House File 596 - Reprinted HOUSE FILE 596 BY COMMITTEE ON COMMERCE (SUCCESSOR TO HSB 217) (As Amended and Passed by the House March 28, 2011 ) A BILL FOR An Act exempting business entities located in small cities or 1 adjacent to small cities, and formed by local development 2 corporations, from certain security regulations. 3 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 4 HF 596 (4) 84 da/nh/mb

H.F. 596 Section 1. NEW SECTION . 15E.25 Definitions. 1 As used in this division: 2 1. “Business company” means any of the following: 3 a. A limited liability company that is formed and operates 4 under chapter 489. 5 b. A business corporation that is formed and operates under 6 chapter 490. 7 2. “Local community” means a city having a population of two 8 thousand or less according to the certified federal census and 9 an area which is within ten miles from the corporate limits of 10 such city, so long as the area is not located within another 11 city. 12 3. “Local development corporation” means a nonprofit 13 corporation organized under chapter 504 or another corporation 14 which qualifies under 26 U.S.C. § 501(c)(3) as an organization 15 exempt from taxation, if all of the following apply: 16 a. The exclusive purpose of the corporation is to promote 17 economic development initiatives in a local community. 18 b. The principal office of the corporation is located in the 19 same local community as provided in paragraph “a” . 20 c. The corporation has a minimum of twenty-five members with 21 at least seventy-five percent of its directors and officers 22 residing or doing business in the same local community as 23 provided in paragraph “a” . 24 Sec. 2. NEW SECTION . 15E.26 Qualified business company. 25 A business company is a qualified business company for 26 purposes of this division as long as it complies with the 27 following requirements: 28 1. The business company must be formed pursuant to a 29 resolution adopted by the board of directors of the local 30 development corporation. The board must appoint one or more 31 individuals to serve as the following, as applicable: 32 a. An organizer of the limited liability company if the 33 business company is a limited liability company. 34 b. An incorporator of the business corporation if the 35 -1- HF 596 (4) 84 da/nh/mb 1/ 3

H.F. 596 business company is a business corporation. 1 2. The ownership of the business company is restricted as 2 follows: 3 a. For a limited liability company, all of the following 4 apply: 5 (1) At least eighty percent of all outstanding membership 6 interests in the limited liability company must be held by 7 individuals who reside in the local community. 8 (2) The limited liability company is not formed and does not 9 operate under chapter 489, article 12. 10 (3) (a) Seventy-five percent of all members must reside 11 in the local community if the limited liability company is 12 member-managed. 13 (b) Seventy-five percent of all managers must reside 14 in the local community if the limited liability company is 15 manager-managed. 16 b. For a business corporation, all of the following apply: 17 (1) At least eighty percent of all outstanding shares in the 18 business corporation must be held by individuals who reside in 19 the local community. 20 (2) The business corporation only issues common shares. The 21 business corporation shall not issue multiple classes of shares 22 or multiple series of shares within a class. 23 (3) Seventy-five percent of all directors and seventy-five 24 percent of all officers must reside in the local community. 25 3. The business company does not receive more than a 26 total of two hundred fifty thousand dollars from any of the 27 following: 28 a. Contributions made by individuals when they agree to 29 become initial members of the limited liability company. 30 b. Payments made by individuals for shares when the business 31 corporation initially issues shares. 32 4. The business company’s principal place of business is 33 located in the local community. 34 5. The certificate of organization of a limited liability 35 -2- HF 596 (4) 84 da/nh/mb 2/ 3

H.F. 596 company or the articles of incorporation of a business 1 corporation, as applicable, must include all of the following 2 restrictions: 3 a. For a limited liability company: 4 (1) A membership interest cannot be transferred to another 5 individual who does not reside in the local community without 6 the written consent of the members or managers of the limited 7 liability company. 8 (2) The limited liability company may purchase or acquire 9 a member’s interest from an individual who no longer resides 10 in the local community. 11 b. For a business corporation: 12 (1) Shares cannot be transferred to another individual who 13 does not reside in the local community without the written 14 consent of the board of directors of the business corporation. 15 (2) The business corporation may purchase or acquire 16 shares from an individual who no longer resides in the local 17 community. 18 Sec. 3. NEW SECTION . 15E.27 Exemptions for certain security 19 laws. 20 The securities of a qualified business company, as provided 21 in section 15E.26, are exempt from the requirements of chapter 22 502, to the extent provided in section 502.201. 23 Sec. 4. Section 502.201, Code 2011, is amended by adding the 24 following new subsection: 25 NEW SUBSECTION . 9F. Qualified business company. Any 26 security issued by a qualified business company, as provided in 27 section 15E.26, which meets the requirements of chapter 15E, 28 division IV. 29 -3- HF 596 (4) 84 da/nh/mb 3/ 3