HB-4195, As Passed Senate, October 29, 2015

SENATE SUBSTITUTE FOR

HOUSE BILL NO. 4195

A bill to amend 2003 PA 296, entitled

"Michigan early stage venture investment act of 2003,"

by amending sections 7, 9, 11, 15, 17, 19, 21, 23, and 27 (MCL

125.2237, 125.2239, 125.2241, 125.2245, 125.2247, 125.2249,

125.2251, 125.2253, and 125.2257), section 15 as amended by 2005 PA

102 and sections 17, 19, and 23 as amended by 2007 PA 173.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

Sec. 7. The articles of incorporation of a Michigan early

stage venture investment corporation shall contain all of the

following:

(a) The purposes of the corporation, which shall include, but

are not limited to, all of the following:

(i) To operate and act exclusively for charitable purposes

with the intent to lessen the financial burdens of the government

of this state.

(ii) To receive and administer funds for the charitable

purposes under subparagraph (i).

(iii) To raise capital and invest that capital in venture

capital firms with the intent of benefiting Michigan's seed or

early stage businesses.

(iv) To promote the economic health of this state by assisting

in the creation of new jobs, new businesses, and new industries

within this state and through the investment in certain businesses.

(v) To enter into an agreement with this state to promote the

economic health of this state.

(b) A provision that the Michigan early stage venture

investment corporation shall be governed by a board of directors

that complies with the requirements in section 13.

Michigan early stage venture investment corporation, the property

remaining after providing for debts and obligations of the Michigan

early stage venture investment corporation shall be distributed to

~~an organization that qualifies either as a governmental unit under~~

~~section 170(c) of the internal revenue code or is exempt from tax~~

~~under section 501(c)(3) or 501(c)(4) of the internal revenue code,~~

~~as designated by the board. If the board fails to designate an~~

~~organization as provided in this subdivision, the property~~

~~remaining shall pass to the state of Michigan.~~ with the first

$140,000,000.00 going to the general fund of this state and any

remaining going to the 21st century jobs trust fund established in

section 7 of the Michigan trust fund act, 2000 PA 489, MCL 12.257.

For purposes of this subdivision, property remaining after

providing for debts and obligations does not include grants,

appropriations, or other restricted funds that must be distributed

as required by the source of those funds.

Sec. 9. (1) Prior to applying for registration as a Michigan

early stage venture investment corporation under section 11, a

nonprofit corporation shall submit its articles of incorporation

and any amendments to those articles of incorporation to the

attorney general for review and certification.

(2) The attorney general shall review the information

submitted pursuant to subsection (1) and, if that information

complies with the requirements of this act, and upon payment of a

fee of $100.00, the attorney general shall issue a certificate of

compliance to the Michigan early stage venture investment

corporation not later than 60 days after the initial receipt of the

information.

(3) Notwithstanding subsections (1) and (2), a Michigan early

stage venture investment corporation that amends its articles of

incorporation for the sole purpose of complying with section 7(c)

is not required to submit that amendment to the attorney general

for review or certification or to pay the fee otherwise required by

subsection (2). The attorney general is not required to review or

certify the amendment, and that amendment shall not affect any

previous certification by the attorney general of the Michigan

early stage venture investment corporation.

Sec. 11. (1) To apply for registration as a Michigan early

stage venture investment corporation, a nonprofit corporation shall

file all of the following with the state treasurer:

(a) A copy of the articles of incorporation of the nonprofit

corporation and any amendments to those articles of incorporation.

(b) The certificate of compliance issued under section 9. This

subdivision does not apply if the attorney general does not issue

the certificate within the time provided in section 9(2).

corporation, including, but not limited to, evidence of the

establishment by the nonprofit corporation of a restricted fund

that shall be known as a Michigan early stage venture investment

fund.

(d) A copy of the financial statements of the nonprofit

corporation for the first fiscal year of the nonprofit corporation.

(e) A copy of the bylaws of the nonprofit corporation.

(f) Payment of a fee to the state treasurer of $500.00.

(2) The state treasurer shall examine the documents filed

under subsection (1), may conduct any investigation he or she

considers necessary, may request additional oral and written

information from the nonprofit corporation, and may examine under

oath any persons interested in or connected with the nonprofit

corporation seeking to be registered as a Michigan early stage

venture investment corporation.

(3) The state treasurer shall register a nonprofit corporation

as a Michigan early stage venture investment corporation if all of

the following conditions are met:

(a) The documents filed under subsection (1) are in proper

form.

(b) The articles of incorporation of the nonprofit corporation

or any amendments to those articles of incorporation meet the

requirements of section 7.

corporation meet the purposes and requirements of this act.

(d) The ~~internal revenue service~~ Internal Revenue Service has

determined that the nonprofit corporation is exempt from taxation

under section 501(c)(3) or 501(c)(4) of the internal revenue code.

(4) If the state treasurer registers the nonprofit corporation

as a Michigan early stage venture investment corporation under this

section, the state treasurer shall return to the nonprofit

corporation 1 copy of its articles of incorporation and any

amendments to those articles of incorporation, with a notation

indicating that the nonprofit corporation is registered as a

Michigan early stage venture investment corporation.

(5) Notwithstanding subsections (1) through (4), a Michigan

early stage venture investment corporation that amends its articles

of incorporation for the sole purpose of complying with section

7(c) is not required to submit that amendment to the state

treasurer for examination, investigation, or registration under

this section. The state treasurer is not required to examine or

conduct any investigation with respect to that amendment, and that

amendment shall not affect any previous registration by the state

treasurer for that Michigan early stage venture investment

corporation.

Sec. 15. (1) Except as otherwise provided in this act, in the

nonprofit corporation act, 1982 PA 162, MCL 450.2101 to 450.3192,

by law, or in its articles of incorporation, a Michigan early stage

venture investment corporation may do or delegate any act

consistent with this act and the purposes of the nonprofit

corporation, including, but not limited to, the following:

(a) Enter into contracts and all necessary activities in the

regular course of business of the Michigan early stage venture

investment corporation.

(b) Charge reasonable fees for the implementation of this act

and the ongoing operation of the Michigan early stage venture

investment corporation.

necessary to carry out its powers and duties under this act.

(d) Invest in venture capital funds through equity securities.

(e) Employ fund managers and other persons it considers

necessary to implement this act.

(2) The fund manager shall exercise the duties of a fiduciary

toward the corporation and shall discharge his or her duties with

the degree of diligence, care, and skill that an ordinarily prudent

person would exercise under the same or similar circumstances in a

like position.

(3) ~~The~~ Except as otherwise provided in section 19(4), the

fund manager shall solicit investors pursuant to section 17.

(4) The Michigan early stage venture investment corporation

shall require the fund manager to develop procedures to evaluate

types of business and industry for investment purposes and to set

priorities as to which businesses are most likely to meet the

desired outcomes of the investment plan established under section

19 and which businesses conduct activities that are consistent with

the purposes of this act and of the fund. This evaluation shall

include, but not be limited to, the location of the firm and the

direct and indirect impact of the business on the economic

development of this state.

Sec. 17. (1) To Subject to subsection (9), to secure

investment in the fund, the Michigan early stage venture investment

corporation shall enter into agreements with investors.

(2) Each agreement shall contain all of the following:

(a) An established and agreed-upon investment amount and

repayment schedule.

(b) A negotiated amount or negotiated return on qualified

investment by the investor over the term of the agreement.

to pay a liability under ~~the single business tax act,~~ former 1975

PA 228, ~~MCL 208.1 to 208.145,~~ the Michigan business tax act, 2007

PA 36, MCL 208.1101 to 208.1601, or ~~under~~ the income tax act of

1967, 1967 PA 281, MCL 206.1 to ~~206.532,~~ 206.713, and the first

year in which that tax voucher may be used to pay a liability under

~~the single business tax act,~~ former 1975 PA 228 ~~, MCL 208.1 to~~

~~208.145,~~ the Michigan business tax act, 2007 PA 36, MCL 208.1101 to

208.1601, or the income tax act of 1967, 1967 PA 281, MCL 206.1 to

~~206.532,~~ 206.713, including any withholding tax imposed on the

investor under the income tax act of 1967, 1967 PA 281, MCL 206.1

to ~~206.532.~~206.713.

(3) The Michigan early stage venture investment corporation

shall notify the department of treasury when agreements are entered

into under this section and send a copy of each agreement to the

department of treasury. After making the determination required

under section 23(2), the department of treasury shall issue an

approval letter to the investor that states that the investor is

entitled to a tax voucher that is equal to the difference between

the amount actually repaid and the amount set as the repayment due

in the agreement entered into by the investor and the Michigan

early stage venture investment corporation.

(4) The fund shall repay any amounts due from proceeds from

the funds raised based on the agreements made under this section

and from the proceeds of investments made by the fund.

(5) For tax years that begin after December 31, 2008,

investors that have tax voucher certificates issued pursuant to

section 23 may use the tax voucher to pay a liability owed by the

investor under the Michigan business tax act, 2007 PA 36, MCL

208.1101 to 208.1601, or the income tax act of 1967, 1967 PA 281,

MCL 206.1 to ~~206.532,~~ 206.713, as provided in this act, up to an

amount equal to the difference between the amount actually repaid

and the amount set as the repayment due in the agreement entered

into by the taxpayer and the Michigan early stage venture

investment corporation. The Michigan early stage venture investment

corporation shall notify the department of treasury when tax

voucher certificates are issued under section 23(5).

(6) Repayment of a debt under this section may be restricted

to specific funds or assets of the Michigan early stage venture

investment corporation.

(7) The Michigan early stage venture investment corporation

may purchase securities and may manage, transfer, or dispose of

those securities.

(8) The Michigan early stage venture investment corporation

and its directors are not broker-dealers, agents, investment

advisors, or investment advisor representatives when carrying out

their duties and responsibilities under this act.

(9) The Michigan early stage venture investment corporation

shall not enter into any new agreements with investors after the

effective date of the amendatory act that added this subsection.

However, the Michigan early stage venture investment corporation

may modify an existing agreement with an investor as long as no

additional principal is borrowed from that investor and tax

vouchers are not increased above the level that have been approved

under section 23 on the effective date of the amendatory act that

added this subsection. However, the Michigan early stage venture

investment corporation may modify an existing agreement with an

investor that the Michigan early stage venture investment

corporation has received a loan or line of credit from and may

expend money to modify that agreement, as long as that agreement

meets all of the following:

(a) The modification does not result in the Michigan early

stage venture investment corporation expending greater than

$500,000.00 in costs, fees, legal fees, management fees, or other

expenses without the consent of the state budget director.

(b) Notification of the modification is reported to the state

budget office and chairpersons of the house and senate

appropriations committees within 30 days of the finalization of the

modification.

Sec. 19. (1) A Michigan early stage venture investment

corporation shall create a Michigan early stage venture investment

fund, which shall be a restricted fund.

(2) The fund manager shall establish an investment plan

approved by the board for the investment of the money in the fund

using the following criteria:

(a) Not more than 15% of the total capital and outstanding

commitments of the fund shall be invested in any single venture

capital company.

(b) The fund manager with the approval of the board shall

undertake to invest the fund in such a way as to promote that at

least $2.00 will be invested in qualified businesses for every

$1.00 of principal for which tax vouchers may be used to pay a

liability under ~~the single business tax act,~~ former 1975 PA 228,

~~MCL 208.1 to 208.145,~~ the Michigan business tax act, 2007 PA 36,

MCL 208.1101 to 208.1601, or the income tax act of 1967, 1967 PA

281, MCL 206.1 to ~~206.532.~~206.713.

from the state's various universities and research institutions.

(d) Any other professional portfolio management criteria that

the fund manager and board consider appropriate.

(e) Priorities for investment in venture capital may be based

on an evaluation, which shall consider the following criteria:

(i) The retention of those businesses that would be likely to

leave this state absent the investment.

(ii) The revitalization and diversification of the economic

base of this state.

(iii) Generating and retaining jobs and investment in this

state.

(3) Consistent with the plan established under subsection (2),

the fund manager shall select venture capital companies from among

those venture capital companies that apply for money from the fund

considering the following criteria:

(a) The venture capital company's probability of success in

generating above-average returns through investing in qualified

businesses.

(b) The venture capital company's probability of success in

soliciting investments. The level of investment from the fund

committed to each venture capital company shall not be more than

25% of the venture capital company's total capital under

management.

relates to the investment plan criteria under subsection (2)(b).

(d) The venture capital company has a significant presence in

this state as determined by the Michigan early stage venture

investment corporation.

(e) The venture capital company will undertake to invest in

qualified businesses, as determined at the point of initial

investment, a percentage of invested capital equal to or greater

than the percentage of invested capital that the venture capital

company received from the fund.

(f) The venture capital company's consideration of minority

owned businesses in its investment activities.

(4) A Michigan early stage venture investment corporation

shall not create a Michigan early stage venture investment fund and

a Michigan early stage venture investment corporation shall not

make any new commitments to contribute capital to a venture capital

company after the effective date of the amendatory act that added

this subsection. However, a fund may modify an existing agreement

or investment with a venture capital company as long as no

additional funds are committed to the venture capital company after

the effective date of the amendatory act that added this

subsection.

Sec. 21. The fund manager shall file a an annual report with

the Michigan early stage venture investment corporation that

includes an annual financial audit conducted by an independent

auditor and any other financial information and documentation

required by the Michigan early stage venture investment corporation

to ensure the proper administration and investment of the fund.

Sec. 23. (1) The Michigan early stage venture investment

corporation shall determine which investors are eligible for tax

vouchers under ~~the single business tax act,~~ former 1975 PA 228, ~~MCL~~

~~208.1 to 208.145,~~ the Michigan business tax act, 2007 PA 36, MCL

208.1101 to 208.1601, and the income tax act of 1967, 1967 PA 281,

MCL 206.1 to ~~206.532,~~ 206.713, and the amount of the tax voucher or

vouchers allowed to each investor.

(2) The Michigan early stage venture investment corporation

shall determine which investors are eligible for tax vouchers under

this section and submit proposed tax voucher certificates that meet

the criteria under subsection (3) to the department of treasury for

approval. The department of treasury shall approve or deny proposed

tax voucher certificates within 30 days after receipt of the

proposed tax voucher certificates. If the department of treasury

denies a proposed tax voucher certificate, the department of

treasury shall notify the Michigan early stage venture investment

corporation and the investor of the denial and the reason for the

denial. If a proposed tax voucher certificate is denied under this

subsection, the Michigan early stage venture investment corporation

is not prohibited from subsequently submitting a proposed tax

voucher certificate on behalf of that same investor. ~~If the~~

~~department of treasury does not approve or deny the proposed tax~~

~~voucher certificates within 30 days, the proposed tax voucher~~

~~certificates are considered approved as submitted.~~ The approval by

the department of treasury under this section may be a condition to

the effectiveness of the agreement between the investor and the

Michigan early stage investment corporation required under section

17(1). The department of treasury shall not approve any new tax

voucher certificates after the effective date of the amendatory act

that added this sentence.

(3) At the time permitted under subsection (5), the Michigan

early stage venture investment corporation shall issue a tax

voucher certificate approved under subsection (2) to each investor

in the name of the investor that states all of the following:

(a) The taxpayer is an investor.

(b) The taxpayer's federal employer identification number or

the number assigned to the taxpayer by the department of treasury

for filing purposes under ~~the single business tax act,~~ former 1975

PA 228 ~~, MCL 208.1 to 208.145,~~ or the Michigan business tax act,

2007 PA 36, MCL 208.1101 to 208.1601.

the tax voucher may use to pay its tax liability under ~~the single~~

~~business tax act,~~ former 1975 PA 228, ~~MCL 208.1 to 208.145,~~ the

Michigan business tax act, 2007 PA 36, MCL 208.1101 to 208.1601, or

the income tax act of 1967, 1967 PA 281, MCL 206.1 to

~~206.532.~~206.713.

(d) The tax years for which the tax voucher under subdivision

tax year.

(e) The amount of the tax vouchers that may be used shall not

exceed the tax liability under ~~the single business tax act,~~ former

1975 PA 228, ~~MCL 208.1 to 208.145,~~ the Michigan business tax act,

2007 PA 36, MCL 208.1101 to 208.1601, or the income tax act of

1967, 1967 PA 281, MCL 206.1 to ~~206.532,~~ 206.713, of the taxpayer

that uses the tax voucher.

(f) The tax voucher may be transferred in whole or in part.

(g) If the amount of any tax voucher certificate exceeds the

investor's tax liability under ~~the single business tax act,~~ former

1975 PA 228, ~~MCL 208.1 to 208.145,~~ the Michigan business tax act,

2007 PA 36, MCL 208.1101 to 208.1601, or the income tax act of

1967, 1967 PA 281, MCL 206.1 to ~~206.532,~~ 206.713, the amount that

exceeds the investor's tax liability may be retained and used to

pay a future liability of the investor under ~~the single business~~

~~tax act,~~ former 1975 PA 228, ~~MCL 208.1 to 208.145,~~ the Michigan

business tax act, 2007 PA 36, MCL 208.1101 to 208.1601, or the

income tax act of 1967, 1967 PA 281, MCL 206.1 to ~~206.532.~~206.713.

(4) The fund manager shall invest, budget, and plan scheduled

payments and repayments so that no tax voucher is used in any tax

year before tax years that begin after December 31, 2008.

(5) The Michigan early stage investment corporation shall

issue tax voucher certificates under this section to an investor at

the time that the Michigan early stage venture investment

corporation determines that, for that investor, it is unable to pay

the negotiated amount or the negotiated return on qualified

investment of that investor on or before the date on which payment

is due. The total of all tax voucher certificates issued under this

section shall not exceed ~~the maximum amount allowed under section~~

~~37e(2) of the single business tax act, 1975 PA 228, MCL 208.37e,~~

~~or, after December 31, 2007, the maximum amount allowed under~~

~~section 419(2) of the Michigan business tax act, 2007 PA 36, MCL~~

~~208.1419.~~$450,000,000.00.

(6) Tax voucher certificates under this section shall not be

issued until December 31, 2008.

(7) A tax voucher certificate issued under subsection (5), or

the right to be issued and receive a tax voucher certificate from

the Michigan early stage venture investment corporation, may be

transferred in whole or in part by a holder to another person if

the holder notifies the department of treasury and the Michigan

early stage venture investment corporation in writing of the

transfer, the amount of the tax voucher certificate to be

transferred, and the name and tax identification information

provided for under subsection (3) of the proposed transferee. The

tax voucher certificate transferred under this subsection shall be

made on a form prescribed by the department of treasury. The holder

shall send a copy of the completed transfer form to the department

of treasury within 60 days after the date of the transfer.

(8) A transfer under this section is irrevocable. If the

holder is transferring less than all of the tax voucher certificate

to a transferee, the department of treasury may issue new tax

voucher certificates to the holder and transferee representing the

allocated values of the tax voucher certificates held by the holder

and the transferee after the transfer.

(9) A holder of a tax voucher certificate shall attach a copy

of the tax voucher certificate and, if applicable, a completed

transfer form to its annual return for the tax toward which the tax

voucher certificate is used by the holder. If the amount of any tax

voucher certificate eligible to be used by a holder is in excess of

the holder's tax liability under either ~~the single business tax~~

~~act,~~ former 1975 PA 228, ~~MCL 208.1 to 208.145,~~ the Michigan

business tax act, 2007 PA 36, MCL 208.1101 to 208.1601, or the

income tax act of 1967, 1967 PA 281, MCL 206.1 to ~~206.532,~~ 206.713,

the excess may be retained and used to pay any future business tax

or income tax liability of the holder.

Sec. 27. (1) The Michigan early stage venture investment

corporation shall publish and make available on the Internet an

annual report not more than 3 months after the close of the

Michigan early stage venture investment corporation's fiscal year

that includes all of the following:

(a) An enumeration of all investment and related activities

for the fiscal year.

(b) Documentation and analysis of the implementation and

status of the Michigan early stage venture investment corporation's

investment plan and the economic impact of the plan on this state,

including, but not limited to, the following:

(i) The number of jobs represented by the investments made in

qualified businesses in this state.

(ii) Return on investment generated by investment, the types

of activities in which investment was made, and the impact of that

investment on the economic base of this state.

each Michigan early stage venture investment fund in venture

capital companies.

(d) The number of seed or early stage businesses that have

been funded by venture capital companies.

(e) The aggregate net distributions made to each fund by the

venture capital companies that have entered into agreements with

each Michigan early stage venture investment fund through the end

of the fiscal year and since the inception of each Michigan early

stage venture investment fund.

(f) The total amount invested by each Michigan early stage

investment fund in venture capital companies.

(g) Any upcoming use of tax vouchers that is certain and the

timing of that use.

(h) An estimate of the potential use of tax vouchers over the

5-year period following the end of the fiscal year.

(2) Each year, the Michigan early stage investment corporation

shall provide a copy of the annual report described in subsection

(1) to the chairpersons of the house and senate appropriations

committees upon its publication.

Enacting section 1. This amendatory act does not take effect

unless all of the following bills of the 98th Legislature are

enacted into law:

(a) House Bill No. 4196.

(b) House Bill No. 4365.