AN ACT Relating to industrial development corporations; amending RCW 31.24.010, 31.24.020, 31.24.030, 31.24.040, 31.24.050, 31.24.070, 31.24.080, 31.24.090, 31.24.100, 31.24.120, 31.24.130, 31.24.140, and 31.24.150; adding a new section to chapter 19.52 RCW; adding new sections to chapter 31.24 RCW; adding a new chapter to Title 36 RCW; creating a new section; repealing RCW 31.24.060; and prescribing penalties.

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

NEW SECTION. Sec. 1. The legislature finds that the unavailability of capital to viable firms that do not meet current commercial bank or venture capital criteria for loans or equity investments can have a devastating impact on the state's economic development efforts. Without reasonable access to financing, talented and aggressive entrepreneurs are cut out of the economic system and the overall economy of the state suffers.

The process of job creation and economic development requires readily available capital for small and young companies that are the major source of innovations and new jobs. To ensure the availability of capital to entrepreneurs in Washington state, the legislature hereby eliminates unnecessary restrictions which have discouraged the formation of industrial development corporations under current law and adds incentives to encourage the formation of such corporations.

Sec. 2. Section 1, chapter 162, Laws of 1963 and RCW 31.24.010 are each amended to read as follows:

((~~As used in this chapter, the following words and phrases, unless differently defined or described, shall have the meanings and references as follows~~)) Unless the context clearly requires otherwise, the definitions in this section apply throughout this chapter:

(1) Corporation means a Washington industrial development corporation created under this chapter.

(2) Financial institution means any banking corporation or trust company, national banking association, savings and loan association, insurance company or related corporation, partnership, foundation, or other institution engaged primarily in lending or investing funds.

(3) ((Member means any financial institution authorized to do business within this state which shall undertake to lend money to a corporation created under this chapter, upon its call, and in accordance with the provisions of this chapter.

~~(4)~~)) Board of directors means the board of directors of the corporation created under this chapter.

((~~(5)~~)) (4) Loan limit means for any ((~~member~~)) financial institution, the maximum amount permitted to be outstanding at one time on loans made by such ((~~member~~)) financial institution to the corporation, as determined under the provisions of this chapter.

(5) Business means an individual, proprietorship, joint venture, partnership, trust, business trust, syndicate, association, joint stock company, cooperative, corporation, or any other organization operating in this state, with fewer than two hundred fifty employees and paying more than fifty percent of its contributions or payments for the purposes of unemployment insurance to this state.

(6) Associate means, if used with respect to a corporation:

(a) A controlling person, director, officer, agent, or advisor of that corporation.

(b) A director, officer, or partner of a person referred to in (a) of this subsection.

(c) A person who controls, is controlled by, or is under common control with a person referred to in (a) of this subsection directly or indirectly through one or more intermediaries.

(d) Any close relative of any person referred to in (a) of this subsection.

(e) A person of which a person referred to in (a) through (d) of this subsection is a director or officer.

(f) A person in which a person referred to in (a) through (d) of this subsection, or any combination of those persons acting in concert, owns or controls, directly or indirectly, a twenty percent or greater equity interest.

For the purposes of this subsection (6)(f), a person who is in a relationship referred to in this subsection within six months before or after a corporation provides financing assistance shall be considered to be in that relationship as of the date that corporation provides that financing assistance.

If a corporation, in order to protect its interests, designates a person to serve as a director of, officer of, or in any capacity in the management of a business to which that corporation provides financing assistance, that person shall not, on that account, be considered to have a relationship with that business. This exception does not apply if the person has, directly or indirectly, any other financial interest in the business or if the person, at any time before the corporation provides the financing assistance, served as a director of, officer of, or in any other capacity in the management of the business for a period of thirty days or more.

(7) Close relative means a parent, child, sibling, spouse, father-in-law, mother-in-law, son-in-law, brother-in-law, daughter-in-law, or sister-in-law.

Sec. 3. Section 2, chapter 162, Laws of 1963 as amended by section 1, chapter 16, Laws of 1974 ex. sess. and RCW 31.24.020 are each amended to read as follows:

((~~Fifteen~~)) Seven or more persons, a majority of whom shall be residents of this state, who may desire to create an industrial development corporation under the provisions of this chapter, for the purpose of promoting, developing and advancing the prosperity and economic welfare of the state and, to that end, to exercise the powers and privileges hereinafter provided, may be incorporated by filing in the office of the secretary of state, as hereinafter provided, articles of incorporation. The articles of incorporation shall contain:

(1) The name of the corporation, which shall include the words "Development Corporation of Washington."

(2) The location of the principal office of the corporation, but such corporation may have offices in such other places within the state as may be fixed by the board of directors.

(3) The purposes for which the corporation is founded, which shall be to ((promote, stimulate, develop and advance the business prosperity and economic welfare of Washington and its citizens; to encourage and assist through loans, investments or other business transactions in the location of new business and industry in this state and to rehabilitate and assist existing business and industry; to stimulate and assist in the expansion of all kinds of business activity which will tend to promote the business development and maintain the economic stability of this state, provide maximum opportunities for employment, encourage thrift, and improve the standard of living of citizens of this state; similarly, to cooperate and act in conjunction with other organizations, public or private, in the promotion and advancement of industrial, commercial, agricultural and recreational developments in this state; and to provide financing for the promotion, development, and conduct of all kinds of business activity in this state)) provide financing and management assistance to businesses operating primarily in Washington state to increase job opportunities for Washington citizens and the prosperity of the state.

(4) The names and post office addresses of the members of the first board of directors, who, unless otherwise provided by the articles of incorporation or the bylaws, shall hold office for the first year of existence of the corporation or until their successors are elected and have qualified.

(5) Any provision which the incorporators may choose to insert for the regulation of the business and for the conduct of the affairs of the corporation and any provision creating, dividing, limiting and regulating the powers of the corporation, the directors, stockholders or any class of the stockholders, including, but not limited to a list of the officers, and provisions governing the issuance of stock certificates to replace lost or destroyed certificates.

(6) The amount of authorized capital stock and the number of shares into which it is divided, the par value of each share and the amount of capital with which it will commence business and, if there is more than one class of stock, a description of the different classes; the names and post office addresses of the subscribers of stock and the number of shares subscribed by each. The aggregate of the subscription shall be the minimum amount of capital with which the corporation shall commence business which shall not be less than ((~~fifty thousand~~)) two million dollars. The articles of incorporation may also contain any provision consistent with the laws of this state for the regulation of the affairs of the corporation.

(7) The articles of incorporation shall be in writing, subscribed by not less than five natural persons competent to contract and acknowledged by each of the subscribers before an officer authorized to take acknowledgments and filed in the office of the secretary of state for approval. A duplicate copy so subscribed and acknowledged may also be filed.

(8) The articles of incorporation shall recite that the corporation is organized under the provisions of this chapter.

((The secretary of state shall not approve articles of incorporation for a corporation organized under this chapter until a total of at least ten national banks, state banks, savings banks, industrial savings banks, federal savings and loan associations, domestic building and loan associations, or insurance companies authorized to do business within this state, or any combination thereof, have agreed in writing to become members of said corporation; and said written agreement shall be filed with the secretary of state with the articles of incorporation and the filing of same shall be a condition precedent to the approval of the articles of incorporation by the secretary of state.)) Whenever the articles of incorporation shall have been filed in the office of the secretary of state and approved by ((~~him~~)) the secretary and all taxes, fees and charges, have been paid, as required by law, the subscribers, their successors and assigns shall constitute a corporation, and said corporation shall then be authorized to commence business, and stock thereof to the extent herein or hereafter duly authorized may from time to time be issued.

Sec. 4. Section 3, chapter 162, Laws of 1963 as last amended by section 42, chapter 466, Laws of 1985 and RCW 31.24.030 are each amended to read as follows:

The business of a corporation shall be to provide financing and management assistance to businesses operating primarily in Washington state. In furtherance of its ((~~purposes~~)) business and in addition to the powers now or hereafter conferred on business corporations by the provisions of Title 23A RCW, ((~~the~~)) each corporation shall, subject to the restrictions and limitations herein contained, have the following powers:

(1) To elect, appoint and employ officers, agents and employees; to make contracts and incur liabilities for any of the purposes of the corporation((: PROVIDED, That the corporation shall not incur any secondary liability by way of guaranty or endorsement of the obligations of any person, firm, corporation, joint stock company, association or trust, or in any other manner)).

(2) To borrow money from ((~~its members~~)) financial institutions and the small business administration and any other similar federal agency, for any of the purposes of the corporation; to issue therefor its bonds, debentures, notes or other evidence of indebtedness, whether secured or unsecured, and to secure the same by mortgage, pledge, deed of trust or other lien on its property, franchises, rights and privileges of every kind and nature or any part thereof or interest therein, without securing stockholder ((~~or member~~)) approval((: PROVIDED, That no loan to the corporation shall be secured in any manner unless all outstanding loans to the corporation shall be secured equally and ratably in proportion to the unpaid balance of such loans and in the same manner)).

(3) To make loans to any person, firm, corporation, joint-stock company, association or trust, and to establish and regulate the terms and conditions with respect to any such loans and the charges for interest and service connected therewith: PROVIDED, That the corporation shall not ((approve any application for a loan unless and until the person applying for said loan shall show that he has applied for the loan through ordinary banking channels and that the loan has been refused by at least one bank or other financial institution)) knowingly charge, take, or receive money or other property as interest on a loan at a rate exceeding twenty-five percent simple interest per annum. A violation of this subsection is a felony punishable by imprisonment for not more than five years or a fine of not more than one hundred thousand dollars, or both. As used in this subsection, "interest" does not include anything of value that is contingent on the performance or value of the borrower including, but not limited to, a percentage of net income of the borrower, royalties, stock in the borrower, warrants to purchase stock in the borrower, and convertibility of debentures.

(4) To purchase, receive, hold, lease, or otherwise acquire, and to sell, convey, transfer, lease or otherwise dispose of real and personal property, together with such rights and privileges as may be incidental and appurtenant thereto and the use thereof, ((~~including, but not restricted to, any~~)) if the real or personal property is for the corporation's use in operating its business, or if the real or personal property is acquired by the corporation from time to time in the satisfaction of debts or enforcement of obligations.

(5) ((To acquire the good will, business, rights, real and personal property, and other assets, or any part thereof, or interest therein, of any persons, firms, corporations, joint-stock companies, associations or trusts, and to assume, undertake, or pay the obligations, debts and liabilities of any such person, firm, corporation, joint-stock company, association or trust; to acquire improved or unimproved real estate for the purpose of constructing industrial plants or other business establishments thereon or for the purpose of disposing of such real estate to others for the construction of industrial plants or other business establishments; and to acquire, construct or reconstruct, alter, repair, maintain, operate, sell, convey, transfer, lease, or otherwise dispose of industrial plants or business establishments.)) To determine the form and the terms and conditions for financing assistance provided by the corporation to a business including, but not limited to forms such as loans; purchase of debt instruments; straight equity investments, such as purchase of common stock or preferred stock; debt with equity features such as warrants to purchase stock, convertible debentures, or receipt of a percent of net income or sales; royalty based financing; guaranteeing of debt; or leasing of property. A corporation may purchase securities of a business either directly or indirectly through an underwriter. A corporation may participate in the program of the small business administration pursuant to section 7(a) of the small business act, (Public Law 85-536, 15 U.S.C. Sec. 636(a)), or any other government program for which the corporation is eligible and which has as its function the provision or facilitation of financing or management assistance to businesses. If a corporation participates in a program referred to in this section, the corporation shall comply with the requirements of that program. Financing assistance provided by a corporation to a business shall be for the business purposes of that business.

(6) ((To acquire, subscribe for, own, hold, sell, assign, transfer, mortgage, pledge or otherwise dispose of the stock, shares, bonds, debentures, notes or other securities and evidences of interest in, or indebtedness of, any person, firm, corporation, joint-stock company, association or trust, and while the owner or holder thereof to exercise all the rights, powers and privileges of ownership, including the right to vote thereon.)) To provide management assistance to a business which may encompass both management or technical advice and management or technical services. Management assistance provided by a corporation to a business shall be for the business purposes of that business.

(7) To mortgage, pledge, or otherwise encumber any property, right or things of value, acquired pursuant to the powers contained in subsection((s)) (4)((,)) or (5)((~~, or (6)~~)) of this section, as security for the payment of any part of the purchase price thereof.

(8) To cooperate with and avail itself of the facilities of the United States department of commerce, the department of trade and economic development, the department of community development, and any other similar state or federal governmental agencies; and to cooperate with and assist, and otherwise encourage organizations in the various communities of the state in the promotion, assistance and development of the business prosperity and economic welfare of such communities or of this state or of any part thereof.

(9) To make donations for charitable educational, research, or similar purposes.

(10) To do all acts and things necessary or convenient to carry out the powers expressly granted in this chapter.

Sec. 5. Section 4, chapter 162, Laws of 1963 and RCW 31.24.040 are each amended to read as follows:

Notwithstanding any rule at common law or any provision of any general or special law or any provision in their respective charters, agreements of association, articles of organization or trust indentures:

(1) Any person including all domestic corporations organized for the purpose of carrying on business within this state and further including without implied limitation public utility companies and insurance companies, and foreign corporations licensed to do business within this state, and all financial institutions as defined herein, and all trustees, are hereby authorized to acquire, purchase, hold, sell, assign, transfer, mortgage, pledge or otherwise dispose of any bonds, securities or other evidences of indebtedness created by, or the shares of the capital stock of, the corporation, and while owners of said stock to exercise all the rights, powers and privileges of ownership, including the right to vote thereon, all without the approval of any regulatory authority of the state except as otherwise provided in this chapter: PROVIDED, That a financial institution which does not ((~~become a member of~~)) agree to make loans to the corporation shall not be permitted to acquire any shares of the capital stock of the corporation;

(2) All financial institutions are hereby authorized to ((~~become members of the corporation and to~~)) make loans to the corporation as provided herein; and

(3) Each financial institution which ((~~becomes a member of~~)) agrees to make loans to the corporation under such terms as the corporation may require, is hereby authorized to acquire, purchase, hold, sell, assign, transfer, mortgage, pledge or otherwise dispose of, any bonds, securities or other evidences of indebtedness created by, or the shares of the capital stock of, the corporation, and while owners of said stock, to exercise all the rights, powers and privileges of ownership, including the right to vote thereon, all without the approval of any regulatory authority of the state((: PROVIDED, That the amount of the capital stock of the corporation which may be acquired by any member pursuant to the authority granted herein shall not exceed ten percent of the loan limit of such member)).

The amount of capital stock of the corporation which any ((~~member~~)) financial institution is authorized to acquire pursuant to the authority granted herein is in addition to the amount of capital stock in corporations which such ((~~member~~)) financial institution may otherwise be authorized to acquire.

Sec. 6. Section 5, chapter 162, Laws of 1963 as last amended by section 2, chapter 16, Laws of 1974 ex. sess. and RCW 31.24.050 are each amended to read as follows:

((Any financial institution may request membership in the corporation by making application to the board of directors on such form and in such manner as said board of directors may require, and membership shall become effective upon acceptance of such application by said board.))

Each ((~~member of the corporation shall~~)) financial institution which has agreed to make loans to the corporation as and when called upon by it to do so on such terms and other conditions as shall be approved from time to time by the board of directors, shall do so subject to the following conditions:

(1) All loan limits shall be established at the thousand dollar amount nearest to the amount computed in accordance with the provisions of this section.

(2) No loan to the corporation shall be made if immediately thereafter the total amount of the obligations of the corporation would exceed ((~~fifteen~~)) five times the amount then paid in on the outstanding capital stock of the corporation.

(3) The total amount outstanding on loans to the corporation made by any ((~~member~~)) financial institution at any time, when added to the amount of the investment in the capital stock of the corporation then held by such member, shall not exceed((:

~~(a) Thirty percent of the total amount then outstanding on loans to the corporation by all members, including in said total amount outstanding, amounts validly called for loan but not yet loaned.~~

~~(b)~~)) the following limit, to be determined ((~~as of the time such member becomes a member~~)) on the basis of the audited balance sheet of ((~~such member~~)) the financial institution at the close of its fiscal year immediately preceding its ((~~application for membership~~)) purchase of stock in the corporation, or thereafter on the basis of the preceding fiscal year, or in the case of an insurance company, its last annual statement to the state insurance commissioner; or thereafter on the basis of its last annual statement to the insurance commissioner((,)): Two and one-half percent of the capital and surplus of commercial banks and trust companies; one-half of one percent of the total outstanding loans made by savings and loan associations, and building and loan associations; two and one-half percent of the capital and unassigned surplus of stock insurance companies, except fire insurance companies; two and one-half percent of the unassigned surplus of mutual insurance companies, except fire insurance companies; one-tenth of one percent of the assets of fire insurance companies; and such limits as may be approved by the board of directors of the corporation for other financial institutions.

(4) ((Subject to subsection (3)(a) of this section, each call made by the corporation shall be prorated among the members of the corporation in substantially the same proportion that the adjusted loan limit of each member bears to the aggregate of the adjusted loan limits of all members. The adjusted loan limit of a member shall be the amount of such member's loan limit, reduced by the balance of outstanding loans made by such member to the corporation and the investment in capital stock of the corporation held by such member at the time of such call.

~~(5)~~)) All loans to the corporation by ((~~members~~)) financial institutions shall be evidenced by bonds, debentures, notes, or other evidences of indebtedness of the corporation, which shall be freely transferable at all times, and which shall bear interest at a rate of not less than one-quarter of one percent in excess of the rate of interest determined by the board of directors to be the prime rate prevailing at the date of issuance thereof on unsecured commercial loans: PROVIDED, That no loans may be made to the corporation bearing interest at a rate exceeding twenty-five percent simple interest per annum. A violation of this provision of this subsection constitutes a felony punishable by imprisonment for not more than five years or a fine of not more than one hundred thousand dollars, or both. As used in this subsection, "interest" does not include anything of value that is contingent on the performance or value of the borrower including, but not limited to, a percentage of net income of the borrower, royalties, stock in the borrower, warrants to purchase stock in the borrower, and convertibility of debentures.

Sec. 7. Section 7, chapter 162, Laws of 1963 and RCW 31.24.070 are each amended to read as follows:

The stockholders ((~~and the members~~)) of the corporation shall have the following powers of the corporation:

(1) To determine the number of and elect directors as provided in RCW 31.24.090;

(2) To make, amend and repeal bylaws;

(3) To amend this charter as provided in RCW 31.24.080;

(4) To dissolve the corporation as provided in RCW 31.24.150;

(5) To do all things necessary or desirable to secure aid, assistance, loans and other financing from any financial institutions, and from any agency established under the small business investment act of 1958, public law 85-699, 85th congress, or other similar federal laws now or hereafter enacted.

(6) To exercise such other of the powers of the corporation consistent with this chapter as may be conferred on the stockholders ((~~and the members~~)) by the bylaws.

As to all matters requiring action by the stockholders ((~~and the members~~)) of the corporation, said stockholders ((~~and said members~~)) shall vote separately thereon by classes, and, except as otherwise herein provided, such matters shall require the affirmative vote of a majority of the votes to which the stockholders present or represented at the meeting shall be entitled ((~~and the affirmative vote of a majority of the votes to which the members present or represented at the meeting shall be entitled~~)).

((~~Each~~)) Stockholders shall have one vote, in person or by proxy, for each share of capital stock held ((by him, and each member shall have one vote, in person or by proxy, except that any member having a loan limit of more than one thousand dollars shall have one additional vote, in person or by proxy, for each additional one thousand dollars which such member is authorized to have outstanding on loans to the corporation at any one time as determined under subsection (3)(b) of RCW 31.24.050)).

Sec. 8. Section 8, chapter 162, Laws of 1963 and RCW 31.24.080 are each amended to read as follows:

The articles of incorporation may be amended by the votes of the stockholders ((~~and the members of the corporation~~)), voting separately by classes, and such amendments shall require approval by the affirmative vote of two-thirds of the votes to which the stockholders ((~~shall be entitled and two-thirds of the votes to which the members~~)) shall be entitled: PROVIDED, That no amendment of the articles of incorporation which is inconsistent with the general purposes expressed herein or which authorizes any additional class of capital stock to be issued, or which eliminates or curtails the right of the state supervisor of banking to examine the corporation or the obligation of the corporation to make reports as provided in RCW 31.24.120, shall be made((: PROVIDED, FURTHER, That no amendment of the articles of incorporation which increases the obligation of a member to make loans to the corporation, or makes any charge in the principal amount, interest rate, maturity date, or in the security or credit position of an outstanding loan of a member to the corporation, or affects a member's right to withdraw from membership as provided herein, or affects a member's voting rights as provided herein, shall be made without the consent of each membership affected by such amendment)).

Within thirty days after any meeting at which an amendment of the articles of incorporation has been adopted, articles of amendment signed and sworn to by the president, treasurer, and a majority of the directors, setting forth such amendment and due adoption thereof, shall be submitted to the secretary of state, who shall examine them and if ((he)) the secretary finds that they conform to the requirements of this chapter, shall so certify and endorse his or her approval thereon. Thereupon, the articles of amendment shall be filed in the office of the secretary of state and no such amendment shall take effect until such articles of amendment shall have been filed as aforesaid.

Sec. 9. Section 9, chapter 162, Laws of 1963 as amended by section 3, chapter 16, Laws of 1974 ex. sess. and RCW 31.24.090 are each amended to read as follows:

The business and affairs of the corporation shall be managed and conducted by a board of directors, a president, a vice president, a secretary, a treasurer, and such other officers and such agents as the corporation by its bylaws shall authorize. The board of directors shall consist of such number, not less than ((~~eleven~~)) seven nor more than twenty-one, as shall be determined in the first instance by the incorporators and thereafter annually by ((~~the members and~~)) the stockholders of the corporation. The board of directors may exercise all the powers of the corporation except such as are conferred by law or by the bylaws of the corporation upon the stockholders ((~~or members~~)) and shall choose and appoint all the agents and officers of the corporation and fill all vacancies except vacancies in the office of director which shall be filled as hereinafter provided. The board of directors shall be elected in the first instance by the incorporators and thereafter at the annual meeting, the day and month of which shall be established by the bylaws of the corporations, or, if no annual meeting shall be held in the year of incorporation, then within ninety days after the approval of the articles of incorporation at a special meeting as hereinafter provided. ((At each annual meeting, or at each special meeting held as provided in this section, the members of the corporation shall elect two-thirds of the board of directors and the stockholders shall elect the remaining directors.)) The directors shall hold office until the next annual meeting of the corporation or special meeting held in lieu of the annual meeting after the election and until their successors are elected and qualified unless sooner removed in accordance with the provisions of the bylaws. Any vacancy in the office of a director ((~~elected by the members shall be filled by the directors elected by the members, and any vacancy in the office of a director elected by the stockholders~~)) shall be filled by the directors ((~~elected by the stockholders~~)).

Directors and officers shall not be responsible for losses unless the same shall have been occasioned by the wilful misconduct of such directors and officers.

Sec. 10. Section 10, chapter 162, Laws of 1963 and RCW 31.24.100 are each amended to read as follows:

Each year the corporation shall set apart as earned surplus not less than ten percent of its net earnings for the preceding fiscal year until such surplus shall be equal in value to ((~~one-half~~)) one-quarter of the amount paid in on the capital stock then outstanding. Whenever the amount of surplus established herein shall become impaired, it shall be built up again to the required amount in the manner provided for its original accumulation. Net earnings and surplus shall be determined by the board of directors, after providing for such reserves as said directors deem desirable, and the determination of the directors made in good faith shall be conclusive on all persons.

Sec. 11. Section 12, chapter 162, Laws of 1963 and RCW 31.24.120 are each amended to read as follows:

The corporation shall be examined at least once annually by the state supervisor of banking and shall make reports of its condition not less than annually to said state supervisor of banking and more frequently upon call of the state supervisor of banking, who in turn shall make copies of such reports available to the state insurance commissioner and the governor; and the corporation shall also furnish such other information as may from time to time be required by the state supervisor of banking and secretary of state. The corporation shall pay the actual cost of said examinations up to three thousand dollars per examination. The state supervisor of banking shall exercise the same power and authority over corporations organized under this chapter as is now exercised over banks and trust companies by the provisions of the Title 30 RCW, where the provisions of Title 30 RCW are not in conflict with this chapter.

The state supervisor of banking shall publish annually and provide to the senate commerce and labor committee, the house trade and economic development committee, and the senate and house ways and means committees information on the impact of this chapter in promoting economic development in Washington. At the minimum, the information shall include aggregate statistics on each of the following:

(1) The number and locations of corporations operating under this chapter;

(2) The number of instances and dollar amount of financing and management assistance given by corporations operating under this chapter to:

(a) All individual businesses assisted;

(b) Types of businesses classified using the standard industrial classification manual;

(d) Businesses located in areas of high unemployment;

(3) The number of jobs created or retained by:

(a) All individual businesses assisted;

(b) Types of businesses classified using the standard industrial classification manual;

(d) Businesses located in areas of high unemployment;

(4) The percentage of each business's total contributions or payments for unemployment insurance made to the state of Washington.

Sec. 12. Section 13, chapter 162, Laws of 1963 and RCW 31.24.130 are each amended to read as follows:

The first meeting of the corporation shall be called by a notice signed by three or more of the incorporators, stating the time, place and purpose of the meeting, a copy of which notice shall be mailed, or delivered, to each incorporator at least five days before the day appointed for the meeting. Said first meeting may be held without such notice upon agreement in writing to that effect signed by all the incorporators. There shall be recorded in the minutes of the meeting a copy of said notice or of such unanimous agreement of the incorporators.

At such first meeting, the incorporators shall organize by the choice, by ballot, of a temporary clerk; by the adoption of bylaws, by the election by ballot of directors; and by action upon such other matters within the powers of the corporation as the incorporators may see fit. The temporary clerk shall be sworn and shall make and attest a record of the proceedings. ((~~Ten~~)) Five of the incorporators shall be a quorum for the transaction of business.

Sec. 13. Section 14, chapter 162, Laws of 1963 and RCW 31.24.140 are each amended to read as follows:

Unless otherwise provided in the articles of incorporation, the period of duration of the corporation shall be perpetual, subject, however, to the right of the stockholders ((~~and the members~~)) to dissolve the corporation prior to the expiration of said period as provided in RCW 31.24.150.

Sec. 14. Section 15, chapter 162, Laws of 1963 as amended by section 52, chapter 3, Laws of 1983 and RCW 31.24.150 are each amended to read as follows:

The corporation may upon the affirmative vote of two-thirds of the votes to which the stockholders shall be entitled ((~~and two-thirds of the votes to which the member shall be entitled~~)) dissolve said corporation as provided by Title 23A RCW, insofar as Title 23A RCW is not in conflict with the provisions of this chapter. Upon any dissolution of the corporation, none of the corporation's assets shall be distributed to the stockholders until all sums due the ((~~members~~)) creditors of the corporation ((~~as creditors thereof~~)) have been paid in full.

NEW SECTION. Sec. 15. (1) A corporation shall not provide, directly or indirectly, financing assistance to:

(a) An associate of the corporation;

(b) Discharge, or to free other money for use in discharging, in whole or in part, an obligation to an associate of that corporation. This section does not apply to a transaction effected by an associate of a corporation in the normal course of that associate's business involving a line of credit or short-term financing assistance.

(c) A business to which an associate of that corporation provides financing assistance, either contemporaneously with, or within one year before or after, the providing of financing assistance by the corporation, if the terms on which the corporation provides financing assistance are less favorable to the corporation than the terms on which the associate provides financing assistance to the business. If the financing assistance provided by the associate of the corporation is of a different kind from the financing assistance provided by the corporation, the burden shall be on the corporation to prove that the terms on which the corporation provided financing assistance were at least as favorable to the corporation as the terms on which the associate provided financing assistance to the business.

This subsection (1)(c) does not apply to any of the following:

(i) If the associate is a controlling person of the corporation and is also the only shareholder of the corporation;

(ii) If the associate is a subsidiary of the corporation; or

(iii) A transaction effected by an associate of a corporation in the normal course of that associate's business involving a line of credit or short-term financing assistance.

(2) For the purposes of this section and section 16 of this act:

(a) "Person" means an individual, proprietorship, joint venture, partnership, trust, business trust, syndicate, association, joint stock company, corporation, cooperative, government, agency of a government, or any other organization. If used with respect to acquiring control of or controlling a specified person, person includes a combination of two or more persons acting in concert;

(b) "Control" means, if used with respect to a specified person, the power to direct or cause the direction of, directly or indirectly through one or more intermediaries, the management and policies of that specified person, whether through the ownership of voting securities; by contract, other than a commercial contract for goods or nonmanagement services; or otherwise. A natural person shall not be considered to control a person solely on account of being a director, officer, or employee of that person. A person who, directly or indirectly, owns of record or beneficially holds with power to vote, or holds proxies with discretionary authority to vote, twenty percent or more of the then outstanding voting securities issued by a corporation shall be rebuttably presumed to control that corporation; and

(c) "Controlling person" means, if used with respect to a specified person, a person who controls that specified person, directly or indirectly through one or more intermediaries.

NEW SECTION. Sec. 16. An associate of a corporation shall not receive, directly or indirectly, from a person to whom that corporation provides financing assistance, compensation in connection with the providing of that financing assistance or anything of value for procuring, influencing, or attempting to procure or influence the corporation's action with respect to the providing of the financing assistance. This section does not apply to the receipt of fees by an associate of a corporation for bona fide closing services performed by that associate if all of the following are true:

(1) The associate, with the consent and knowledge of the person to whom the financing assistance is provided, is designated by the corporation to perform the services;

(2) The services are appropriate and necessary in the circumstances;

(3) The fees for the services are approved as reasonable by the corporation; and

(4) The fees for the services are collected by the corporation on behalf of the associate.

NEW SECTION. Sec. 17. An industrial development corporation conducting business in this state on the effective date of this 1987 act shall elect to:

(1) Continue to operate under the provisions of RCW 31.24.020 that existed when the industrial development corporation filed its articles of incorporation. This election shall be in writing and shall be filed with the secretary of state; or

(2) Operate under the provisions of section 3 of this 1987 act by filing new articles of incorporation with the secretary of state.

NEW SECTION. Sec. 18. A new section is added to chapter 19.52 RCW to read as follows:

This chapter shall not apply to loans made to or by industrial development corporations established under chapter 31.24 RCW.

NEW SECTION. Sec. 19. Section 6, chapter 162, Laws of 1963 and RCW 31.24.060 are each repealed.

NEW SECTION. Sec. 20. Sections 15 through 17 of this act are each added to chapter 31.24 RCW.

NEW SECTION. Sec. 21. This chapter may be known and cited as the city and county seed capital pool act.

NEW SECTION. Sec. 22. The legislature finds that the diversification of the state's economy and the creation of new employment opportunities will be enhanced by the development of locally responsive and accountable sources of capital for new enterprises and for new product development. The difference between state economies which provide adequate high-quality employment opportunities for citizens and those which do not is in part a function of the rate of creation of new enterprises and of their ability to sustain themselves. The availability of capital to finance new business enterprises and new product development is a critical factor in increasing the number of successful new enterprises created in the state and thus the ability of the state economy to create employment opportunities. The state has a history of promoting economic health and growth through the creation of development entities which are created locally and which are accountable to local citizens. The state finds it a public purpose to authorize the creation of local seed capital pools by city and county governments, financed by citizen contributions, which may provide capital to new enterprises and which may finance new product development in counties in the state.

NEW SECTION. Sec. 23. As used in this chapter, the following terms have the meanings indicated unless the context clearly requires otherwise.

(1) "Eligible enterprise" means a small business that is primarily located and operated in the city or county and that is or proposes to be engaged in the city or county in research and development, in commercial product development, or in manufacturing, technology, or the production of goods and services with high potential for expansion and trade outside the state's borders.

(2) "Qualified security" means any note, stock, treasury stock bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, preorganization certificate or subscription, transferable share, investment contract, certificate of deposit for a security, certificate of interest or participation in a patent or application therefor, or in royalty or other payments under such a patent or application, or, in general, any interest or instrument commonly known as a "security" or any certificate for, receipt for, guarantee of, or option, warrant, or right to subscribe to or purchase any of the foregoing.

(3) "Seed capital" means financing that is provided for the initial development, refinement, testing, marketing, and commercialization of a product, service, or process to an enterprise with a high potential for long-term commercial sales and that is provided before any substantial commercial sales have been made by the enterprise of the product or service being developed.

(4) "Small business" means any business that has fewer than fifty full-time employees or its equivalent.

NEW SECTION. Sec. 24. A city or county may create a local seed capital pool to operate in the city or county and to provide funds in the form of loans or equity participation to finance new enterprises or to assist in the development of new products in the marketplace. The local seed capital pool shall be governed by a board of directors consisting of seven members appointed by the legislative authority of the city or county. Members of the board of directors shall be citizens of the city or county with expertise in small business, new business development, and business finance and shall include members of the general public. The legislative authorities of two or more contiguous counties may, pursuant to chapter 39.34 RCW, combine to form a multicounty seed capital pool. If a local seed capital pool is created by both a county and a city within the county, only one pool shall operate and it shall be by interlocal agreement pursuant to chapter 39.34 RCW.

NEW SECTION. Sec. 25. A local seed capital pool shall provide funds by purchasing qualified securities of eligible enterprises. A local seed capital pool may not acquire more than forty-five percent of the stated capital of any eligible enterprise, and no seed capital funds may be used for real estate investments.

The legislative authority of the city or county shall provide, by ordinance or resolution, procedures for the determination of which enterprises qualify as eligible and may grant any powers to the board of directors as may be necessary for it to carry out its duties.

NEW SECTION. Sec. 26. Upon request of the legislative authority of a city or county in which a seed capital pool has been created and the board of directors of the local seed capital pool, each utility providing water distribution services and each utility providing sewerage collection services in the city or county shall include in its billings to a utility consumer printed materials which provide the consumer the opportunity to indicate his or her assent to donate a monthly sum of no less than one dollar to finance the local seed capital pool. The materials shall allow the local utility consumer the opportunity to denote the amount of funds to be donated each month to the local seed capital pool. If a consumer indicates that donations should be made on a monthly basis to a local seed capital pool, the utility shall add such sums to its periodic billings for services and shall pass such funds as are collected as a result to the local seed capital pool. A utility may charge the local seed capital pool a fee of no more than three percent of the funds collected to defray the utility's costs in collecting and processing donations to local seed capital pools.

NEW SECTION. Sec. 27. Sections 21 through 26 of this act shall constitute a new chapter in Title 36 RCW.