Legislature(1999 - 2000)

04/19/2000 01:25 PM House JUD

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
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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