Bill 3701

                    Current Status

Bill Number:               3701
Ratification Number:       751
Act Number                 643
Introducing Body:          House
Subject:                   To authorize the establishment of the
                           Palmetto Seed Capital Corporation

(A643, R751, H3701)

AN ACT TO AMEND TITLE 41, CODE OF LAWS OF SOUTH CAROLINA, 1976, BY ADDING CHAPTER 44 SO AS TO AUTHORIZE THE ESTABLISHMENT OF THE PALMETTO SEED CAPITAL CORPORATION AND THE PALMETTO SEED CAPITAL FUND LIMITED PARTNERSHIP WHICH SHALL PROVIDE EQUITY FINANCING TO NEW BUSINESSES OPERATING IN SOUTH CAROLINA OR WHICH PROPOSE TO OPERATE IN SOUTH CAROLINA, THE PALMETTO SEED CAPITAL CORPORATION AND THE PALMETTO SEED CAPITAL FUND LIMITED PARTNERSHIP BEING PRIVATE, FOR-PROFIT ENTITIES CAPITALIZED BY INVESTORS FROM THE PRIVATE SECTOR WHICH WILL INVEST PREDOMINANTLY IN START-UP BUSINESSES.

Be it enacted by the General Assembly of the State of South Carolina:

Purposes

SECTION 1. The purpose of this act is to establish the Palmetto Seed Capital Corporation and Palmetto Seed Capital Fund Limited Partnership whose purposes will include but are not limited to increasing the rate of capital formation, stimulating new growth-oriented business formations, creating new jobs for South Carolina; developing new technology, enhancing tax revenue for the State, and supplementing conventional business financing.

Palmetto Seed Capital Corporation and Palmetto Seed Capital Fund Limited Partnership

SECTION 2. Title 41 of the 1976 Code is amended by adding:

"CHAPTER 44

Palmetto Seed Capital Corporation

and Palmetto Seed Capital Fund

Limited Partnership

Section 41-44-10. (A) The 'fund' means the Palmetto Seed Capital Fund Limited Partnership, a limited partnership, established and operated as described in Section 41-44-60.

(B) The 'corporation' means the Palmetto Seed Capital Corporation, the general partners of the fund.

(C) 'Qualified investment' means qualified stock or a qualified interest which stock or interest is purchased solely for cash.

(D) 'Qualified stock' means a share or shares of stock in the corporation if the stock, when purchased by the taxpayer, is authorized but unissued.

(E) 'Qualified interest' means, in the case of the corporation, a general partnership interest in the fund and, in the case of all other persons, a limited partnership interest in the fund.

(F) 'State tax liability' means a taxpayer's total income tax liability that is incurred under Title 12 as computed after the application of credits, except the credits provided by this chapter.

(G) 'Taxpayer' means any individual, corporation, partnership, trust, or other entity that has any state tax liability and has made a qualified investment.

(H) 'Seed capital' means investments in either the common stock, preferred stock, or bonds convertible to either common or preferred stock, or options, warrants, or rights to receive any of the foregoing or any other similar investment in a South Carolina business.

(I) 'South Carolina business' means a corporation, general partnership, limited partnership, joint venture, trust, proprietorship, or any other similar entity or organization which is either established and operating or will be established to operate in South Carolina.

(J) 'Pre-start-up business' means a South Carolina business which is in the process of developing a product or service and prior to such time as the product or service is offered for sale in the ordinary course of business.

(K) 'Start-up business' means a South Carolina business which is in the first thirty-six months of providing goods or services in the ordinary course of business.

(L) 'Less developed area' has the same meaning as set forth in Section 12-7-1220(A).

Section 41-44-20. A taxpayer is entitled to a credit determined in accordance with Section 41-44-30 which must be applied against any state tax liability which may be imposed on the taxpayer.

Section 41-44-30. Subject to Section 41-44-50, the amount of the credit that a taxpayer may receive under this chapter for a particular taxable year is equal to the lesser of:

(1) the taxpayer's state tax liability for that taxable year;

(2) the amount determined in Step Three of the following steps:

Step One: Add the consideration paid for all qualified investments of the taxpayer during the taxable year of the taxpayer.

Step Two: Multiply the amount determined in Step One by three-tenths.

Step Three: Add the product determined in Step Two to the credit carryover, if any, to which the taxpayer is entitled for the taxable year under Section 41-44-40; or

(3) one-half of all the qualified investments of the taxpayer multiplied by three-tenths.

Section 41-44-40. If the amount of the credit determined under Section 41-44-30(2) exceeds the credit allowed under Section 41-44-30 for that taxable year, then the taxpayer may carry the excess over to the immediately succeeding taxable years. However, the credit carryover may not be used for any taxable year that begins on or after ten years from the date of the qualified investment. The amount of the credit carryover from a taxable year must be reduced to the extent that the carryover is used by the taxpayer to obtain a credit under this chapter for any subsequent taxable year.

Section 41-44-50. The total amount of credits allowed under this chapter may not exceed in the aggregate five million dollars for all taxpayers and all taxable years, excluding any allowable tax credits of the corporation. The credit must be allowed to taxpayers in the order of the time of the purchase of the qualified investments.

Section 41-44-60. (A) The corporation must be formed and operated, pursuant to the laws of this State. The articles of incorporation, bylaws, and any other agreement relating to the organization or operation of the corporation must comply with the provisions set forth in this section.

(B) The Governor shall cause the corporation to be formed, and he shall designate the incorporators. The initial board of directors must consist of three members, one of whom must be appointed by the Governor and two of whom must be appointed by the State Development Board. Members of the initial board of directors shall serve three-year terms. The initial board of directors must be representative of the State as a whole. The articles of incorporation must provide that the name of the corporation is the 'Palmetto Seed Capital Corporation' and the registered agent must be designated by the Governor. The corporation's existence begins upon filing of the articles of incorporation. The corporation's existence is perpetual, unless dissolved as provided herein. The corporation is authorized to issue shares of a number, class, and par or no-par value, as provided in its articles of incorporation. The general nature of the business of the corporation is to serve as general partner of the Palmetto Seed Capital Fund Limited Partnership, to provide seed capital to South Carolina businesses, and to undertake any acts appropriate or necessary to carry out the foregoing. The bylaws, the organizational minutes, the election of officers, the issuance of any stock of the corporation, and any other actions appropriate or necessary for the organization and operation of the corporation must be of that form and content as determined by the board of directors. Nothing contained in the chapter may prohibit the shareholders or board of directors of the corporation from altering, amending, or otherwise modifying the articles of incorporation, bylaws, or any other agreement governing the corporation as otherwise permitted pursuant to the laws of this State, except that the general nature of the business of the corporation may not be amended, altered, or otherwise modified or restricted, and except that the corporation may be dissolved, merged, or otherwise cease to exist pursuant to the appropriate vote of the board of directors and shareholders. The Governor may expend those discretionary funds as he has available and considers appropriate for the purpose of organizing the corporation and promoting the sale of the qualified investments.

(C) The directors of the corporation need not be shareholders in the corporation, and there must be not less than three nor more than seven directors, with the initial three directors selecting any additional directors as provided by the bylaws. After the terms of initial directors expire, successors must be chosen in the manner provided by the bylaws of the corporation. Members of the initial board are eligible to succeed themselves. Directors shall receive no salary but may receive mileage, subsistence, and per diem provided by law for members of state boards, committees, and commissions. If a director is a full-time state employee, he may not receive per diem.

(D) The corporation shall cause the fund to be formed as a limited partnership established pursuant to Chapter 41 of Title 33. The partnership agreement relating to the organization and operation of the fund must be of that form and content as determined by the board of directors of the corporation. The corporation must be the sole general partner of the fund, and the initial limited partner must be a person or entity designated by the corporation's board of directors. Additional limited partners may be admitted to the fund in accordance with the terms of the partnership agreement.

(E) The fund shall raise funds to be used to provide financing to South Carolina businesses. The fund may provide financing by providing seed capital to any South Carolina business, this seed capital to be used primarily for the purpose of enhancing the production capacity of that business or its ability to do business in South Carolina. Seventy percent of the interests acquired by the fund must be restricted to seed capital financing of either start-up businesses or pre-start-up businesses. The remaining thirty percent may be invested as the general partner of the fund determines.

(F) No business may be transacted or indebtedness incurred except that as is incidental to the organization of the corporation or the fund or to obtaining subscriptions to or payment for either its qualified stock or qualified interests until consideration for the five million dollars has been paid to the corporation or to the fund.

(G) All securities issued by either the corporation or the fund are considered exempt securities with regard to Section 35-1-310 of the South Carolina Uniform Securities Act.

Section 41-44-70. (A) The corporation, but not the shareholders thereof, is exempt from all state income taxes and also corporate license fees.

(B) To the extent that the fund derives taxable income from a South Carolina business which is either established and operated in a less developed area, invested in agriculture, aquaculture, or a related business or invested in a business created by a socially or economically disadvantaged individual as defined in 13 C.F.R. Sections 124.105(A) and 124.106 (1987), then each partner shall exclude seventy-five percent of his proportionate share of this income from the partner's determination of gross income.

Section 41-44-80. (A) If a qualified investment which is the basis for a credit under this chapter is redeemed by the fund or the corporation, within five years of the date it is purchased the credit provided by this chapter for the qualified investment is disallowed and any credit previously claimed and allowed with respect to the qualified investment so redeemed must be paid to the Tax Commission with the appropriate return of the taxpayer covering the period in which the redemption occurred. When payments are made to the commission under this section, the amount collected must be handled in the same manner as if no credit had been allowed.

(B) However, neither a distribution by the fund nor dividends or other distributions by the corporation are considered to be redemption of a qualified investment unless either the amount of qualified stock owned by the taxpayer or the qualified interest held by the taxpayer after the distribution or dividend is less than the amount of qualified stock or qualified interest held by the taxpayer immediately prior to the distribution or dividend.

Section 41-44-90. To receive the credit provided by this chapter, a taxpayer shall:

(1) claim the credit on the taxpayer's annual state tax return in the manner prescribed by the Tax Commission; and

(2) file with the commission and with the taxpayer's annual state tax return a copy of the form issued by the corporation as to the qualified investment by the taxpayer, which includes an undertaking by the taxpayer to report to the commission any redemption of the qualified investment within the meaning of Section 41-44-80.

Section 41-44-100. The corporation shall complete forms prescribed by the Tax Commission which must show as to each qualified investment in the fund:

(1) the name, address, and identification number of the taxpayer who purchased a qualified investment; and

(2) the nature of the qualified investment purchased by the taxpayer and the amount paid for it.

These forms must be filed with the commission on or before the fifteenth day of the third month following the month in which the qualified investment is purchased. Copies of the forms to be provided to the commission must be mailed to the taxpayer on or before the fifteenth day of the second month following the month in which the qualified investment is purchased."

Time effective

SECTION 3. This act takes effect upon approval by the Governor.