HOUSE FILE 596

BY  COMMITTEE ON COMMERCE

(SUCCESSOR TO HSB 217)

(As Amended and Passed by the House 2011-03-28)

A BILL FOR

An Act exempting business entities located in small cities or adjacent to small cities, and formed by local development corporations, from certain security regulations.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

   Section 1.  NEW SECTION.  15E.25  Definitions.
   As used in this division:
   1.  “Business company” means any of the following:
   a.  A limited liability company that is formed and operates under chapter 489.
   b.  A business corporation that is formed and operates under chapter 490.
   2.  “Local community” means a city having a population of two thousand or less according to the certified federal census and an area which is within ten miles from the corporate limits of such city, so long as the area is not located within another city.
   3.  “Local development corporation” means a nonprofit corporation organized under chapter 504 or another corporation which qualifies under 26 U.S.C. § 501(c)(3) as an organization exempt from taxation, if all of the following apply:
   a.  The exclusive purpose of the corporation is to promote economic development initiatives in a local community.
   b.  The principal office of the corporation is located in the same local community as provided in paragraph “a”.
   c.  The corporation has a minimum of twenty-five members with at least seventy-five percent of its directors and officers residing or doing business in the same local community as provided in paragraph “a”.
   Sec. 2.  NEW SECTION.  15E.26  Qualified business company.
   A business company is a qualified business company for purposes of this division as long as it complies with the following requirements:
   1.  The business company must be formed pursuant to a resolution adopted by the board of directors of the local development corporation. The board must appoint one or more individuals to serve as the following, as applicable:
   a.  An organizer of the limited liability company if the business company is a limited liability company.
   b.  An incorporator of the business corporation if the business company is a business corporation.
   2.  The ownership of the business company is restricted as follows:
   a.  For a limited liability company, all of the following apply:
   (1)  At least eighty percent of all outstanding membership interests in the limited liability company must be held by individuals who reside in the local community.
   (2)  The limited liability company is not formed and does not operate under chapter 489, article 12.
   (3)
  (a)  Seventy-five percent of all members must reside in the local community if the limited liability company is member-managed.
   (b)  Seventy-five percent of all managers must reside in the local community if the limited liability company is manager-managed.
   b.  For a business corporation, all of the following apply:
   (1)  At least eighty percent of all outstanding shares in the business corporation must be held by individuals who reside in the local community.
   (2)  The business corporation only issues common shares. The business corporation shall not issue multiple classes of shares or multiple series of shares within a class.
   (3)  Seventy-five percent of all directors and seventy-five percent of all officers must reside in the local community.
   3.  The business company does not receive more than a total of two hundred fifty thousand dollars from any of the following:
   a.  Contributions made by individuals when they agree to become initial members of the limited liability company.
   b.  Payments made by individuals for shares when the business corporation initially issues shares.
   4.  The business company’s principal place of business is located in the local community.
   5.  The certificate of organization of a limited liability company or the articles of incorporation of a business corporation, as applicable, must include all of the following restrictions:
   a.  For a limited liability company:
   (1)  A membership interest cannot be transferred to another individual who does not reside in the local community without the written consent of the members or managers of the limited liability company.
   (2)  The limited liability company may purchase or acquire a member’s interest from an individual who no longer resides in the local community.
   b.  For a business corporation:
   (1)  Shares cannot be transferred to another individual who does not reside in the local community without the written consent of the board of directors of the business corporation.
   (2)  The business corporation may purchase or acquire shares from an individual who no longer resides in the local community.
   Sec. 3.  NEW SECTION.  15E.27  Exemptions for certain security laws.
   The securities of a qualified business company, as provided in section 15E.26, are exempt from the requirements of chapter 502, to the extent provided in section 502.201.
   Sec. 4.  Section 502.201, Code 2011, is amended by adding the following new subsection:
   NEW SUBSECTION.  9F.  Qualified business company.  Any security issued by a qualified business company, as provided in section 15E.26, which meets the requirements of chapter 15E, division IV.