03/31/1994 01:40 PM Senate L&C

 SENATOR KELLY called the meeting back to order and brought  SB 347            
 (LIMITED LIABILITY COMPANIES) before the committee as the next                
 order of business, and noted there was a proposed Labor & Commerce            
 CS for its consideration.                                                     
                                                                               
 Number 510                                                                    
                                                                               
 BOB MANLEY, Chairman, Working Group on Limited Liability Companies            
 composed of members of the Tax & Business Law Sections of the                 
 Alaska Bar Association, said they have been working on proposed               
 limited liability company legislation as a committee for the last             
 year or so.  Their work was drawn primarily from the American Bar             
 Association Prototype Act.                                                    
                                                                               
 Mr. Manley pointed out that, currently, 37 states have limited                
 liability company legislation, and it is likely that all 50 states            
 will have it by next year.  He stressed the importance of passing             
 LLC legislation promptly because, if not, Alaska will be at a                 
 significant disadvantage against other states in attracting capital           
 from other places in the United States and also from foreign                  
 investors.                                                                    
                                                                               
 Mr. Manley related that limited liability companies are basically             
 a blend of corporate and partnership characteristics.  They provide           
 a collectible operating system as well as income tax advantages to            
 Alaska citizens.                                                              
 Number 617                                                                    
                                                                               
 SENATOR RIEGER inquired how a member can get out of a limited                 
 liability company if he does want out.  BOB MANLEY referred to Sec.           
 10.50.185 on page 17, which provides that a person's membership               
 terminates if a person withdraws voluntarily from the company.                
 However, when an individual enters into a limited liability                   
 company, if all the people coming in decide that they don't want              
 anyone to be allowed to withdraw they can do so.  That is important           
 primarily in an estate planning context.                                      
                                                                               
 Number 664                                                                    
                                                                               
 MIKE MONAGLE of the Department of Commerce & Economic Development             
 stated the department's support for CSSB 347(L&C).                            
                                                                               
 Number 680                                                                    
                                                                               
 CHARLES SCHUETZE, a member of the Working Group on Limited                    
 Liability Companies of the Alaska Bar Association testifying from             
 Anchorage, stressed that the legislation was originally created               
 largely because of the tax considerations.  He noted that countries           
 like Germany have had limited liability companies for many decades.           
                                                                               
 TAPE 94-23, SIDE A                                                            
                                                                               
 Mr. Schuetze outlined various provisions contained in CSSB
(L&C).                                                                     
                                                                               
 Number 016                                                                    
                                                                               
 CRAIG INGHAM, testifying from Fairbanks, stated that with the                 
 current substitute bill, the Alaska Bankers Association is no                 
 longer opposed to the legislation.  With all of the work that has             
 gone into rewriting the bill, we have an entity that has similar              
 safeguards that we have with corporations and that is why they no             
 longer oppose the bill, he stated.                                            
                                                                               
 Number 035                                                                    
                                                                               
 SENATOR SHARP asked what the tax ramifications would be to the                
 State of Alaska if there is a switch from corporations to limited             
 liability companies.  BOB MANLEY didn't think that there will be              
 any loss of state corporate income tax.  He added that the tax cost           
 and the transfer cost of changing a corporation to a limited                  
 liability company is going to be so significant that if the company           
 is making any money and paying taxes, it is not going to do it.               
                                                                               
 Number 136                                                                    
                                                                               
 SENATOR RIEGER asked if these companies have boards of directors.             
 BOB MANLEY answered that they can be run as either as a general               
 partnership, such that all the partners speak to the management, or           
 there can be a manager to manage a liability company, in which                
 case, they select one, two, three, four board managers who will, in           
 effect, act as the board of directors.  SENATOR RIEGER then pointed           
 out on page 10, line 16, language containing the word "director."             
 BOB MANLEY responded that it should be removed from the bill.                 
                                                                               
 Number 160                                                                    
                                                                               
 SENATOR RIEGER moved that on page 10, line 16, delete the word                
 "director" and replace it with the word "person."  Hearing no                 
 objection, the motion carried.                                                
                                                                               
 SENATOR KELLY stated it was his intent to direct staff to refer a             
 copy of the committee substitute to the Department of Revenue and             
 ask for their comments concerning the tax consequences to the State           
 of Alaska on establishing this type of a company under the new                
 committee substitute.                                                         
                                                                               
 SENATOR RIEGER moved that CSSB 347(L&C) version "K", as amended, be           
 adopted.  Hearing no objection, the motion carried.                           
                                                                               
 SENATOR KELLY stated CSSB 347(L&C) would be back before the                   
 committee at its Thursday, April 7 meeting.