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$ SENATE BILL NO. 169
INTRODUCED BY M. TAYLOR
A BILL FOR AN ACT ENTITLED: "AN ACT REVISING THE LAWS GOVERNING SMALL BUSINESS
INVESTMENT COMPANIES TO ENSURE THEIR COMPLIANCE WITH FEDERAL LAW AND REGULATIONS;
AMENDING SECTIONS 17-6-308, 90-8-104, 90-8-106, 90-8-201, 90-8-203, 90-8-301, 90-8-302,
90-8-303, AND 90-8-321, MCA; AND PROVIDING AN IMMEDIATE EFFECTIVE DATE."
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MONTANA:
Section 1.ĠSection 17-6-308 , MCA, is amended to read:
"17-6-308.
٠(Temporary)
Authorized investments. (1) Except as provided in subsections (2) and
(3) and subject to the provisions of 17-6-201, the Montana permanent coal tax trust fund must be
invested as authorized by rules adopted by the board.
(2)The board may make loans from the permanent coal tax trust fund to the capital reserve
account created pursuant to 17-5-1515 to establish balances or restore deficiencies in the account. The
board may agree in connection with the issuance of bonds or notes secured by the account or fund to
make the loans. Loans must be on terms and conditions determined by the board and must be repaid from
revenue realized from the exercise of the board's powers under 17-5-1501 through 17-5-1518 and
17-5-1521 through 17-5-1529, subject to the prior pledge of the revenue to the bonds and notes.
(3)The board shall allow the Montana board of science and technology development, provided
for in 2-15-1818, to administer $12.5 million of the permanent coal tax trust fund for seed capital project
loans or mezzanine financing loans and $11.1 million of the permanent coal tax trust fund for research and
development project matching funds for projects at Montana public universities. The board may grant up
to $2 million of interest and income from investments to research and development projects at Montana
public universities. The research and development projects may include grant matching fund purposes. This
authority does not extend beyond June 30, 1999, for seed capital project loans and beyond June 30,
1999, for research and development projects. Except for $915,000, all uncommitted seed capital funds
must revert to the coal severance tax permanent fund. The department may use up to $75,000 each year
of the seed capital funds for administrative purposes. The board of science and technology development,
with the concurrence of the director of the department, may extend an additional loan to an existing seedcapital portfolio company by up to $700,000. In the fiscal year ending June 30, 1998, the department
shall transfer $250,000 of interest and earnings to the Montana supreme court to be used to fund the
judges' retirement system. Until the Montana board of science and technology development makes a loan
pursuant to the provisions of Title 90, chapter 3, the funds under its administration must be invested by
the board pursuant to the provisions of 17-6-201. As seed capital and mezzanine financing loans made
pursuant to this subsection are repaid, the proceeds of the seed capital portion of the Montana board of
science and technology development loans must be deposited in the coal severance tax permanent fund
until all loans have been repaid plus the amount of 7% simple interest for the years that the loans have
been outstanding. The board shall calculate the amount of the interest charge. The board may use up to
$25,000 of the repayments for administrative costs in the fiscal year ending June 30, 1997.
(4)The board shall adopt rules to allow a nonprofit corporation to apply for economic assistance.
The rules must recognize that different criteria may be needed for nonprofit corporations than for for-profit
corporations.
(5)Beginning July 1, 1999, all repayments proceeds in excess of $4.395 million must be
deposited in the coal severance tax permanent fund. In the fiscal year ending June 30, 1998, the
department shall transfer $250,000 from the interest and earnings from job investment loans to the
Montana supreme court to be used to fund the judges' retirement system.
(6) A seed project loan agreement that provides funds directly or indirectly to the applicant to
become a small business investment company pursuant to Title III of the Small Business Investment Act
of 1958 must contain or be amended to contain conditions that are not inconsistent with the Small
Business Investment Act of 1958 or subsequent regulations. The board is authorized to amend the seed
project loan agreement to meet this requirement if the other party to the agreement concurs with the
board's proposed amendment and agrees to the amendment in writing.
17-6-308.
٠(Effective July 1, 1999)
Authorized investments. (1) Except as provided in subsections
(2) and (3) and subject to the provisions of 17-6-201, the Montana permanent coal tax trust fund must
be invested as authorized by rules adopted by the board.
(2)The board may make loans from the permanent coal tax trust fund to the capital reserve
account created pursuant to 17-5-1515 to establish balances or restore deficiencies in the account. The
board may agree in connection with the issuance of bonds or notes secured by the account or fund to
make the loans. Loans must be on terms and conditions determined by the board and must be repaid from
revenue realized from the exercise of the board's powers under 17-5-1501 through 17-5-1518 and17-5-1521 through 17-5-1529, subject to the prior pledge of the revenue to the bonds and notes.
(3)The department shall manage the seed capital and research and development loan portfolios
created by the former Montana board of science and technology development. The department shall
establish an appropriate repayment schedule for all outstanding research and development loans made to
the university system. The department shall report the schedule to the 56th legislature. The department
shall develop a business investment strategy for investing in Montana business and shall present the
proposal to the 56th legislature. The department is the successor in interest to all agreements, contracts,
loans, notes, or other instruments entered into by the Montana board of science and technology
development as part of the seed capital and research and development loan portfolios. Until the
department makes a loan pursuant to the provisions of part 5 of this chapter, the $915,000 in funds under
its administration must be invested by the board pursuant to the provisions of 17-6-201. As loans made
pursuant to part 5 of this chapter are repaid, the department may reinvest the principal in new loans
pursuant to part 5 of this chapter.
(4)The board shall adopt rules to allow a nonprofit corporation to apply for economic assistance.
The rules must recognize that different criteria may be needed for nonprofit corporations than for for-profit
corporations.
(5)Beginning July 1, 1999, all repayments proceeds in excess of $4.395 million must be
deposited in the coal severance tax permanent fund. In the fiscal year ending June 30, 1998, the
department shall transfer $250,000 from the interest and earnings from job investment loans to the
Montana supreme court to be used to fund the judges' retirement system.
(6) A seed project loan agreement that provides funds directly or indirectly to the applicant to
become a small business investment company pursuant to Title III of the Small Business Investment Act
of 1958 must contain or be amended to contain conditions that are not inconsistent with the Small
Business Investment Act of 1958 or subsequent regulations. The department is authorized to amend the
seed project loan agreement to meet this requirement if the other party to the agreement concurs with the
departments proposed amendment and agrees to the amendment in writing."
Section 2.ĠSection 90-8-104 , MCA, is amended to read:
"90-8-104.Definitions. As used in this chapter, unless the context requires otherwise, the
following definitions apply:
(1)"Capital base" means equity capital raised by a certified Montana capital company or by acertified Montana small business investment capital company for which tax credits were claimed under
this chapter.
(2)"Certified Montana capital company" or "certified Montana small business investment capital
company" means:
(a)a development credit corporation created pursuant to Title 32, chapter 4; or
(b)a profit or nonprofit entity organized and existing under the laws of Montana, created for the
purpose of making venture or risk capital available for qualified investments and that has been certified
by the department.
(3)"Department" means the department of commerce.
(4)"Montana business" means a business which is located or principally based within Montana.
(5)"Qualified investment" means an investment that does not violate any of the provisions of this
chapter, does not displace other sources of equity or debt financing that are available to the project unless
the department determines that the investment furthers the purposes of this chapter, and is:
(a)a debt or equity financing of a Montana business that meets both of the following criteria:
(i)the business is engaged in one or more of the following activities:
(A)manufacturing;
(B)agricultural, fishery, or forestry production and processing;
(C)mineral production and processing, except for conventional oil and gas exploration;
(D)recognized nonfossil forms of energy generation or the manufacture of low emission wood or
biomass combustion devices as defined in 15-32-102;
(E)transportation;
(F)research and development of products or processes associated with any of the activities
enumerated in (A) through (E) above;
(G)wholesale or retail distribution activities for which products produced in Montana comprise
50% or more of the gross sales receipts;
(H)any activity conducted in the state for which 50% or more of the gross receipts are derived
from the sale of products or services outside Montana; and
(I)tourism; and
(ii)the business is a small business as defined in rules adopted by the department and in the
regulations promulgated by the United States small business administration at 13 CFR 121, et seq.;
(b)a debt or equity financing of a business outside Montana if
such
the investment is likely toproduce a qualified investment in Montana, as long as
such
the investment does not exceed 25% of the
capital base of the capital company; or
(c)a debt or equity financing of an acquisition of a non-Montana business that will be relocated
in Montana.
(6)"Qualified Montana capital company" means a certified Montana capital company that has
been designated a qualified capital company under the provisions of 90-8-202 so that investors in the
company may receive the tax credits authorized in 90-8-202.
(7)"Qualified Montana small business investment capital company" means a certified Montana
small business investment capital company that has been designated a qualified small business investment
capital company under the provisions of 90-8-202 so that investors in the company may receive the tax
credits authorized in 90-8-202."
Section 3.ĠSection 90-8-106 , MCA, is amended to read:
"90-8-106.Fees. The department may charge fees commensurate with costs for the
administration of this chapter. Fees for the administration of this chapter must be assessed to each
qualified Montana capital company that is not a small business investment company that is licensed and
regulated by the United States small business administration, in a ratio proportionate to the tax credits
allocated to the capital company divided by the total tax credits allocated to all qualified Montana capital
companies."
Section 4.ĠSection 90-8-201 , MCA, is amended to read:
"90-8-201.
٠(Temporary)
Certification of Montana capital companies -- certification of a Montana
small business investment capital company. (1) The department shall certify one Montana small business
investment capital company, and from time to time the department shall certify Montana capital
companies. A company seeking to be certified as a Montana capital company or as the Montana small
business investment capital company shall make written application to the department on forms provided
by the department. The application must contain the information required by 90-8-204 and other
information that the department requires. The application and certificate must specify the level of
capitalization that the company expects to qualify for the tax credits provided for in 90-8-202.
(2)The application must show that the applicant's purpose is to increase the general economic
welfare of the state of Montana by: (a)making investment capital available to businesses in Montana; and
(b)allowing for investment of up to 25% of its capital base in businesses outside Montana if there
is a substantial likelihood that
such
the investment will produce a qualified investment in Montana.
(3)Certifiable applicants include but are not limited to local and community development
corporations, small business administration 503 corporations, and small business investment companies.
(4)Certification is a prerequisite to and must be completed before seeking designation as a
qualified capital company or as the qualified Montana small business investment capital company.
(5)To be eligible for certification under this section as the Montana small business investment
capital company, the applicant shall commit to:
(a)utilize the tax credits to accumulate private capital with the intention of being
designated
licensed as a small business investment corporation by the United States small business administration as
provided in Title III of the Small Business Investment Act of 1958, as amended, and as implemented under
13 CFR 107;
(b)target its investments as a small business investment capital company toward
commercialization projects emerging from centers of excellence and entrepreneurship, federal laboratories,
the federal small business innovative research program, the federal cooperative research and development
agreement program, Montana university system research and development, the Montana board of science
and technology development (second stage), small business incubators, community development block
grant programs, and projects emerging from economic development programs of Montana certified
communities with the objective of providing significant investment opportunities in an area where
economic development capital is limited;
(c)consider investment opportunities originating in any Montana county; and
(d)adopt investment guidelines that ensure that not less than 10% of its available capital is
invested in counties with populations of 20,000 or less.
90-8-201.
٠(Effective July 1, 1999)
Certification of Montana capital companies -- certification of
Montana small business investment capital company. (1) The department shall certify one Montana small
business investment capital company, and from time to time, the department shall certify Montana capital
companies. A company seeking to be certified as a Montana capital company or as the Montana small
business investment capital company shall make written application to the department on forms provided
by the department. The application must contain the information required by 90-8-204 and other
information that the department requires. The application and certificate must specify the level ofcapitalization that the company expects to qualify for the tax credits provided for in 90-8-202.
(2)The application must show that the applicant's purpose is to increase the general economic
welfare of the state of Montana by:
(a)making investment capital available to businesses in Montana; and
(b)allowing for investment of up to 25% of its capital base in businesses outside Montana if there
is a substantial likelihood that the investment will produce a qualified investment in Montana.
(3)Certifiable applicants include but are not limited to local and community development
corporations, small business administration 503 corporations, and small business investment companies.
(4)Certification is a prerequisite to and must be completed before seeking designation as a
qualified capital company or as the qualified Montana small business investment capital company.
(5)To be eligible for certification under this section as the Montana small business investment
capital company, the applicant shall commit to:
(a)using the tax credits to accumulate private capital with the intention of being
designated
licensed as a small business investment corporation by the United States small business administration as
provided in Title III of the Small Business Investment Act of 1958, as amended, and as implemented under
13 CFR 107;
(b)targeting its investments as a small business investment capital company toward
commercialization projects emerging from centers of excellence and entrepreneurship, federal laboratories,
the federal small business innovative research program, the federal cooperative research and development
agreement program, Montana university system research and development, small business incubators,
community development block grant programs, and projects emerging from economic development
programs of Montana certified communities, with the objective of providing significant investment
opportunities in an area where economic development capital is limited;
(c)considering investment opportunities originating in any Montana county; and
(d)adopting investment guidelines that ensure that not less than 10% of its available capital is
invested in counties with populations of 20,000 or less."
Section 5.ĠSection 90-8-203 , MCA, is amended to read:
"90-8-203.No recapture -- unqualified investments -- penalty. (1)(a) If the amount invested by
a taxpayer in a qualified Montana capital company or in the qualified Montana small business investment
capital company is not used by the company for qualified investments as provided in 90-8-301, thetaxpayer is not subject to a recapture provision for any tax credit claimed by
him
the taxpayer but the
company, except as provided in subsection (1)(b), is subject to the penalty provided for in 90-8-301(4).
(b) The collection of a penalty under 90-8-301(4) from a small business investment company
whose securities are guaranteed by the United States small business administration must be deferred until
all accounts due under the terms of the guarantee of the securities are paid in full.
(2)If a capital company does not invest its capital base in accordance with 90-8-301 and has paid
or otherwise distributed funds to an investor or subsequent holder of the investment, the department of
revenue may recover from the person receiving the distributed funds a penalty in an amount not to exceed
the lesser of:
(a)the amount of the tax credit received by the original investor; or
(b)the amount of funds paid or otherwise distributed to the investor or the subsequent holder of
the investment other than the United States small business administration or its designee. Dividends or
distributions made in accordance with applicable law may not be included in the amount specified in this
subsection (2)(b) unless the capital company has not invested its capital base in accordance with
90-8-301."
Section 6.ĠSection 90-8-301 , MCA, is amended to read:
"90-8-301.Qualified investments -- penalty -- extension permissible. (1) A qualified Montana
capital company receiving investments for which a taxpayer has applied and received a tax credit must
use its capital base to make qualified investments according to the following schedule:
(a)at least 30% of its capital base raised through investments for which tax credits were taken
within 3 years of the date on which the certified company was designated as a qualified capital company
by the department and, in the case of capital raised by a qualified Montana capital company under an
amended application for additional tax credits filed after its initial designation as a qualified Montana capital
company, at least 30% of its capital base raised through investments for which tax credits were taken
within 3 years of the date on which the department approves the amended application;
(b)at least 50% of its capital base raised through investments for which tax credits were taken
within 4 years of the date on which the certified company was designated as a qualified capital company
by the department and, in the case of capital raised by a qualified Montana capital company under an
amended application for additional tax credits filed after its initial designation as a qualified Montana capital
company, at least 50% of its capital base raised through investments for which tax credits were takenwithin 4 years of the date on which the department approves the amended application; and
(c)at least 70% of its capital base raised through investments for which tax credits were taken
within 5 years of the date on which the certified company was designated as a qualified capital company
by the department and, in the case of capital raised by a qualified Montana capital company under an
amended application for additional tax credits filed after its initial designation as a qualified Montana capital
company, at least 70% of its capital base raised through investments for which tax credits were taken
within 5 years of the date on which the department approves the amended application.
(2)The qualified Montana small business investment capital company receiving investments for
which a taxpayer has applied and received a tax credit must use its capital base to make qualified
investments according to the following schedule:
(a)of its capital base raised through investments for which tax credits were taken:
(i)30% within 3 years of the date on which the certified company was designated as the qualified
Montana small business investment capital company by the department or within 3 years of its designation
as a small business investment corporation by the small business administration, whichever is later;
(ii)50% within 4 years of the date on which the certified company was designated as the qualified
Montana small business investment capital company by the department or within 4 years after its
designation as a small business investment corporation by the small business administration, whichever
is later; and
(iii)70% within 5 years of the date on which the certified company was designated as the qualified
Montana small business investment capital company by the department or within 5 years after its
designation as a small business investment corporation by the small business administration, whichever
is later; or
(b)of its capital base, in the case of capital raised through a loan from the small business
administration pursuant to 13 CFR 107, as provided under this chapter except as provided in subsection
(2)(a).
(3)Following each annual examination, the department shall notify the department of revenue of
any companies that are not in compliance with this section.
(4)(a)
A
Except as provided in subsection (4)(b), a qualified Montana capital company that fails
to make qualified investments pursuant to subsection (1) or the qualified Montana small business
investment capital company that fails to make qualified investments pursuant to subsection (2) shall pay
to the department of revenue a penalty equal to all of the tax credits allowed to the investors investingin that company during that time period, with interest at 1% a month from the date the tax credits were
certified as allocated to the qualified Montana capital company or to the qualified Montana small business
investment capital company. The department of revenue may abate the penalty if the capital company or
the Montana small business investment capital company establishes reasonable cause for the failure to
make qualified investments pursuant to subsection (1) or (2) and if the failure was not due to neglect on
the part of the company.
(b) A company that has been licensed as a small business investment company whose securities
are guaranteed by the United States small business administration pursuant to Title III of the Small
Business Investment Act of 1958 may not be required to pay the penalty until all amounts due under the
terms of the guarantee of the securities are paid in full.
(5)The department of revenue may grant an extension of time in which to make qualified
investments pursuant to subsection (1) or (2) upon application by a capital company or the Montana small
business investment capital company showing reasonable cause for an extension.
(6)The department of revenue shall deposit any amount received under this section to the credit
of the state general fund.
(7)A capital company may invest tax credit funds in an existing profitable business only if a
substantial portion of the investment is to be used for expansion of the business. The department may limit
the amount of the investment to be counted toward the investment percentage criteria set forth in this
section to the amount to be used for the expansion of the business."
Section 7.ĠSection 90-8-302 , MCA, is amended to read:
"90-8-302.Restriction on investment. In addition to the requirements of 90-8-301, no more than
50% of the equity raised by a Montana capital company or by the Montana small business investment
capital company subject to any lower percentage prescribed by the regulations promulgated by the United
States small business administration that govern small business investment companies may be invested
in any one business, and no more than 25% of the total funds raised for which tax credits were claimed
pursuant to the investment credit provisions of this chapter may be invested in any one business."
Section 8.ĠSection 90-8-303 , MCA, is amended to read:
"90-8-303.Conflict of interest. (1)A capital company may not invest in any business venture in
which the combined ownership of the business venture for all investors in the capital company exceeds49% at the time of the investment decision.
(2)A member of the investment committee of a Montana capital company or of the Montana small
business investment capital company who has an interest in a venture that comes before the committee
for a vote shall disclose the interest and abstain from voting on investment in the venture.
(3) Notwithstanding subsections (1) and (2), a company that has been licensed as a small business
investment company pursuant to Title III of the Small Business Investment Act of 1958 may not make an
investment that is prohibited by that act or subsequent regulations."
Section 9.ĠSection 90-8-321 , MCA, is amended to read:
"90-8-321.Decertification. (1)(a) If the examination conducted pursuant to 90-8-313 discloses
that a Montana capital company or the Montana small business investment capital company is not in
compliance with the provisions of this chapter, the department may exercise any of the powers with
regard to banks granted in Title 32, chapter 1, part 5, and may seize the assets of the company and
liquidate it. In the event of liquidation of the assets, any penalty imposed pursuant to 90-8-301 must be
included in the claims to be paid.
(b) If a company has any fixed or contingent obligations to the United States small business
administration or its designee:
(i) the department may not exercise the powers granted in Title 32, chapter 1, part 5, without the
prior written consent of the United States small business administration; and
(ii) the proceeds from any liquidation, including the collection of any unfunded commitments, must
be applied first toward the payment of all sums that may be due the United States small business
administration as holder or guarantor of any security issued by the company.
(2)If in the discretion of the department the action allowed under subsection (1) is not required
to protect the company's investors, the department may place the company on notice that it will lose its
certification as a Montana capital company or as the Montana small business investment capital company
within a specified period of time if the company does not come into compliance with the provisions of this
chapter. The department shall automatically decertify a Montana capital company or the Montana small
business investment capital company that is assessed a penalty under 90-8-301(4).
(3)As long as the department acts in good faith, the department and its employees and agents
may not be held civilly or criminally liable or liable upon their official bonds for action taken under this
section or for any failure to act under it. (4)A Montana capital company or the Montana small business investment capital company may
apply to the department for decertification.
(5)The department has the power to decertify any capital company not in compliance with this
chapter.
(6)The department shall decertify a capital company once the capital company has met the
investment schedule outlined in 90-8-301 and over 70% of the capital base of the capital company has
been invested in qualified investments and after at least 5 years have elapsed since the date the capital
company was qualified."
NEW SECTION.ĠSection 10.Effective date. [This act] is effective on passage and approval.
h) END