NRAI Compliance Updates - October, 2006

NRAI Compliance Updates - October 2006

Greetings,

This month California was the busiest jurisdiction with several bills being signed into law that impacted business entities. Perhaps the most interesting bill being AB 2341. This bill eliminates the requirement that certain business entities (corporations, limited liability companies, and limited liability partnerships) obtain a tax clearance certificate from the Franchise Tax Board prior to certain entity changes that result in the cancellation or termination of the existence of at least one entity.

The legislative arena is likely to become more active, especially after the November elections.

Robert K. Rowell
General Counsel

New, Pending and Passed Legislation

Federal Legislation

SB 3857

A bill to amend the Internal Revenue Code of 1986 to provide incentives to small businesses.

Full Text available at: http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=109_cong_bills&docid=f:s3857is.txt.pdf

Current Bill Status: Introduced September 6, 2006 Referred to Senate committee. Read twice and referred to the Committee on Finance.

SB 3919

A bill to assist small business concerns in complying with the Sarbanes-Oxley Act of 2002.

Full Text available at: http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=109_cong_bills&docid=f:s3919is.txt.pdf

Current Bill Status: September 21, 2006 Referred to Senate committee. Read twice and referred to the Committee on Small Business and Entrepreneurship.

California

AB 339

Existing law sets forth rules of organization and governance for limited partnerships.

This bill would revise and recast these provisions by enacting the Limited Partnership Act of 2008 and would repeal the existing provisions for limited partnerships on January 1, 2010. The bill would make other related changes.

Existing law authorizes a person who sells all or substantially all of the assets of, or the goodwill of, a business entity, including a limited liability company, to agree to refrain from carrying on a similar business within a specified geographic area, as specified. Existing law similarly authorizes a member of a limited liability company to make such an agreement upon or in anticipation of a dissolution of the company.

This bill would make a technical change to these provisions with respect to limited liability companies.

This bill would incorporate additional changes to Section 16101 of the Corporations Code, proposed by AB 2914, to be operative only if AB 2914 and this bill are both chaptered and become effective on or before January 1, 2007, and this bill is chaptered last.

This bill would incorporate additional changes to Sections 1107.5, 1113, 6019.1, 6020.5, 8019.1, 8020.5, 12540.1, 12550.5, 16915.5, and 17554.5, of the Corporations Code, proposed by AB 2341, to be operative only if AB 2341 and this bill are both chaptered and become effective on or before January 1, 2007, but AB 2341 becomes operative first, and this bill is chaptered last.

Full Text available at: http://www.leginfo.ca.gov/pub/bill/asm/ab_0301-0350/ab_339_bill_20060927_chaptered.pdf

Current Bill Status: September 27, 2006 Chaptered by Secretary of State - Chapter 495,
Statutes of 2006.

AB 2341

Existing law provides that every corporation incorporated in this state, qualified to transact intrastate business in this state, or doing business in this state is subject to the minimum franchise tax. Liability for the minimum franchise tax begins on the earlier of the date of incorporation, qualification, or commencement of business within this state. The annual obligation to pay the franchise tax ends on the effective date of dissolution
or withdrawal or, if later, the date the corporation ceases to do business within the state.

Existing law requires a dissolving or withdrawing corporation subject to tax in this state to pay a tax for the year it ceases to do business in California. The amount of tax owed is measured by the corporation’s net income for its final taxable year, but cannot be less than the minimum franchise tax.

Existing law requires, prior to the dissolution of a corporation, that the corporation is required to obtain a Tax Clearance Certificate from the Franchise Tax Board certifying that its tax liabilities, if any, have been paid, assumed, or guaranteed by bond or otherwise.

Existing law also provides that every limited partnership, limited liability partnership, and limited liability company registered in this state, qualified to transact intrastate business in this state, or doing business in this state is subject to an annual tax equal to the minimum franchise tax. Liability for the annual tax begins on the date of registration with the Secretary of State, qualification, or commencing to do business within this
state. The obligation to pay the annual tax ends on the effective date of cancellation of the entity or the date the entity ceases to do business in the state.

This bill would eliminate the requirement that, prior to dissolution of a corporation, the corporation obtain a tax clearance certificate and instead provide that the Secretary of State notify the Franchise Tax Board of the dissolution.

This bill would provide that the minimum franchise tax and the annual tax, as applicable, would not be assessed against these entities in the year that a final return is filed if the entity did not thereafter do business in California and dissolution, surrender, or cancellation of the entity is completed before the end of 12-month period following the date the final tax return was filed.

This bill would permit certain suspended corporations to seek dissolution without requiring payment of the accrued tax liability for years in which the corporation was inactive and not doing business. This bill would also make conforming changes to existing law.

This bill would incorporate specified changes proposed by AB 339 if both this bill and AB 339 are enacted.

Full Text available at: http://www.leginfo.ca.gov/pub/bill/asm/ab_2301-2350/ab_2341_bill_20060929_chaptered.pdf

Current Bill Status: September 29, 2006 Chaptered by Secretary of State - Chapter 773,
Statutes of 2006.

AB 2588

This bill would require the Secretary of State to reinstate a business entity to active status upon a court finding that factual representations in support of the termination document are materially false or the submission of the termination document for filing with the Secretary of State is fraudulent or upon other grounds warranting reinstatement of the business
entity.

Full Text available at: http://www.leginfo.ca.gov/pub/bill/asm/ab_2551-2600/ab_2588_bill_20060918_chaptered.pdf

Current Bill Status: September 18. 2006 Chaptered by Secretary of State - Chapter 324,
Statutes of 2006.

AB 2914

Existing law, the Uniform Partnership Act of 1994, authorizes the formation of foreign limited liability partnerships and registered limited liability partnerships to engage in the practice of architecture. This provision is repealed as of January 1, 2007. Existing law requires that every registered limited liability partnership and foreign limited liability
partnership provide specified security for claims arising out of the practice of architecture. Under existing law, the total aggregate limit of liability under the policy or policies of insurance or the amount of security required to be provided by those partnerships providing architectural services is $100,000 multiplied by the number of licensed persons, but not less than $500,000 and not more than $5,000,000.

This bill would extend the repeal date to January 1, 2012. This bill would provide that, on and after January 1, 2008, the total aggregate limit of liability under the policy or policies of insurance or the amount of security for those partnerships providing architectural services with 5 or fewer licensed persons shall be $1,000,000, and for partnerships with more than 5 licensees, shall be an additional $100,000 for each additional
licensee, up to the $5,000,000 maximum. This bill would incorporate additional changes to Section 16101 of the Corporations Code, proposed by AB 339, to be operative only if AB 339 and this bill are both chaptered and become effective on or before January
1, 2007, and this bill is chaptered last.

Full Test available at: http://www.leginfo.ca.gov/pub/bill/asm/ab_2901-2950/ab_2914_bill_20060922_chaptered.pdf

Current Bill Status: September 26, 2006 Chaptered by Secretary of State - Chapter 426,
Statutes of 2006.

SB 1207

Existing law provides that, in any election of the members of the board of directors of a corporation, the candidates receiving the highest number of affirmative votes of the shares entitled to be voted for them up to the number of directors to be elected by those shares are elected.

This bill would authorize a listed corporation that has eliminated cumulative voting to amend its articles of incorporation or bylaws to provide that, in an uncontested election, as defined, approval by a majority of the shares represented and voting would be required to elect each director and would specify procedures to be followed if an incumbent director fails to be elected at such an election.

Montana

LC 295

Revise laws governing corporate filings

Full Text available at: http://data.opi.mt.gov/bills/2007/billpdf/LC0295.pdf

Current Bill Status: In Drafting Process

For an archive of NRAI Legislative Updates, visit www.nrai.com and select Research Center.

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