Legislature(1999 - 2000)
04/19/2000 01:25 PM House JUD
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SB 220-PROCUREMENT PREFS:PARTNERSHP/LTD LIAB CO CHAIRMAN KOTT announced that the first order of business would be CS FOR SENATE BILL NO. 220(FIN), "An Act relating to the requirements for partnerships and limited liability companies to qualify for the Alaska bidder preference and a certain disability preference under the State Procurement Code; and providing for an effective date." Number 0067 DAVID KOIVUNIEMI, Assistant Commissioner, Department of Administration, came forward to explain SB 220. The bill clarifies the Alaska bidder and disability preference sections of the State Procurement Code regarding limited liability partnerships (LLPs) and limited liability [companies](LLCs). He noted that the procurement code was written in 1987, but the LLCs and LLPs were not established in statute until the mid-1990s. Mr. Koivuniemi informed the committee that SB 220 was amended in the Senate Finance Committee. The bill was amended on page 2, lines 6 and 23, to refer to managing members rather than managing directors. Therefore, SB 220 recognizes LLCs and LLPs to allow Alaska businesses to receive the Alaska bidder preference. Number 0226 REPRESENTATIVE JAMES expressed concern that the meaning of a "qualifying entity" may broaden the opportunity for people without a disability to benefit from the activities of this LLC, as she understands that language; she is not sure that was intended with this legislation. She explained, "In the first place, originally, it was only those people with sole proprietorships, so there would be no way to mess them up and give some benefit to somebody who is not disabled, by this language, special preference." Representative James clarified that the LLC may have other members besides managing members; those other members will benefit from the financial activities of this company, but they may not be disabled. She expanded on that: During this whole issue of changing it from a sole proprietorship - which means the person would be disabled and no one else is going to benefit from him/her taking those preferences - the preference is going to directly relate to that disabled person. We added in partnership, if each of the partners [is] disabled, and added in corporation, which is wholly owned by individuals and each of the individuals is a person with a disability. ... Now we're going to add in limited liability companies when only the managing members have to be disabled, and it doesn't mention anything about other members. REPRESENTATIVE JAMES reiterated that there are other members that would benefit from the special preferences given to the disabled individuals. Number 0441 REPRESENTATIVE MURKOWSKI suggested the need to determine, from the statutes, how the members of an LLC are defined. REPRESENTATIVE ROKEBERG interjected that that bill was just passed this year. REPRESENTATIVE MURKOWSKI acknowledged that and said, "If we are defining those who are members of an LLC as all being managing members, it's not a problem here." Otherwise, she said, Representative James may be correct in that there are managing members and nonmanaging members. She understood the statute to describe everyone as a member, but she doesn't believe that the members designate themselves as managing and nonmanaging members. Therefore, she wanted to review the statutes in order to determine whether it is defined. She suggested that the committee may want to say that all members are residents of the state or all members are persons with disabilities. REPRESENTATIVE ROKEBERG suggested that is a policy call. He indicated that the memberships of an LLC and an LLP could include individuals without disabilities such as silent partner investors. He didn't recall how that was handled in the LLP bill this year, he said. He suggested that either the LLP bill or the statute could be reviewed in order to determine whether there is a distinction. REPRESENTATIVE JAMES commented that it could be fixed by removing "managing" from the language, which would be her suggestion. Number 0603 CHAIRMAN KOTT read [from Title 10], "Except as otherwise provided in the company's articles of organization, the members of an LLC manage the affairs and make decisions of the company." REPRESENTATIVE MURKOWSKI related her understanding that perhaps they are all managing members. CHAIRMAN KOTT agreed that would be the case unless the articles of organization specified otherwise. REPRESENTATIVE JAMES remarked that there would still be an opportunity for other folks to be there. She related her belief that "we" do not want to provide extra compensation to people who are not disabled, which is of concern. REPRESENTATIVE ROKEBERG pointed out that the LLC is the most common form of business organization and thus "we" may be limiting it to people [whose businesses] are formed that way, although he recognized that one may be a fleeting partner or alleged shareholder and have a disability. Number 0677 REPRESENTATIVE CROFT agreed with Representative James in that it seems that the section seems fairly tight because it seems to be careful [in each qualification] to include everybody. Although that may be restrictive, that is what has been attempted in the other areas and thus should [apply to] the members of the LLC. He asked whether, from the statutes, it is the impression that members of a LLC are managing members unless the document says otherwise. CHAIRMAN KOTT said that is how he reads the statute. REPRESENTATIVE JAMES commented that it allows for others to make investments into this. She doesn't believe that people should be allowed to make investments in [organizations] that have special [preferences] unless [the individuals] qualify. She informed the committee that her own bill that dealt with this issue had taken four years to move through the process because of that very issue; it was thought that by giving disabled individuals a benefit, others would benefit as well. Therefore, she reiterated the need to specify that it refers to the members, not the managing members. REPRESENTATIVE ROKEBERG pointed out that it says they are "all partners or residents of the state." He further pointed out that one could gain an advantage over a general-type partnership merely by changing the form of business and adopting new corporate rules, which he doesn't believe to be fair. REPRESENTATIVE JAMES asked whether Representative Rokeberg was talking about paragraph (4) or (3). REPRESENTATIVE ROKEBERG answered that it was paragraph (4). REPRESENTATIVE JAMES replied that they had gone through that argument. She has a corporation in her own district, she noted, where three people, who are disabled and in wheelchairs, have incorporated. They would qualify under this language because [the corporation] is wholly owned by three people who are disabled. That is the narrowness of it, so that someone who isn't disabled [cannot] take advantage of this preferential treatment for disabled people. She specified that she likes this but isn't comfortable with the word "managing." Number 0848 REPRESENTATIVE JAMES made a motion to adopt Amendment 1, to remove the word "managing." She said it is under Section 2. REPRESENTATIVES CROFT and MURKOWSKI pointed out that it also is in Section 1. REPRESENTATIVE JAMES concurred. She then pointed out that in [paragraph] (4) [under Section 1], there may be a problem if the LLC is not made up of all [residents] of the state. She said she doesn't think the committee wants to be inviting in anybody from out of state to take advantage of this preferential treatment. MR. KOIVUNIEMI informed the committee that he had expected somebody from [the Division of Banking, Securities &] Corporations to be there that day to answer these types of questions; he apologized that no one was available to do so. He suggested that if the committee wanted to [amend the bill], they could do that; then he could check with the division and report back to the committee or Representative James if a "fix" is required on the House floor. Number 0933 REPRESENTATIVE JAMES announced that she would like to amend Amendment 1, to take "managing" out of line 6 [in Section 1] and line 22 [in Section 2]. REPRESENTATIVE ROKEBERG asked the committee's counsel to specify what AS 32.05 and AS 32.11 are. He asked whether one of those relates to the LLP. Number 1015 LESIL McGUIRE, Staff to Representative Pete Kott and Committee Aide, House Judiciary Standing Committee, Alaska State Legislature, after looking in the statutes, answered that one is referenced to the uniform partnership Act, and the other is referenced to the uniform limited partnership [Act]. CHAIRMAN KOTT returned attention to Amendment 1, suggesting it may be problematic. He asked whether there was any objection; none was offered. [Therefore, Amendment 1 was treated as adopted.] MR. KOIVUNIEMI reaffirmed that he would get back to the committee [if the Division of Banking, Securities & Corporations had concerns.] CHAIRMAN KOTT noted that nobody else was signed up to testify. Number 1096 REPRESENTATIVE ROKEBERG made a motion to move SB 220 [CSSB 220(FIN)], as amended, from the committee with individual recommendations and the attached zero fiscal note. There being no objection, HCS CSSB 220(JUD) was moved from the House Judiciary Standing Committee.
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