Legislature(1993 - 1994)
03/08/1994 03:00 PM House L&C
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE LABOR AND COMMERCE
STANDING COMMITTEE
March 8, 1994
3:00 p.m.
MEMBERS PRESENT
Rep. Bill Hudson, Chairman
Rep. Bill Williams
Rep. Eldon Mulder
Rep. Joe Sitton
MEMBERS ABSENT
Rep. Joe Green, Vice Chairman
Rep. Brian Porter
Rep. Jerry Mackie
COMMITTEE CALENDAR
*HB 420: "An Act relating to limited liability companies;
amending Alaska Rules of Civil Procedure 20 and
24; and providing for an effective date."
PASSED OUT OF COMMITTEE
HB 308: "An Act prohibiting the direct or indirect
contribution or payment of the net proceeds of a
bingo or pull-tab game to candidates for public
office; and relating to the definition of
`political organization' as that term is used in
the laws relating to charitable gaming."
NOT HEARD
*HB 353: "An Act repealing the requirement of an annual
audit of the receipts and expenditures applicable
to certain property managed under the Horizontal
Property Regimes Act."
NOT HEARD
(* First public hearing.)
WITNESS REGISTER
REP. GENE THERRIAULT
Alaska State Legislature
State Capitol
Juneau, Alaska 99801-1182
465-4797
Position Statement: Prime Sponsor of HB 420
CHARLES SCHUETZE
405 W. 36th Ave., Suite 200
Anchorage, Alaska 99503
561-4420
Position Statement: Supported HB 420
BRIAN DURRELL
1031 W. 4th Ave., Suite 600
Anchorage, Alaska 99501
257-7828
Position Statement: Supported HB 420
ROD LIND
550 W. 7th Ave., #150
Anchorage, Alaska 99501
272-8162
Position Statement: Supported HB 420
BOB MANLY
324 East Cook
Anchorage, Alaska 99501
263-8251
Position Statement: Supported HB 420
JO KUCHLE
P.O. Box 73784
Gsotnmld, Alaska 99707
488-1651
Position Statement: Supported HB 420
PREVIOUS ACTION
BILL: HB 420
SHORT TITLE: LIMITED LIABILITY COMPANIES
SPONSOR(S): REPRESENTATIVE(S) THERRIAULT
JRN-DATE JRN-PG ACTION
01/31/94 2206 (H) READ THE FIRST TIME/REFERRAL(S)
01/31/94 2206 (H) L&C, JUDICIARY, STATE AFFAIRS
02/24/94 2522 (H) SPONSOR SUBSTITUTE
INTRODUCED-REFERRALS
02/24/94 2522 (H) L&C, JUDICIARY, STATE AFFAIRS
03/08/94 (H) L&C AT 03:00 PM CAPITOL 17
BILL: HB 308
SHORT TITLE: LIMIT POLITICAL USE OF GAMBLING PROCEEDS
SPONSOR(S): REPRESENTATIVE(S) THERRIAULT,Olberg,Porter
JRN-DATE JRN-PG ACTION
01/03/94 2007 (H) PREFILE RELEASED
01/10/94 2007 (H) READ THE FIRST TIME/REFERRAL(S)
01/10/94 2007 (H) L&C, STATE AFFAIRS, JUDICIARY,
FINANCE
01/13/94 2053 (H) COSPONSOR(S): OLBERG, PORTER
02/10/94 (H) L&C AT 03:00 PM CAPITOL 17
02/10/94 (H) MINUTE(L&C)
03/08/94 (H) L&C AT 03:00 PM CAPITOL 17
BILL: HB 353
SHORT TITLE: CONDOMINIUM ASSOCIATION MANAGEMENT
SPONSOR(S): REPRESENTATIVE(S) JAMES
JRN-DATE JRN-PG ACTION
01/07/94 2020 (H) PREFILE RELEASED
01/10/94 2020 (H) READ THE FIRST TIME/REFERRAL(S)
01/10/94 2020 (H) LABOR & COMMERCE, STATE AFFAIRS
03/08/94 (H) L&C AT 03:00 PM CAPITOL 17
ACTION NARRATIVE
TAPE 94-20, SIDE A
(Note: The recording equipment was not recording the first
25 minutes of the meeting. Minutes are transcribed from
notes until tape log number 430.)
Number 001
CHAIRMAN HUDSON convened the meeting at 3:20 p.m. and
invited Rep. Therriault to present HB 420.
Number 049
REP. THERRIAULT read the following sponsor statement into
the record:
The limited liability company is a relatively new, hybrid
form of business structure that combines the tax advantages
of a partnership and the liability safeguards of a
corporation. Although a combination of these two business
structures is currently allowed in statute through formation
of an S corporation, this structure has limitations that are
avoided by LLC's. For example, S corporations do not allow
ownership by certain types of shareholders.
Under current law, corporate earnings are subject to double
taxation through the payment of corporate taxes and personal
taxes after distribution of dividends. LLC's avoid this
double taxation by allowing earnings to flow through to
individual owners in the same manner partnerships income is
handled. Although businesses can be organized through an S
corporation to avoid double taxation and encompass some of
the advantages of partnerships, they do not enjoy all the
advantages of partnerships when it comes to allocating
income and deductions.
One of the greatest advantages is, as the name implies, the
limited liability offered by the LLC structure. With LLC's
as with regular corporations, only the company's assets, and
not the owner's personal assets, are at risk in business-
related lawsuits. In partnerships, so called limited
partners enjoy such protection, but general partners don't.
And limited partners face restrictions on how active they
can be in the business. LLC's are designed to protect all
members while imposing no limits on their involvement in
operation of the business.
Thirty-four states now permit limited liability companies,
and passage in most of the remaining states is expected.
Wyoming passed the first LLC act in 1977. Other states
slowly followed suit until 1988, when the Internal Revenue
Service issued Rev Ruling 88-76, which classified a Wyoming
LLC as a partnership for federal tax purposes, even though
none of the members or managers were personally liable for
any debts of the company. Following the ruling, formation
of LLC's burgeoned, with two states adopting LLC acts in
1990, four in 1991, 10 in 1992 and more than 20 states
introducing measures in 1993.
LLC's have tended to be family businesses, professional
service firms venture capital companies, real estate
businesses and startups. I believe the LLC will provide
these business owners with an efficient and flexible
investment vehicle that allows both limited liability, and
federal incomes tax treatment as a partnership. I
introduced the bill, which is based on a prototype American
Bar Association draft, with the intention of generating
discussion on this topic, and am more than willing to
discuss proposed changes.
Number 200
MR. CHARLES SCHUETZE, attorney, testified in favor of HB
420.
Number 250
MR. BRIAN DURRELL, attorney, testified in support of HB 420.
Number 384
MR. ROD LIND, CPA, testified in support of HB 420.
Number 405
MR. BOB MANLY, attorney, testified in support of HB 420.
Mr. Manly stated that he had briefly reviewed the sectional
analysis and it appeared in order. He outlined the sections
as follows:
Article 1 - provides that limited liability companies can be
organized for any lawful purpose provided they comply with
any other laws governing the activities they are under.
Article 2 - limited liability companies must use the words
"limited liability company" within the name in order to make
sure they can be distinguished from any other entity.
Article 3 - deals with how you set up a limited liability
company.
Article 4 - provides mechanisms for amending the articles.
Article 5 - proposes a number of default provisions, this
allows for flexibility within the company.
Article 6 - allows the admittance of new members following
certain procedures.
Article 7 - deals with agency powers.
Article 8 - covers the contribution of property, money or
services to a limited liability company.
Article 9 - default mechanism to cover distribution of money
to investors if partners don't already have an agreement on
process.
Article 10 - indicates how to take title to property.
Article 11 - allows for dissolution and winding up the
corporation.
Article 12 - provides mechanism for two LLC's to merge.
Article 13 - provides for regulation of foreign LLC's.
Article 14 - right of LLC's to sue.
Articles 15 and 16 contain miscellaneous provisions.
Number 570
CHAIRMAN HUDSON asked Mr. Manly what, if any, were the
elements in this bill that would protect the public.
Number 585
MR. MANLY stated the public would be protected in that when
a business is doing well everyone is happy and everyone gets
paid on time, etc.; but if a business goes under, the
economic failure affects everyone.
Number 619
CHAIRMAN HUDSON asked if this type of new legislation was
predicated upon compliance with federal law.
Number 627
MR. MANLY answered that to a certain extent the federal tax
code was an influence.
TAPE 94-20, SIDE B
Number 001
CHAIRMAN HUDSON stated that it sounded like a limited
liability corporation was the same as a limited liability
partnership.
Number 020
MR. MANLY answered that a limited liability partnership was
a separate entity.
Number 027
MR. LIND stated that a limited liability partnership is a
general partnership that has one difference, it protects the
innocent partners from the tort of another partner.
Number 058
MS. JO KUCHLE, attorney, testified in support of HB 420.
Ms. Kuchle stated she has often had clients from out of
Alaska wishing to invest in an Alaskan business venture but
are unable to do that and get limited liability in a
corporation form.
MS. KUCHLE added that in her opinion HB 420 would be a good
vehicle to help businesses gain favorable federal tax
attributes.
Number 120
CHAIRMAN HUDSON asked whether or not when forming a limited
liability company a group would have to disclose background
that would include bankruptcy or enforcement actions, etc.
Number 160
MS. KUCHLE stated that when you form a corporation under
present law you are not required to disclose anything.
Number 199
REP. MULDER asked how difficult it would be to reorganize a
"C" corporation into a LLC.
Number 205
MR. MANLY suggested that there would be very few of those
types of reorganizations due to significant adverse tax
consequences.
REP. MULDER stated that he didn't understand all the
specifics of HB 420, but felt it was a good move towards
promoting economic development.
Number 237
CHAIRMAN HUDSON stated he was trying to figure out the
relationship between the formation of and LLC and the IRS.
Rep. Hudson asked if LLC's be subject to the IRS review and
compliance in accordance with the federal tax laws.
Number 258
MR. MANLY stated that once HB 420 passed at least one
committee they were going to submit the bill and two
hypothetical situations to the IRS for a revenue ruling for
tax purposes.
REP. MULDER moved to adopt the sponsor substitute for HB
420. No objections were heard; it was so ordered.
REP. MULDER moved SSHB 420(L&C) with a zero fiscal note and
individual recommendations.
CHAIRMAN HUDSON adjourned the meeting at 4:27 p.m.
HB 308 - NOT HEARD TODAY
HB 353 - NOT HEARD TODAY
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