3 Small-Business Plans Focus on Investment
Concerned that the state’s small businesses--those poised to drive California’s economy well into the 21st century, such as biotechnology and high-tech firms--might be dying on the vine for lack of early investment has led a group of lawmakers to explore how the state might help up-and-coming start-ups.
At a hearing in San Diego last month convened by Assemblywoman Susan Davis (D-San Diego), small-business advocates and state officials put forth three key proposals for the coming legislative year.
First was a call for larger investments by major public pension funds, particularly the California Public Employees’ Retirement System. Advocates are calling on CalPERS to increase its rate of investment in start-ups from its current 1% annual rate--about $1.25 billion--and earmark an additional $200 million to $500 million for investment in established California businesses. Small-business advocates also urged more state-funded incentives such as research and development tax credits that could encourage early investment by large investors, such as insurance companies.
This proposal stems from reforms that would make it easier for young companies to raise money through public stock offerings. The reforms are expected to be considered when the Legislature reconvenes in January.
State-funded agencies and nonprofit advocates such as the California Capital Access Forum have thrown their support behind Senate Bill 1205, which would repeal the state’s 1913 “merit review” law that gives the Department of Corporations a gatekeeper role in deciding which companies may make public stock offerings.
According to Lee Petillon, a Torrance securities lawyer who co-founded Capital Access Forum, the role played by the state means that a company with $25 million in sales and more than $1 million in profit might be authorized to go public. But companies nearing profitability, with sales closer to $1 million to $3 million annually, would typically be vetoed as too risky for potential investors.
Officials at the Department of Corporations drafted SB 1205 recognizing that a regulatory role appropriate 80 years ago now acts like a stoplight to investors poised on a highway onramp.
SB 1205, coauthored by Sens. Bruce McPherson (R-Santa Cruz) and John Vasconcellos (D-Santa Clara) would make state securities law conform to federal securities law, which only requires full disclosure of risk before a public stock offering and does not require final government approval before proceeding with the IPO.
To address fears about a less-regulated securities industry, the bill includes a landmark provision placing a legal obligation on the company offering stock to the public to ensure its “suitability” for investors or broker-dealers. It also frees up the Department of Corporations to go after securities fraud more vigorously by reassigning attorneys now occupied with merit review to fraud investigation.
HOT BILLS
* Minimum Franchise Tax
Bottom Line: Republicans will push hard next year for a measure to waive the $600-to-$800 minimum franchise tax for start-up businesses.
Chances: The measure was introduced this year and stalled after clearing the Assembly. If the economy remains strong, the bill’s chances for passage will increase, observers say. It already enjoys some support from Democrats.
Next Step: Hearing before the Senate Revenue and Taxation Committee when the Legislature reconvenes next year.
Details: AB 8 author Lynne Leach (R-Walnut Creek) can be reached at (916) 445-6161.
