Legislature(2003 - 2004)
04/20/2004 02:04 PM L&C
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
SB 389-CORP. CONVERSION TO LIMITED LIABILITY CO. CHAIR CON BUNDE announced SB 389 to be up for consideration. He said this is a housekeeping measure and was requested by several Alaska regional Native corporations and amends existing law to allow an Alaskan corporation that is a subsidiary to be converted into a limited liability company. Many states already allow this. MR. MARK HICKEY, Aleut Corporation, thanked the committee for sponsoring the bill and hearing it promptly. He concurred with the chair's summary of the bill. Current definition in state law sets out which business entities may convert to the status of limited liability company (LLC) and corporations are not on that list. SB 389 includes subsidiary corporations only so there are no tax consequences to the state. MR. HICKEY said it is possible for Aleut Corporation to convert now, but it would have to dissolve and reform a limited liability company. The problem this presents is that a number of its subsidiaries have 8A minority business contractors under the federal contracting process. One of them has 15 such individual contracts. To dissolve the corporation, he would have to go back to the government agencies on each contract and get a new one put in place and then go back to the Small Business Administration and get those approved. This change in law will allow us to make the simple conversion without having to go through that cumbersome process. The basic advantage for us in terms of being able to shift to an LLC is it's cheaper to operate, we have fewer rules that apply, no need for a board structure in cases of pursuing financing, a lesser standard in terms of financial statements and the audit requirements. I would just like to point out on page 2 - it's really the operative language - we have structured it pretty carefully. It is only to a subsidiary and goes on to say 'owned directly or indirectly'. The only reason for the indirect part is we have, in some cases, subsidiaries that are owned by another subsidiary of our entity or at least in part by another subsidiary. So, we want to be broad enough to cover that case. Then it goes on to say 'owned by one or more parent corporations'. There are some, but not many, entities that are jointly owned between two corporations and this would allow those, as well, to become LLCs, but even in that case, the tax consequence would remain neutral. The parent would have the obligation for the tax obligation that had been with the prior subsidiary. CHAIR BUNDE asked if he was aware of any opposition to this bill. MR. HICKEY replied that he wasn't aware of any. MR. DAVID JENSEN, CEO, Aleut Corporation, said his corporation originally created C corporations, one of which is out of state, prior to legislation that authorized incorporation of the LLCs. To restructure Aleut Corporation for streamlining purposes, we need to make all of our wholly owned subsidiaries all LLCs for management reasons, governance and so on. It makes sense for us internally. Externally, there are no tax implications to the state or, for that matter, to the federal government either since we consolidate all of our income tax returns annually anyway. SENATOR GARY STEVENS asked if he would have to completely disorganize and reform and get a lot of approval for contracts. MR. JENSEN said yes and added that another alternative would be to move the corporation from Alaska and put it in Colorado or some other state where it can be done easily, another lengthy process. SENATOR SEEKINS asked why SB 389 doesn't allow just any corporation to convert. MR. JENSEN replied that has been proposed, but it raises tax consequences and the subsidiary language clearly doesn't create that problem. SENATOR HOLLIS FRENCH asked why there are no tax consequences to this move. MR. HICKEY explained that current subsidiaries either have a tax obligation on their own or, in many cases, they are consolidated with the parent. If they are an LLC and a subsidiary, the tax obligation passes up to the parent. SENATOR GARY STEVENS moved to pass SB 389 from committee with individual recommendations and attached zero fiscal note. Senator Bettye Davis, Gary Stevens, Ralph Seekins and Chair Con Bunde vote yea; and SB 389 moved from committee.