AN ACT Relating to the creation of venture capital corporations; and adding a new chapter to Title 23A RCW.

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

NEW SECTION. Sec. 1. As used in this chapter, unless the context otherwise requires, the term:

(1) "Qualified entity" means a business that:

(a) Is a small business concern as defined under Public Law No. 85-535, Sec. 3, 72 Stat. 384; 15 U.S.C. 632, as amended; and

(b) Is doing business within the state of Washington.

(2) "Taxpayer" includes any individual, corporation, or fiduciary subject to chapter 82.04 RCW.

(3) "Venture capital corporation" means a corporation which is organized for the specific purposes and under the specific conditions provided for in this chapter.

NEW SECTION. Sec. 2. At the request of a venture capital corporation, the secretary of state shall certify whether a business meets the requirements of a qualified entity as defined in section 1 of this act. The secretary of state shall establish the necessary forms and procedures for certifying qualified entities.

NEW SECTION. Sec. 3. (1) The department of commerce and economic development shall notify the attorney general of any investment made by a venture capital corporation in a business not certified and the attorney general shall assess a civil penalty for each investment made by a venture capital corporation in a business not certified as a qualified entity under section 2 of this act, and may collect such civil penalty by a civil proceeding in any appropriate court. The civil penalty is twenty-five percent of the amount invested by the venture capital corporation in the business not certified as a qualified entity.

(2) The department of commerce and economic development may adopt rules, in accordance with chapter 34.04 RCW, consistent with and necessary for the enforcement of this chapter.

(3) The department of commerce and economic development must: (a) Supervise the enforcement of this chapter; (b) provide for periodic investigations deemed necessary to disclose any acts prohibited by this section and section 4 of this act or the rules of the department; (c) receive and provide for the investigation of complaints; and (d) provide for the institution and prosecution of civil actions upon its own initiative. This section and section 4 of this act and the rules of the department may be enforced by injunction in any court having jurisdiction to grant injunctive relief.

NEW SECTION. Sec. 4. (1) To carry out the purposes of this chapter, venture capital corporations may be formed under this chapter. The articles of incorporation of a venture capital corporation must comply with all provisions of this chapter and rules adopted hereunder.

(2) The purpose of a venture capital corporation must be solely to raise funds to be used to make investments in and provide financing to qualified entities in a manner that will encourage capital investment in the state of Washington. The corporation shall encourage the establishment or expansion of business and industry which provide additional jobs within the state, and encourage research and development activities in the state.

(3) Each director of a venture capital corporation must be a Washington state resident, and must have a minimum investment in the venture capital corporation of one thousand dollars.

(4) A venture capital corporation will provide financing to qualified entities to be used solely for the purpose of enhancing the production capacity of the qualified entity or the ability of the qualified entity to do business in this state. The venture capital corporation may establish and regulate terms and conditions, consistent with this chapter, with respect to the financing. The financing may include any combination of equity investments, loans, guarantees, and commitments for financing, but no more than twenty-five percent of the stated capital of a venture capital corporation may be invested in any one qualified entity.

(5) No business may be transacted or indebtedness incurred by the venture capital corporation, except such as is incidental to the venture capital corporation's organization or to obtaining subscriptions to or payment for its shares, until the venture capital corporation receives consideration for such shares equal to at least five hundred thousand dollars, which amount will be the initial stated capital of the venture capital corporation.

(6) All consideration received from the sale of shares must be placed in an interest-bearing escrow account, except that up to ten percent of the proceeds may be withheld for use in activities incidental to the venture capital corporation's organization or to obtaining subscriptions to or payment for its shares.

(7) If at any time within one year of the issuance of the certificate of incorporation of the venture capital corporation its stated capital equals at least five hundred thousand dollars, or such greater amount established by the articles of incorporation or bylaws of the venture capital corporation, the funds held in escrow pursuant to subsection (6) of this section must be released to the venture capital corporation for use and disposition according to its articles of incorporation and bylaws.

(8) If within one year of the issuance of the certificate of incorporation of the venture capital corporation its stated capital has not at any time equaled at least five hundred thousand dollars, or such greater amount established by the articles of incorporation or bylaws of the venture capital corporation, its certificate of incorporation will be terminated, the venture capital corporation must be dissolved, and all funds held in escrow pursuant to subsection (6) of this section, and all other remaining funds, must be returned to the investors in proportion to their investments.

(9) Prior to any investment in a venture capital corporation, the venture capital corporation must make written disclosure of the provisions contained in subsections (5) through (8) of this section to the potential investor.

NEW SECTION. Sec. 5. (1) Subject to sections 6, 7, and 8 of this act, a taxpayer is entitled to a credit against the business and occupation tax liability which may be imposed on the taxpayer for a particular taxable year that begins after December 31, 1986, if the taxpayer makes an investment in a venture capital corporation.

(2) The director of the department of revenue shall administer sections 5 through 10 of this act. The director may adopt rules, in accordance with chapter 34.04 RCW, consistent with and necessary for the administration of sections 5 through 10 of this act.

NEW SECTION. Sec. 6. Subject to sections 7 and 8 of this act, the maximum amount of tax credit a taxpayer may receive is equal to twenty-five percent of the taxpayer's investment in any venture capital corporations, up to a total tax credit of two hundred fifty thousand dollars under this chapter.

NEW SECTION. Sec. 7. (1) The tax credit must be credited against the taxpayer's tax liability for that taxable year in which full consideration for the investment in the venture capital corporation is received by the venture capital corporation. If the amount of the tax credit exceeds the taxpayer's tax liability for that taxable year, the amount of the credit which exceeds the tax liability may be carried back or carried forward, to the extent not already used as a credit pursuant to this section, as a credit against the taxpayer's state business and occupation tax liability for the three taxable years preceding and the seven taxable years following the taxable year in which full consideration for the investment is received.

(2) A taxpayer is eligible for a tax credit under this chapter on the date the venture capital corporation receives full consideration for the investment purchased by the taxpayer in the venture capital corporation. In the event the venture capital corporation must return the taxpayer's investment pursuant to section 4(8) of this act, any tax credit taken by a taxpayer for the investment under this chapter must be paid to the department of revenue; however, the taxpayer is entitled to retain a percentage of the tax credit equal to the percentage of the taxpayer's investment not returned by the venture capital corporation, up to a maximum percentage of ten percent.

NEW SECTION. Sec. 8. The total amount of investments for which tax credits are allowed for all taxpayers under this chapter for the period beginning on the effective date of this act and ending December 31, 1986, is four million dollars, and for each two-year period thereafter is four million dollars plus up to one million dollars of any investments available for tax credits from the previous two-year period. If investments in venture capital corporations reported to the department of revenue pursuant to section 10 of this act exceed the limits on investments for tax credit imposed by this section, the credit must be allowed to taxpayers in the chronological order of their investments in the venture capital corporations as determined from the forms provided for in section 10 of this act.

NEW SECTION. Sec. 9. To receive the tax credit provided by this chapter, a taxpayer must claim the tax credit on the taxpayer's state business and occupation tax return in the manner prescribed by the department of revenue and file with the taxpayer's tax return a copy of the form issued by the venture capital corporation as to the taxpayer's investment in the venture capital corporation pursuant to section 10 of this act.

NEW SECTION. Sec. 10. Within thirty days of the date on which an investment in a venture capital corporation is purchased, the venture capital corporation shall file with the department of commerce and economic development and the department of revenue and provide to the investor completed forms prescribed by the department of revenue which show as to each investment in the venture capital corporation the following:

(1) The name, address, and identification number of the taxpayer who purchased the investment;

(2) The dollar amount paid for the investment by the taxpayer; and

(3) The date on which full consideration was received by the venture capital corporation for the investment.

NEW SECTION. Sec. 11. Sections 1 through 10 of this act shall constitute a new chapter in Title 23A RCW.