Legislature(1993 - 1994)
03/31/1994 01:40 PM L&C
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
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 347(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.