AN ACT REVISING THE LAWS GOVERNING SMALL BUSINESS INVESTMENT COMPANIES TO ENSURE THEIR COMPLIANCE WITH FEDERAL LAW AND REGULATIONS; AUTHORIZING ADDITIONAL MONTANA SMALL BUSINESS INVESTMENT CAPITAL COMPANIES; AMENDING SECTIONS 32-1-422, 90-8-104, 90-8-106, 90-8-201, 90-8-202, 90-8-203, 90-8-301, 90-8-302, 90-8-303, 90-8-304, 90-8-305, 90-8-311, 90-8-312, 90-8-313, AND 90-8-321, MCA; AND PROVIDING AN IMMEDIATE EFFECTIVE DATE AND AN APPLICABILITY DATE.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MONTANA:

Section 1. Section 32-1-422, MCA, is amended to read:

"32-1-422. Restriction on investment in corporate stock -- rulemaking authority. (1) Except as provided in subsections (2) and (3), a commercial or savings bank may not purchase or invest its capital or surplus or money of its depositors, or any part of either, in the capital stock of any corporation unless the purchase or acquisition of capital stock is necessary to prevent loss to the bank on a debt previously contracted in good faith. Any capital stock so purchased or acquired must be sold by the bank within 6 months after purchase or acquisition if it can be sold for the amount of the claim of the bank against it. All capital stock purchased or acquired must be sold for the best price obtainable by the bank within 1 year after purchase or acquisition, or if the stock is unmarketable, it must be charged off as an investment loss, which is equivalent to the stock's sale. A person or corporation violating any provision of this section shall forfeit to the state twice the nominal amount of the stock.

(2) A bank may acquire and hold for its own account:

(a) up to 20% of its capital and surplus in the capital stock of a bank service corporation organized solely for the purpose of providing services to banks;

(b) shares of stock of a federal reserve bank, without limitation of amount; and

(c) shares of stock in a Montana capital company or a Montana small business investment capital company within limits prescribed by the Montana Capital Company Act.

(3) A bank may invest any amount up to the limit established by the department of its unimpaired capital and surplus in shares of stock of:

(a) the federal national mortgage association;

(b) the federal home loan mortgage corporation;

(c) the federal agricultural mortgage corporation; and

(d) other corporations created pursuant to acts of congress to meet the agricultural, housing, health, transit, educational, environmental, or similar needs of the nation when the department determines that the investment is in the public interest.

(4) The department shall adopt rules to implement this section."

Section 2. Section 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 a certified 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 is a small business pursuant to 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 the investment is likely to produce a qualified investment in Montana, as long as 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. Section 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. Section 90-8-201, MCA, is amended to read:

"90-8-201. (Temporary) Certification of Montana capital companies and small business investment capital companies. (1) The department shall certify Montana small business investment capital companies, 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 a 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.

(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 certified development companies, 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 a qualified Montana small business investment capital company.

(5) To be eligible for certification under this section as a Montana small business investment capital company, the applicant shall commit to:

(a) accumulate private capital with the intention of being 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. (Effective July 1, 1999) Certification of Montana capital companies and small business investment capital companies. (1) The department shall certify Montana small business investment capital companies, 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 a 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.

(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 certified development companies, 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 a qualified Montana small business investment capital company.

(5) To be eligible for certification under this section as a Montana small business investment capital company, the applicant shall commit to:

(a) accumulating private capital with the intention of being 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. Section 90-8-202, MCA, is amended to read:

"90-8-202. Designation of qualified Montana capital companies -- designation of qualified Montana small business investment capital company -- tax credit. (1) The department shall designate as:

(a) qualified Montana capital companies those certified companies that have been privately capitalized at a minimum level of $200,000; or

(b) a qualified Montana small business investment capital company a certified Montana small business investment capital company once it has been privately capitalized at a minimum level of $500,000.

(2) A certified company seeking designation as a qualified Montana capital company or as a qualified 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.

(3) (a) The total amount of tax credits authorized for a single qualified capital company or a qualified Montana small business investment capital company may not exceed $1,500,000, except that a qualified Montana small business investment capital company must receive all remaining tax credits under this section available as of January 1, 1991. In the event the capitalization of a qualified capital company is later increased, the company may apply for authorization of additional tax credits within the foregoing limitation.

(b) The total credits authorized for all companies may not exceed a total of $1 million prior to June 30, 1985. The total credits authorized for all companies between July 1, 1985, and June 30, 1987, may not exceed $1 million plus any portion of the $1 million available for authorization before June 30, 1985, that is allocated to qualified companies. The total credits authorized for all companies between July 1, 1987, and June 30, 1989, may not exceed $3 million plus any portion of the credits available for authorization before June 30, 1987, that is allocated to qualified companies. The total credits authorized for all companies between July 1, 1989, and June 30, 1991, may not exceed $3 million plus any portion of the credits available for authorization before June 30, 1989, that is allocated to qualified companies.

(4) (a) Before January 1, 1991, credits must be allocated to qualified companies in the order that completed applications for designation as qualified capital companies are received by the department, and the department shall certify to each company its appropriate allocation.

(b) All tax credits allowed under subsection (3) that are not allocated as of January 1, 1991, must be allocated to a qualified Montana small business investment capital company, and the department shall certify the allocation to the company.

(c) If the legislature provides additional tax credits under this chapter after June 30, 1991, or if tax credits become available by reversion to the department by a capital company or by a qualified Montana small business investment capital company, those additional or reverted tax credits must be allocated by the department to qualified capital companies or to a qualified Montana small business investment capital company in accordance with this chapter and the rules of the department.

(5) Investors in a qualified Montana capital company or in a qualified Montana small business investment capital company are entitled to the tax credits provided for in subsection (6). Funds invested in a certified company prior to designation as a qualified Montana capital company or as a qualified Montana small business investment capital company may, at the discretion of the investor, be placed in an escrow account in a Montana financial institution pending designation of the company as a qualified Montana capital company or as a qualified Montana small business investment capital company.

(6) Subject to the provisions of subsections (3) and (9), an individual, small business corporation, partnership, trust, decedent's estate, or corporate taxpayer that makes a capital investment in a qualified Montana capital company or a qualified Montana small business investment capital company is entitled to a tax credit equal to 50% of the investment, up to a maximum credit for investments in all qualified Montana capital companies of $150,000 per taxpayer, except that, as applied to a qualified small business investment capital company, the maximum tax credit is $250,000 per taxpayer and the tax credit limitation relating to a capital investment in a qualified Montana small business investment capital company must be in addition to any other tax credit limitation in this section. The credit may be taken against the tax liability imposed on the investor pursuant to Title 15, chapter 30, 31, or 35. The credit for investments by a small business corporation defined in 15-31-201 or a partnership may be claimed by the small business corporation shareholders or the partners.

(7) The tax credit allowed under subsection (6) is to be credited against the taxpayer's income tax liability or coal severance tax liability for the taxable year in which the investment in a qualified Montana capital company or a qualified Montana small business investment capital company is made. If the amount of the tax credit exceeds the taxpayer's tax liability for the taxable year, the amount of the credit which exceeds the tax liability may be carried back or carried forward in the following manner:

(a) If the sum of the amount of credit for the current taxable year plus the amount of credit, if any, carried forward from a previous taxable year exceeds the taxpayer's tax liability for the current taxable year, the excess must be carried back as a credit to the 3 preceding taxable years and, if the full credit remains unused, carried forward as a credit to the 15 succeeding taxable years.

(b) The amount of unused credit must be used to offset the entire tax liability of each of the 18 taxable years, beginning with the earliest and commencing to the next succeeding year until the credit is exhausted.

(8) The tax credit provided for in this section is available only to those taxpayers who invest in a qualified Montana capital company within 4 years of July 1, 1987, or in a qualified Montana small business investment capital company within 4 years of July 1, 1991.

(9) (a) An individual, small business corporation, partnership, or corporate taxpayer who obtains the tax credit allowed under subsection (6) may not obtain credits in excess of the limits contained in subsection (6) by making investments as more than one entity.

(b) A partner or shareholder in a small business corporation may not obtain more than $150,000, or not more than $250,000 in the case of a qualified Montana small business investment capital company, in credits as an individual and as the partnership or small business corporation. A corporate taxpayer that obtains the maximum credits allowed under this subsection (9)(b) may not obtain additional credits through investments by wholly owned subsidiaries or affiliates. An individual, small business corporation, partnership, or corporate taxpayer who obtains the tax credit allowed under subsection (6) may not claim deduction under the provisions of Title 15, chapter 30 or 31, for donation of stock in a qualified Montana small business investment capital company."

Section 6. Section 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 a qualified Montana small business investment capital company is not used by the company for qualified investments as provided in 90-8-301, the taxpayer is not subject to a recapture provision for any tax credit claimed by 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 investors; 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 7. Section 90-8-204, MCA, is amended to read:

"90-8-204. Application requirements. A company applying to become either a certified or qualified Montana capital company or a certified or qualified Montana small business investment capital company shall include in its application evidence that it has disclosed or will disclose to all investors the following:

(1) the condition that a tax credit is not available for investment in a company until the company has been designated a qualified Montana capital company or a qualified Montana small business investment capital company and the investor has received a certificate approving the credit from the department;

(2) the condition that a tax credit will not be made available until a qualified capital company raises at least $200,000 in capital and has been designated a qualified capital company or a qualified Montana small business investment capital company raises at least $500,000 in capital before July 1, 1995, and has been designated a qualified Montana small business investment capital company and the limits on tax credits that may be authorized; and

(3) the fact that the state of Montana is not liable for damages in accordance with 90-8-205."

Section 8. Section 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 taken within 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) A 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 a 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 a 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 a 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) Except as provided in subsection (4)(b), a qualified Montana capital company that fails to make qualified investments pursuant to subsection (1) or a 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 investing in that company during that time period, with interest at 1% a month from the date the tax credits were certified as allocated to a qualified Montana capital company or to a qualified Montana small business investment capital company. The department of revenue may abate the penalty if a capital company or a 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 a 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 9. Section 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 a 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 10. Section 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 exceeds 49% at the time of the investment decision.

(2) A member of the investment committee of a Montana capital company or of a 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 11. Section 90-8-304, MCA, is amended to read:

"90-8-304. Application of securities law. In lieu of registration under Title 30, chapter 10, a certified Montana capital company or a certified Montana small business investment capital company may file all disclosure documents, along with a consent to service of process, with the state securities commissioner. The commissioner may not charge a fee for the filing."

Section 12. Section 90-8-305, MCA, is amended to read:

"90-8-305. Sale of debentures. (1) A qualified Montana capital company or a qualified Montana small business investment capital company is authorized to issue and sell debentures to the permanent coal tax trust fund.

(2) Proceeds received by a qualified Montana capital company or by a qualified Montana small business investment capital company from the sale of debentures authorized in subsection (1) must be invested in accordance with the provisions of 90-8-301, except that the time periods for making qualified investments must be calculated from the date the company sells the debentures to the permanent coal tax trust fund."

Section 13. Section 90-8-311, MCA, is amended to read:

"90-8-311. Legislative review and oversight. The department shall report on an annual basis to the revenue oversight committee of the legislature concerning Montana capital companies and Montana small business investment capital companies."

Section 14. Section 90-8-312, MCA, is amended to read:

"90-8-312. Investment reporting and recordkeeping. (1) Each qualified Montana capital company and each qualified Montana small business investment capital company shall report to the department on a quarterly basis:

(a) the name of each investor in the qualified Montana capital company or in the qualified Montana small business investment capital company who has applied for a tax credit;

(b) the amount of each investor's investment;

(c) the amount of the tax credit allowed to the investor and the date on which the investment was made; and

(d) any other information determined by the department.

(2) The department shall provide the information contained in subsection (1) to the department of revenue on a quarterly basis.

(3) The department shall provide each investor in a qualified Montana capital company and each investor in a qualified Montana small business investment capital company with a certificate authorizing the tax credit, and the certificate must be submitted with each tax return requesting a credit under 90-8-202.

(4) Each qualified Montana capital company and each qualified Montana small business investment capital company shall report to the department on a quarterly basis all qualified investments that the company has made. The department shall share the information with the department of revenue, in order that the provisions of 90-8-301 may be complied with.

(5) Each qualified Montana capital company shall report to the department all proposed investments to be made from its capital base. The capital company may not make the proposed investment unless the department determines, within 10 days of submission of a report satisfactory to the department, that the proposed investment is qualified under this chapter."

Section 15. Section 90-8-313, MCA, is amended to read:

"90-8-313. Examination. (1) At least once a year the department shall examine the books and affairs of each Montana capital company and of each qualified Montana small business investment capital company. The examination must address the methods of operation and conduct of the business of the Montana capital company or of the Montana small business investment capital company to determine if the company is abiding by the purposes of this chapter and that the funds received by the company have been invested within the time limits required for a qualified Montana capital company or for a qualified Montana small business investment capital company in 90-8-301.

(2) The department may examine under oath any of the officers, directors, agents, employees, or investors of a Montana capital company regarding the affairs and business of the company. The department may issue subpoenas and administer oaths. Refusal to obey such a subpoena may at once be reported to the district court of the district in which the company is located, and the court shall enforce obedience to the subpoena in the manner provided by law.

(3) The cost of the annual review must be paid by each Montana capital company or by each Montana small business investment capital company in accordance with reasonable fees assessed by the department."

Section 16. Section 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 a 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 a 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 a 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 a 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."

Section 17. Saving clause. [This act] does not affect rights and duties that matured, penalties that were incurred, or proceedings that were begun before [the effective date of this act].

Section 18. Effective date. [This act] is effective on passage and approval.

Section 19. Applicability. [This act] applies to any capital company or small business investment capital company operating prior to or on or organized after [the effective date of this act].

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I hereby certify that the within bill,

SB 0169, originated in the Senate.

Secretary of the Senate

President of the Senate

Signed this	day

of	, .

Speaker of the House

Signed this	day

of	, .

SENATE BILL NO. 169

INTRODUCED BY M. TAYLOR, C. TUSS, L. GROSFIELD, E. SWANSON, B. SIMON,

M. WATERMAN, D. MOOD, K. OHS

AN ACT REVISING THE LAWS GOVERNING SMALL BUSINESS INVESTMENT COMPANIES TO ENSURE THEIR COMPLIANCE WITH FEDERAL LAW AND REGULATIONS; AUTHORIZING ADDITIONAL MONTANA SMALL BUSINESS INVESTMENT CAPITAL COMPANIES; AMENDING SECTIONS 32-1-422, 90-8-104, 90-8-106, 90-8-201, 90-8-202, 90-8-203, 90-8-301, 90-8-302, 90-8-303, 90-8-304, 90-8-305, 90-8-311, 90-8-312, 90-8-313, AND 90-8-321, MCA; AND PROVIDING AN IMMEDIATE EFFECTIVE DATE AND AN APPLICABILITY DATE.