Legislature(2003 - 2004)

04/20/2004 02:04 PM L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= 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.                                                                                

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