Legislature(2011 - 2012)BELTZ 105 (TSBldg)
03/25/2011 01:30 PM Senate JUDICIARY
| Audio | Topic |
|---|---|
| Start | |
| SB101 | |
| HB7 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 7 | TELECONFERENCED | |
| *+ | SB 101 | TELECONFERENCED | |
| + | TELECONFERENCED |
SB 101-ENTITY TRANSACTIONS ACT
1:32:58 PM
CHAIR FRENCH announced the consideration of SB 101.
SENATOR PASKVAN, sponsor, spoke to the following sponsor
statement as he introduced SB 101:
Senate Bill 101 conforms to the Uniform Law
Commissioners' Model Entity Transaction Act (META). If
implemented in the State of Alaska, this legislation
will help facilitate transactions between more than
one form of entity, improve the existing business
climate in Alaska, and help reduce unnecessary
administrative and legal burdens currently imposed on
Alaska companies.
During the past twenty years many new types of
business entities - including limited liability
companies, limited liability partnerships, and limited
liability limited partnerships - have been recognized
under state law. As a result of the proliferation of
new entity forms, many businesses now utilize various
types of entities in their organizational structures.
The relaxation of federal tax rules governing entity
classification has led to an increase in the volume of
restructuring and acquisition transactions by and
among the various types of entity forms.
Because of the lack of clear statutory authority
allowing transactions between more than one form of
entity, these transactions have often required the use
of multiple indirect steps, as opposed to a single
transaction.
Senate Bill 101 will offer new statutory authority to
permit cross-entity transactions in order to remain
responsive to the needs of Alaskan companies and
should be enacted in order to allow Alaska businesses
the opportunity to engage in cross-entity
transactions.
Adopting SB 101 will be an important step towards
bringing Alaska more into the mainstream of statutory
business law.
1:33:44 PM
SENATOR WIELECHOWSKI joined the committee.
SENATOR PASKVAN informed the committee that he initially
introduced this legislation during the 26th Legislature, but
after one hearing he yielded to requests by the Department of
Commerce, Community and Economic Development (DCCED) and the
Department of Law (DOL) to hold the complex bill and work on it
over the Interim. That hard work, he stated, is reflected in SB
101.
1:35:58 PM
JEFF STEPP, Staff to Senator Paskvan, reviewed the contents of
the bill packet to highlight the rigorous and professional
reviews that the 50-page bill had undergone. In addition to the
eight-page sectional summary is a memorandum from attorney Steve
Miller with Sherman & Howard L.L.C. advocating for an update of
Alaska business statutes. Page 2 of the memo depicts the four-
step process that an Alaska corporation currently must initiate
in order to merge with a limited liability company. First, a
corporation must form a foreign limited liability company;
second, it must merge the Alaska limited liability company into
the foreign limited liability company; third, it must convert
the surviving entity of the merger - the foreign limited
liability company - into a foreign corporation pursuant to the
provisions of that state's business laws; and finally, it must
merge the foreign corporation into an Alaska corporation. The
goal of SB 101 is to accomplish such inter-entity transactions
in a single step.
The bill packets also contain the Uniform Law Commission's
Entity Transaction Act Summary and the Council of State
Governments (CSG) Suggested State Legislation for 2011. SB 101
is included in the CSG document, clearly demonstrating that it
is timely in order to bring Alaska into the mainstream of
statutory business law.
MR. STEPP noted that Uniform Law Commissioner Michael Geraghty
was available online to explain the legislation in more detail
and to answer the more technical questions. Teri Bannister, who
drafted the legislation, was asked to be available to answer
questions. Don Habeger, the Director of the Division of
Corporations, Business and Professional Licensing Section with
the DCCED, was available to address the fiscal note and speak to
the department's view on implementing this legislation.
1:42:44 PM
CHAIR FRENCH asked Mr. Geraghty to provide his perspective of
the legislation.
1:43:11 PM
MIKE GERAGHTY, Attorney, stated that he is a Uniform Law
Commissioner (ULC) who has practiced in this jurisdiction for
about 32 years. He explained that the American Bar Association
(ABA) worked in conjunction with the Uniform Law Commission
(ULC) in the drafting of the very complicated Model Entity
Transaction Act (META). It was promulgated in 2005 and has been
enacted in the District of Columbia and introduced in Alaska and
Connecticut
1:45:46 PM
CHAIR FRENCH said he read that both Idaho and Kansas have passed
this legislation as well.
MR. GERAGHTY said he would stand corrected if that were to be
confirmed.
MR. STEPP directed attention to the Legislative Fact Sheet for
the Entity Transactions Act in the packet. It reports that this
legislation has been enacted in the District of Columbia, Idaho,
and Kansas and it's been introduced in both Connecticut and
Alaska. He cited the source as the Uniform Law Commission
website.
MR. GERAGHTY said Mr. Stepp has obviously done his homework. He
continued to say that he sent a copy of SB 101 to the ULC asking
for formal input and Harry Haynsworth, who was the chair of the
ULC committee that drafted the Model Entity Transaction Act
(META), reviewed the bill and expressed satisfaction that it was
consistent with the spirit and intent of META. What's
particularly appealing about SB 101, Mr. Geraghty noted, is that
it allows for cross-entity transactions as opposed to current
law where one entity typically has to dissolve in order for the
transfer to happen.
1:49:21 PM
MR. GERAGHTY said SB 101 addresses basically four types of
transactions or transfers. One type is a merger between
different types of entities - corporation, partnership, limited
partnership, and Limited Liability Company, for example. A
second type is a conversion of one entity into another. The
holders of the limited partnership convert to a corporation, for
example. A third type of transaction is an interest exchange in
which the shareholders or partners transfer their interest in
the entity they hold for shares in a new corporation they've
formed. The fourth type of transaction is a domestication. This
is an entity organized in one state that will morph into an
entity under the laws of another state. SB 101 requires the
receiving state to have provisions in its laws that allow the
new entity to be recognized.
MR. GERAGHTY said this bill is complex because the details of
each type of transfer have to be addressed, but at heart the
effort is to protect all interests. Whatever plan is used, it
must be submitted to the division of corporations and put on
file and the plan must be followed scrupulously. The provisions
and protections were carefully crafted to ensure that the
existing business interests are protected and that it is not a
vehicle to avoid or abate creditors. These transactions have to
be done for legitimate business purposes.
1:55:34 PM
CHAIR FRENCH asked for an explanation of the difference between
a model act and a uniform act. His understanding is that this is
a model act.
MR. GERAGHTY replied he didn't want to speculate and would
therefore prefer to submit the answer in writing.
CHAIR FRENCH asked if any consumer groups had expressed concern
that this act would in any way put consumers at a disadvantage
in dealing with businesses. There seems to be good alignment in
the business community.
MR. GERAGHTY said he hadn't heard any concerns from consumer
groups but he only distributed the initial bill to the law
community, not other potential stakeholders.
2:00:32 PM
CHAIR FRENCH asked why this is a matter of state rather than
federal law and if there is similar law on the federal books.
MR GERAGHTY said he doesn't believe that federal law has ever
occupied this field. Business organization has typically been
left to individual states and that's one reason that the Uniform
Law Commission was established.
SENATOR COGHILL asked if this change would relieve
responsibility for advertizing purposes. He added that it took
some time to realize that "foreign" refers to outside the state
and not outside the country.
2:04:28 PM
MR. GERAGHTY clarified that there is no way to escape liability
under these conversions. He also confirmed that the term
"foreign" does in fact refer to other states.
SENATOR COGHILL asked if DCCED is the entity that ultimately
would say that a particular plan conforms to this law.
MR. GERAGHTY said he would defer to Ms. Bannister, but he
believes that the review would typically fall to the attorney
who is doing the paperwork and giving advice on the conversion
or transaction. However, no conversion will occur until all the
members of the Limited Liability Company consent to the
conversion.
2:07:40 PM
CHAIR FRENCH asked Ms. Bannister to comment.
TERI BANNISTER, Attorney, Legislative Legal Services,
Legislative Affairs Agency, explained that a conversion usually
takes place privately, but sometimes a document must be filed
with DCCED to register what has changed. With regard to
liability, she confirmed that there is no elimination of
liability regardless of the kind of transaction. Most consumer
protection laws are drafted to cover any type of person so the
type of change doesn't matter.
SENATOR COGHILL said it sounds as though it's more like
registration or notice of a change in behavior.
MS. BANNISTER clarified that there is no automatic registration
for these transactions. However, sometimes it's necessary to
file documents to reflect the change in form in order to comply
with current statutes.
CHAIR FRENCH recapped that these mergers don't require the
blessing of the state or any person other than the entities
involved.
MS. BANNISTER agreed that no blessing is required.
2:11:05 PM
SENATOR WIELECHOWSKI asked if there is any danger of companies
changing status to avoid legal liability.
MS. BANNISTER said she doesn't see any obvious danger because
the bill identifies to whom the liabilities are transferred.
CHAIR FRENCH noted that the term "entity" is defined on page 39
and it excludes an "individual" and "testamentary trusts." He
asked why can't a person can't be an entity.
2:12:38 PM
MR. GERAGHTY said a person can form a corporation or limited
liability company so people can form entities and once they do
that they can take advantage of the bill to convert to another
entity. But an individual by himself doesn't take advantage of
any business entity form that is currently recognized. That's
the reason that the bill would logically exempt an individual.
Obviously, an individual can form a business entity and once
they've done so they would be free to take advantage of the bill
when it's enacted. But the bill wouldn't apply to an individual
by himself who hasn't taken advantage of forming any entity to
do business.
MS. BANNISTER said it was a deliberate choice and the commentary
on the Model Entity Transactions Act may outline the reasons.
She offered to review the commentary.
CHAIR FRENCH asked if trust law practitioners are pleased that
the definition of "entity" excludes a testamentary, inter vivos,
or charitable trust.
MR. GERAGHTY said he didn't receive any commentary from that
sector when he circulated the bill last year. He added that
trusts typically aren't utilized as a form under which a
business would operate.
CHAIR FRENCH noted that Senator Paskvan pointed out that on page
39, line 17, the definition of "entity" includes a "business
trust or statutory trust entity."
SENATOR WIELECHOWSKI asked for the rationale behind the language
on page 1, lines 8-10.
MS. BANNISTER said that's a conforming amendment to make the new
provisions apply to national banks.
2:18:38 PM
MR. GERAGHTY clarified that when he said that trusts aren't
typically used for business, he was referring to a family trust.
He has no knowledge of a business trust.
SENATOR COGHILL pointed out that Section 30 on page 49 is the
repealer section.
CHAIR FRENCH asked Senator Paskvan to summarize the progress of
the similar legislation that was filed last year.
SENATOR PASKVAN explained that it received one hearing in Senate
Labor and Commerce and after further discussion with the DOL and
DCCED it was deemed prudent to rework the legislation. That
work, which occurred at both the national and local levels, has
taken about a year. At this point there appears to be consensus
that using the Model Entity Transaction Act - as compared to a
uniform law concept - and incorporating the nuances of Alaska
law is the best way to accommodate it for Alaska.
2:21:38 PM
DON HABEGER, Director, Division of Corporations, Business, and
Professional Licensing, Department of Commerce, Community and
Economic Development (DCCED), stated that the department delayed
the legislation last year as it looked at the model act under SB
304 and the nuances in Alaska corporate law. Staff from DCCED
also worked with the DOL to address how the legislation would
affect other pieces of statute such as cemetery associations and
nonprofits set forth in Section 5 on page 2.
The division has determined that it has an appropriate
administrative role and SB 101 clearly spells out the criteria
for grading any documents that come in. The division foresees no
problems if the legislation were to be implemented. DCCED staff
contacted the two jurisdictions that have implemented this model
legislation and learned that about 200 entities in Idaho have
taken advantage of the Act. Kansas was unable to offer any
statistics. DCCED estimates that between 40 and 50 entities will
take advantage of the Act in the state of Alaska. Current
staffing can accommodate this level of activity.
2:26:20 PM
SENATOR COGHILL noted the July 1, 2013 timeline for implementing
regulations under the Act and asked if he has a feel for the
scope of regulation that might be required.
MR. HABEGER replied it may be as simple as setting fees for the
documents they receive.
2:27:25 PM
CHAIR FRENCH announced he would hold SB 101 in committee for
further consideration.
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