GENERAL ASSEMBLY OF NORTH CAROLINA

SESSION 1995

H	2 

HOUSE BILL 422
Committee Substitute Favorable 5/1/95

Short Title:  N.C. Enterprise Corporations/AB.	(Public)

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Sponsors:

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Referred to:  

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March 9, 1995

A BILL TO BE ENTITLED
AN ACT TO PERMIT A NORTH CAROLINA ENTERPRISE CORPORATION TO BE ORGANIZED AS EITHER A FOR-PROFIT OR NONPROFIT CORPORATION, TO CORRECT CERTAIN DEFICIENCIES IN THE REQUIRED COMPOSITION OF NORTH CAROLINA ENTERPRISE CORPORATIONS BOARDS OF DIRECTORS, AND TO MAKE CONFORMING CHANGES IN THE NORTH CAROLINA ENTERPRISE CORPORATION ACT.
The General Assembly of North Carolina enacts:
Section 1.  G.S. 53A-38(b) reads as rewritten:
"(b)	Persons who wish to associate themselves for the purpose of establishing a North Carolina Enterprise Corporation shall file a certificate of incorporation with the Secretary of State.  The certificate shall be in accordance with either G.S. 55-2-02 or G.S. 55A-2-02.  An existing corporation may become a North Carolina Enterprise Corporation by filing amended articles of incorporation with the Secretary of State's office in accordance with either Article 10 of Chapter 55 or 55A of the General Statutes."
Sec. 2.  G.S. 53A-40 is repealed.
Sec. 3.  G.S. 53A-41 reads as rewritten:
"§ 53A-41.  Governing law.
Except as otherwise provided in this Article, a North Carolina Enterprise Corporation shall be governed by the applicable Chapter of the General Statutes under which the corporation is incorporated."
Sec. 4.  G.S. 53A-42 reads as rewritten:
"§ 53A-42.  Powers.
A North Carolina Enterprise Corporation created under this Article shall have all the powers conferred on a business corporation if it was incorporated under Chapter 55 of the General Statutes or a nonprofit corporation if it was incorporated under Chapter 55A of the General Statutes."
Sec. 5.  G.S. 53A-44 reads as rewritten:
"§ 53A-44.  Prohibited investments.
A North Carolina Enterprise Corporation shall not invest in any business unless the business can demonstrate to the satisfaction of the North Carolina Enterprise Corporation that the business cannot obtain sufficient financing through traditional financial institutions.  A North Carolina Enterprise Corporation shall not invest in a business in whose operation one of the Enterprise Corporation's investors participates, as defined in G.S. 105-163.014(a)."
Sec. 6.  G.S. 53A-45 reads as rewritten:
"§ 53A-45.  Board of directors.
(a)	The business and affairs of a North Carolina Enterprise Corporation shall be managed and conducted by a board of directors and by any officers and agents the corporation authorizes in its bylaws.  The initial board of directors shall be those listed in the Articles of Incorporation.
(b)	For a corporation organized under Chapter 55 of the General Statutes, at the initial shareholders meeting, and thereafter annually, the voting common stock shareholders shall elect a board of directors comprised of not less than thirteen members.
				(c)	For a corporation organized under Chapter 55A of the General Statutes, the board of directors shall be appointed in accordance with the corporation's bylaws but shall be comprised of not less than 13 members."
Sec. 7.  G.S. 53A-46 reads as rewritten:
"§ 53A-46.  Tax credit.
A person or corporation that invests in the equity securities of a North Carolina Enterprise Corporation or in the equity securities of a limited partnership in which a North Carolina Enterprise Corporation is the only general partner, or makes a contribution to a North Carolina Enterprise Corporation under Chapter 55A of the General Statutes, is entitled to a tax credit as provided in G.S. 105-163.010 through G.S. 105-163.014."
Sec. 8.  G.S. 105-130.9(4) reads as rewritten:
"(4)	The amount of a contribution for which the taxpayer claimed a tax credit pursuant to G.S. 105-130.34 or Division V of this Article shall not be eligible for a deduction under this section.  The amount of the credit claimed with respect to the contribution is not, however, required to be added to income under G.S. 105-130.5(a)(10)."
Sec. 9.  G.S. 105-134.6(c)(5) reads as rewritten:
"(5)	To prevent a double benefit from a tax credit, the following additions shall be made:
a.	The fair market value, up to a maximum of one hundred thousand dollars ($100,000), of the donated property interest for which the taxpayer claims a credit for the taxable year under G.S. 105-151.12.
b.	The market price of the gleaned crop for which the taxpayer claims a credit for the taxable year under G.S. 105-151.14.
c.	The amount of a contribution to a nonprofit North Carolina Enterprise Corporation deducted by the taxpayer under the Code and for which the taxpayer was allowed a credit under Division V of this Article."
Sec. 10.  G.S. 105-163.011(a) reads as rewritten:
"(a)	Corporations. – Subject to the limitations contained in G.S. 105-163.012, a corporation that purchases the equity securities of a North Carolina Enterprise Corporation directly from an Enterprise Corporation organized under Chapter 55 of the General Statutes is allowed as a credit for the taxable year an amount equal to twenty-five percent (25%) of the amount invested.  Subject to the limitations contained in G.S. 105-163.012, a corporation that makes a contribution directly to a North Carolina Enterprise Corporation organized under Chapter 55A of the General Statutes is allowed as a credit for the taxable year an amount equal to twenty-five percent (25%) of the amount contributed.  For purposes of this Article, such a contribution is considered an investment.  The aggregate amount of credit allowed a corporation for one or more investments in a single taxable year under this Division, whether directly or indirectly as owner of a pass-through entity, may not exceed seven hundred fifty thousand dollars ($750,000).  The credit is allowed against one or more of the following taxes:
(1)	The income tax imposed by Division I of this Article.
(2)	The franchise tax imposed by G.S. 105-116, 105-120.2, and 105-122.
(3)	The gross premiums tax imposed by G.S. 105-228.5 and G.S. 105-228.8.
The credit may not be taken for the year in which the investment is made but shall be taken for the taxable year beginning during the calendar year in which the application for the credit becomes effective as provided in subsection (c)	of this section.  This subsection does not apply to a corporation that is also a pass-through entity."
Sec. 11.  G.S. 105-163.011(b) reads as rewritten:
"(b)	Individuals. – Subject to the limitations contained in G.S. 105-163.012, an individual who purchases the equity securities or subordinated debt of (i) a qualified business venture, (ii) a qualified grantee business, or (iii) a North Carolina Enterprise Corporation organized under Chapter 55 of the General Statutes directly from that entity is allowed as a credit against the tax imposed by Division II of this Article for the taxable year an amount equal to twenty-five percent (25%) of the amount invested.  Subject to the limitations contained in G.S. 105-163.012, an individual who makes a contribution directly to a North Carolina Enterprise Corporation organized under Chapter 55A of the General Statutes is allowed as a credit against the tax imposed by Division II of this Article for the taxable year an amount equal to twenty-five percent (25%) of the amount contributed.  For purposes of this Article, such a contribution is considered an investment.  The aggregate amount of credit allowed an individual for one or more investments in a single taxable year under this Division, whether directly or indirectly as owner of a pass-through entity, may not exceed fifty thousand dollars ($50,000).  The credit may not be taken for the year in which the investment is made but shall be taken for the taxable year beginning during the calendar year in which the application for the credit becomes effective as provided in subsection (c) of this section."
Sec. 12.  G.S. 105-163.014(a) reads as rewritten:
"(a)	Participation in Business. – A taxpayer who has received a credit under this Division for an investment in a qualified business venture or qualified grantee business forfeits the credit if, within three years after the investment was made, the taxpayer participates in the operation of the qualified business venture or qualified grantee business.  A taxpayer who has received a credit under this Division for an investment in a North Carolina Enterprise Corporation forfeits the credit if, within three years after the investment was made, the taxpayer participates in the operation of a business in which the North Carolina Enterprise Corporation has invested.  For the purpose of this section, a taxpayer participates in the operation of a business if the taxpayer, the taxpayer's spouse, parent, sibling, or child, or an employee of any of these individuals or of an entity controlled by any of these individuals, provides services of any nature to the business for compensation, whether as an employee, as a contractor, or otherwise.  However, a person who provides services to a business, whether as an officer, as a member of the board of directors, or otherwise does not participate in its operation if the person receives as compensation only reasonable reimbursement of expenses incurred in providing the services, participation in a stock option or stock bonus plan, or both."
Sec. 13.  G.S. 105-163.014(d) reads as rewritten:
"(d)	Transfer or Redemption of Investment. – A taxpayer who has received a credit under this Division for an investment in a North Carolina Enterprise Corporation organized under Chapter 55 of the General Statutes, a qualified business venture, or a qualified grantee business forfeits the credit in the following cases:
(1)	Within one year after the investment was made, the taxpayer transfers any of the securities received in the investment that qualified for the tax credit to another person or entity, other than in a transfer resulting from one of the following:
a.	The death of the taxpayer.
b.	A final distribution in liquidation to the owners of a taxpayer that is a corporation or other entity.
c.	A merger, consolidation, or similar transaction requiring approval by the shareholders of the North Carolina Enterprise Corporation, qualified business venture, or qualified grantee business under applicable State law, to the extent the taxpayer does not receive cash or tangible property in the merger, consolidation, or other similar transaction.
(2)	Within five years after the investment was made, the North Carolina Enterprise Corporation, qualified business venture, or qualified grantee business in which the investment was made makes a redemption with respect to the securities received in the investment.
In the event the taxpayer transfers fewer than all the securities in a manner that would result in a forfeiture, the amount of the credit that is forfeited is the product obtained by multiplying the aggregate credit attributable to the investment by a fraction whose numerator equals the number of securities transferred and whose denominator equals the number of securities received on account of the investment to which the credit was attributable.  In addition, if the redemption amount is less than the amount invested by the taxpayer in the securities to which the redemption is attributable, the amount of the credit that is forfeited is further reduced by multiplying it by a fraction whose numerator equals the redemption amount and whose denominator equals the aggregate amount invested by the taxpayer in the securities involved in the redemption.  The term 'redemption amount' means all amounts paid that are treated as a distribution in part or full payment in exchange for securities under section 302(a)	of the Code."
Sec. 14.  Sections 8 and 9 of this act are effective for taxable years beginning on or after January 1, 1995.  The remainder of this act is effective upon ratification.