PM                                                                                                                    
CHAIR FRENCH clarified that Section 4 repeals subsection (d).                                                                   
MR. SHAFTELL agreed that Section  4 deals with the second purpose                                                               
of the bill.                                                                                                                    
                                                                                                                                
CHAIR  FRENCH commented  that those  who don't  practice in  this                                                               
area of  law approach it  somewhat warily. When these  bills come                                                               
through  he always  has a  glimmer  of concern  because he  isn't                                                               
conversant  and experienced  in these  matters. However,  nothing                                                               
suggests that a  wrong step has been taken and  he doesn't expect                                                               
anything different  today. You and  the other sponsors  have been                                                               
very straightforward, he said.                                                                                                  
                                                                                                                                
CHAIR  FRENCH closed  public testimony  and asked  for discussion                                                               
among the members.                                                                                                              
                                                                                                                                
2:30:58 PM                                                                                                                    
SENATOR  THERRIAULT disclosed  that  his wife  practices in  this                                                               
area of law.  Also, he along with legislative  drafters wrote the                                                               
first LLC  law for  Alaska. "It  was one of  my first  bills," he                                                               
added.                                                                                                                          
                                                                                                                                
SENATOR THERRIAULT motioned to report  SB 141 from committee with                                                               
individual recommendations  and attached zero fiscal  note. There                                                               
being no objection, it was so ordered.                                                                                          
                                                                                                                                
At ease for paperwork.