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 |
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 |