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1335Type of Legislation: General Bill GBIntroducing Body: SenateIntroduced Date: 20020605Primary Sponsor: RitchieAll Sponsors: RitchieDrafted Document Number: l:\council\bills\dka\3041mm02.docResiding Body: SenateCurrent Committee: Finance Committee 06 SFSubject: Venture Capital Investment Act of SCHistory Body Date Action Description Com Leg Involved ______ ________ ______________________________________ _______ ____________ Senate 20020605 Introduced, read first time, 06 SF referred to Committee Versions of This Bill
TO AMEND TITLE 11, CODE OF LAWS OF SOUTH CAROLINA, 1976, RELATING TO PUBLIC FINANCE, BY ADDING CHAPTER 45 SO AS TO ENACT THE "VENTURE CAPITAL INVESTMENT ACT OF SOUTH CAROLINA" TO PROVIDE FOR A CAPITAL GUARANTY TO A QUALIFIED INVESTOR FOR THE INVESTMENT OF CAPITAL IN EQUITY OR NEAR-EQUITY CAPITAL IN DEBT OR LOAN SECURITIES, TO CREATE THE SOUTH CAROLINA VENTURE CAPITAL FUND THROUGH THE SOUTH CAROLINA JOBS-ECONOMIC DEVELOPMENT AUTHORITY (AUTHORITY), TO PROVIDE FOR FUNDING OF ECONOMIC DEVELOPMENT PROJECTS REQUIRING CAPITAL INVESTMENT, TO PROVIDE THAT THE FUND BE MANAGED BY A PRIVATE, PROFESSIONAL INVESTMENT PANEL, TO DESIGNATE THE DISPOSITION AND USE OF THE FUNDS, TO PROVIDE FOR ELIGIBILITY REVIEWS OF AND AWARD PROCESSES TO APPLICANTS FOR FUNDING, TO PROVIDE FOR THE CAPITAL GUARANTY THROUGH THE AUTHORITY OF OBLIGATIONS ISSUED BY A QUALIFIED INVESTOR, AND TO PROVIDE FOR THE GOVERNANCE AND ACCOUNTABILITY OF THE SOUTH CAROLINA VENTURE CAPITAL FUND.
Be it enacted by the General Assembly of the State of South Carolina:
SECTION 1. Title 11 of the 1976 Code is amended by adding:
Section 11-45-10. This chapter may be cited as the 'Venture Capital Investment Act of South Carolina'.
Section 11-45-20. The General Assembly desires to increase the availability of equity capital for emerging, expanding, relocating, and restructuring enterprises in the State, so as to help strengthen the state's economic base.
Section 11-45-30. For purposes of the chapter:
(1) 'Authority' means the South Carolina Jobs-Economic Development Authority as created in Section 41-43-30.
(2) 'Bond guaranty' means a special obligation of the State of South Carolina.
(3) 'Capital guaranty' means the guaranty provided by the fund.
(4) 'Certificate' means a document executed by the fund extending a capital guaranty to the designated investor.
(5) 'Equity capital' means capital invested in common or preferred stock, royalty rights, limited partnership interests, limited liability company interests, and any other securities or rights that evidence ownership in private business.
(6) 'Fund' means the South Carolina Venture Capital Fund.
(7) 'Investment panel' means a group of private, professional individuals who manage the funds deposited into the fund.
(8) 'Investor' means any individual, corporation, partnership, limited liability company, or other lawfully organized entity.
(9) 'Near-equity capital' means capital invested in unsecured, undersecured, subordinated, or convertible loans or debt securities.
(10) 'Person' means any individual, corporation, partnership, or other lawfully organized entity.
(11) 'Qualified investor' means an investor selected by the fund under this chapter.
(12) 'Research and development' means laboratory, scientific, or experimental testing and development related to new products, new uses for existing products, or improvements to existing products. The term does not include efficiency surveys, management studies, consumer surveys, economic surveys, advertising, or promotion, or research in connection with literary, historical, or similar projects.
(13) 'Tax credit' means an income tax credit granted to the fund under this chapter.
(14) 'Venture capital' means equity financing including, without limitation, early stage research, development, commercialization, seed capital for startup enterprises, and other risk capital for expansion of entrepreneurial enterprises that are technology-based, technology incubator, or biotechnology enterprises engaged in research and development and doing business in this State.
Section 11-45-40. (A) There is created, within the authority, a separate and distinct fund to be an independent instrumentality exercising essential public functions, and to be known as the 'fund' as defined in Section 11-45-30(6).
(B)(1) The fund must be governed by a board composed of five directors appointed by the Governor with the advice and consent of the Senate. Directors must be selected based upon outstanding knowledge and leadership and shall possess experience in the management of investments similar in nature and in value to those of the fund. Directors serve for a term of office of five years, except that the initial directors' positions must be filled by the Governor with the advice and consent of the Senate for terms of two, three, four, five, and six years so as to allow one member to rotate off of the board each year.
(2) Annually, the directors shall select a chairman to preside at their meetings. The directors have the authority to govern the fund in accordance with the requirements of this chapter and its trust indenture.
(3) A conflict of interest is considered to exist in a contractual relationship in which a director of the fund, officer, agent or employee, or for any for-profit firm or corporation in which a director, officer, agent or employee, or any member of his immediate family is an officer, partner, or principal stockholder, directly or indirectly, buys or sells goods or services to, or otherwise contracts with the fund. Upon a showing of that relationship, the director, officer, agent, or employee is subject to removal and the contract is unenforceable against the board unless the records of the board reflect that the director, officer, agent, or employee fully and publicly disclosed an interest, and unless the contractual relationship was secured by competitive bidding following a public invitation to bid. If a director, officer, agent, or employee holds such an interest, he shall refrain from further official involvement in regard to the contract or agreement, from voting on any matter pertaining to the contract or agreement, and from communicating with other board members, officers, agents, or employees concerning the contract or agreement.
(C) The monies deposited in the accounts of the fund must be managed by an investment panel composed of private citizens of the State who are professionals in the area of financial management and selected by a process as determined by the board of directors.
Section 11-45-50. (A) Revenues received by the fund, except revenues derived from appropriations, specifically are declared to be cash funds restricted in their use and dedicated and to be used only as provided by this chapter.
(B) The fund is authorized to use the proceeds of bond issues together with other available monies for the making of loans, purchasing mortgages, security interests in loan participations as authorized, and paying all incidental expenses in connection with them, paying expenses of authorizing and issuing the bonds, paying interest on the bonds until revenues are available in sufficient amounts, and funding services as necessary.
(C) Private monies received by the fund specifically are declared to be cash funds, restricted in their use, and to be used only as provided in this chapter.
(D) No monies of the fund, other than monies received by appropriation, may be deposited with the State Treasurer.
(E) No part of the deposits of the fund may inure to the benefit of or be distributed to its employees, officers, or board of directors, except that the fund is authorized to pay its employees reasonable compensation.
(F) The pledged revenues when received must be deposited in the fund in an account or accounts specified by resolution of the fund and used by the fund only for the purpose of carrying out the provisions of this chapter and in conformity with the provisions of any agreement entered into by the fund pursuant to the provisions of this chapter.
Section 11-45-60. The fund shall solicit from investors investment plans for the raising and investing of capital in accordance with the requirements of this chapter. The fund shall consider and select the investment plans and shall select and certify as a qualified investor an investor qualified to:
(1) make the most effective and efficient utilization of the capital guaranty; and
(2) invest the capital in private seed and venture capital entities in a manner mobilizing a wide variety of equity and near-equity capital investments in ventures promoting the economic development of this State.
Section 11-45-70. The fund has the power to extend a capital guaranty of obligations issued by a qualified investor. The capital guaranty must be secured by this State through the authority as provided in Chapter 43 of Title 41.
Section 11-45-80. (A) This State shall issue income tax credits that may be used to reduce the tax liability of a qualified investor who makes a qualified investment and holds the investment for not less than five years.
(B)(1) Income tax credits transferred by the fund may be used only to offset payment of reported state income tax liability and are not refundable.
(2) Unused credit may be carried forward for five additional taxable years after the taxable year in which the credit was first used.
(C) Tax credits against liabilities are limited to the amount that is collected and allocated to the State Treasurer.
(D) The total amount of credits issued and transferable to the fund is two million five hundred thousand dollars.
Section 11-45-90. A qualified investor shall publish an annual report within six months after the close of its fiscal year, which must:
(1) include its annual audit of the activities conducted by the investor;
(2) be presented in writing, and by testimony if requested, to the Governor, the House Ways and Means Committee, the Senate Finance Committee, and the fund;
(3) document and review the progress of the investor in implementing its investment plan; and
(4) list any use, redemption, or transfer of tax credit allowed under this chapter.
Section 11-45-100. The fund has the power to promulgate regulations and make a contract, execute a document, perform an act, or enter into a financial or other transaction necessary to implement this chapter."
SECTION 2. This act takes effect upon approval by the Governor.
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