2023 -- S 0550 AS AMENDED

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LC002006

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     STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2023

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A N   A C T

RELATING TO STATE AFFAIRS AND GOVERNMENT -- THE RHODE ISLAND SMALL

BUSINESS DEVELOPMENT FUND

     

     Introduced By: Senators LaMountain, Britto, F. Lombardi, Burke, and Lauria

     Date Introduced: March 07, 2023

     Referred To: Senate Finance

     It is enacted by the General Assembly as follows:

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     SECTION 1. Sections 42-64.33-2 and 42-64.33-4 of the General Laws in Chapter 42-64.33

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entitled "The Rhode Island Small Business Development Fund" are hereby amended to read as

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follows:

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     42-64.33-2. Definitions.

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     (a) As used in this chapter:

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     (1) “Affiliate” means an entity that directly, or indirectly, through one or more

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intermediaries, controls, or is controlled by, or is under common control with another entity. For

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the purposes of this chapter, an entity is “controlled by” another entity if the controlling entity

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holds, directly or indirectly, the majority voting or ownership interest in the controlled entity or has

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control over the day-to-day operations of the controlled entity by contract or by law.

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     (2) “Applicable percentage” means zero percent (0%) for the first three (3) credit allowance

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dates, and twenty-one and one-half percent (21.5%) for the fourth, fifth, and sixth credit allowance

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dates.

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     (3) “Capital investment” means any equity or debt investment in a small business

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development fund by a small business fund investor that:

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     (i) Is acquired after July 5, 2019, at its original issuance solely in exchange for cash;

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     (ii) Has one hundred percent (100%) of its cash purchase price used by the small business

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development fund to make qualified investments in eligible businesses located in this state within

 

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three (3) years of the initial credit allowance date; and

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     (iii) Is designated by the small business development fund as a capital investment under

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this chapter and is certified by the corporation pursuant to § 42-64.33-4. This term shall include

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any capital investment that does not meet the provisions of § 42-64.33-4(a) if the investment was

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a capital investment in the hands of a prior holder.

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     (4) “Corporation” means the Rhode Island commerce corporation.

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     (5) “Credit allowance date” means the date on which a capital investment is made and each

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of the five (5) anniversary dates of the date thereafter.

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     (6) “Eligible business” means a business that, at the time of the initial qualified investment

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in the company:

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     (i) Has less than two hundred fifty (250) employees;

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     (ii) Has not more than fifteen million dollars ($15,000,000) in net income from the

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preceding tax year;

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     (iii) Has its principal business operations in this state; and

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     (iv) Is engaged in industries related to clean energy, biomedical innovation, life sciences,

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information technology, software, cyber physical systems, cybersecurity, data analytics, defense,

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shipbuilding, maritime, composites, advanced business services, design, food, manufacturing,

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transportation, distribution, logistics, arts, education, hospitality, tourism, or, if not engaged in the

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industries, the corporation makes a determination that the investment will be beneficial to the

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economic growth of the state.

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     (7) “Eligible distribution” means:

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     (i) A distribution of cash to one or more equity owners of a small business fund investor to

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fully or partially offset a projected increase in the owner’s federal or state tax liability, including

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any penalties and interest, related to the owner’s ownership, management, or operation of the small

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business fund investor;

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     (ii) A distribution of cash as payment of interest and principal on the debt of the small

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business fund investor or small business development fund; or

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     (iii) A distribution of cash related to the reasonable costs and expenses of forming,

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syndicating, managing, and operating the small business fund investor or the small business

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development fund, or a return of equity or debt to affiliates of a small business fund investor or

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small business development fund. The distributions may include reasonable and necessary fees paid

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for professional services, including legal and accounting services, related to the formation and

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operation of the small business development fund.

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     (8) “Jobs created” means a newly created position of employment that was not previously

 

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located in the state at the time of the qualified investment in the eligible business and requiring a

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minimum of thirty five (35) hours worked each week, measured each year by subtracting the

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number of full-time, thirty-five hours-per-week (35) employment positions at the time of the initial

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qualified investment in the eligible business from the monthly average of full-time, thirty-five

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hours-per-week (35) employment positions for the applicable year. The number shall not be less

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than zero.

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     (9) “Jobs retained” means a position requiring a minimum of thirty five (35) hours worked

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each week that existed prior to the initial qualified investment. Retained jobs shall be counted each

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year based on the monthly average of full-time, thirty-five hours-per-week (35) employment

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positions for the applicable year. The number shall not exceed the initial amount of retained jobs

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reported and shall be reduced each year if employment at the eligible business concern drops below

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that number.

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     (10) “Minority business enterprise” means an eligible business which is certified by the

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Rhode Island office of diversity, equity and opportunity, or approved by the commerce corporation

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for the purposes of this chapter, as being a minority or women business enterprise.

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     (11) “Principal business operations” means the location where at least sixty percent (60%)

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of a business’s employees work or where employees who are paid at least sixty percent (60%)

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percent of the business’s payroll work. A business that has agreed to relocate employees using the

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proceeds of a qualified investment to establish its principal business operations in a new location

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shall be deemed to have its principal business operations in the new location if it satisfies these

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requirements no later than one hundred eighty (180) days after receiving a qualified investment.

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     (12) “Purchase price” means the amount paid to the small business development fund that

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issues a capital investment that shall not exceed the amount of capital investment authority certified

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pursuant to § 42-64.33-4.

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     (13) “Qualified investment” means any investment in an eligible business or any loan to

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an eligible business with a stated maturity date of at least one year after the date of issuance,

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excluding revolving lines of credit and senior secured debt unless the eligible business has a credit

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refusal letter or similar correspondence from a depository institution or a referral letter or similar

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correspondence from a depository institution referring the business to a small business development

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fund; provided that, with respect to any one eligible business, the maximum amount of investments

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made in the business by one or more small business development funds, on a collective basis with

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all of the businesses’ affiliates, with the proceeds of capital investments shall be twenty percent

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(20%) of the small business development fund’s capital investment authority, exclusive of

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investments made with repaid or redeemed investments or interest or profits realized thereon. An

 

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eligible business, on a collective basis with all of the businesses’ affiliates, is prohibited from

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receiving more than four million dollars ($4,000,000) in investments from one or more small

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business development funds with the proceeds of capital investments.

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     (14) “Small business development fund” means an entity certified by the corporation under

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§ 42-64.33-4.

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     (15) “Small business fund investor” means an entity that makes a capital investment in a

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small business development fund.

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     (16) “State” means the state of Rhode Island.

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     (17) “State tax liability” means any liability incurred by any entity under § 44-17-1 et seq.

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     42-64.33-4. Application, approval and allocations.

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     (a) A small business development fund that seeks to have an equity or debt investment

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certified as a capital investment and eligible for credits under this chapter shall apply to the

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corporation. The corporation shall begin accepting applications within ninety (90) days of July 5,

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2019. The small business development fund shall include the following:

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     (1) The amount of capital investment requested;

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     (2) A copy of the applicant’s or an affiliate of the applicant’s license as a rural business

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investment company under 7 U.S.C. § 2009cc, or as a small business investment company under

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15 U.S.C. § 681, and a certificate executed by an executive officer of the applicant attesting that

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the license remains in effect and has not been revoked;

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     (3) Evidence that, as of the date the application is submitted, the applicant or affiliates of

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the applicant have invested at least one hundred million dollars ($100,000,000) in nonpublic

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companies;

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     (4) An estimate of the number of jobs that will be created or retained in this state as a result

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of the applicant’s qualified investments;

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     (5) A business plan that includes a strategy for reaching out to and investing in minority

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business enterprises and a revenue impact assessment projecting state and local tax revenue to be

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generated by the applicant’s proposed qualified investment prepared by a nationally recognized,

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third-party, independent economic forecasting firm using a dynamic economic forecasting model

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that analyzes the applicant’s business plan over the ten (10) years following the date the application

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is submitted to the corporation; and

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     (6) A nonrefundable application fee of five thousand dollars ($5,000), payable to the

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corporation.

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     (b) Within thirty (30) days after receipt of a completed application, the corporation shall

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grant or deny the application in full or in part. The corporation shall deny the application if:

 

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     (1) The applicant does not satisfy all of the criteria described in subsection (a) of this

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section;

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     (2) The revenue impact assessment submitted with the application does not demonstrate

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that the applicant’s business plan will result in a positive economic impact on this state over a ten-

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year (10) period that exceeds the cumulative amount of tax credits that would be issued to the

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applicant if the application were approved; or

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     (3) The corporation has already approved the maximum amount of capital investment

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authority under subsection (g) of this section.

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     (c) If the corporation denies any part of the application, it shall inform the applicant of the

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grounds for the denial. If the applicant provides any additional information required by the

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corporation or otherwise completes its application within fifteen (15) days of the notice of denial,

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the application shall be considered completed as of the original date of submission. If the applicant

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fails to provide the information or fails to complete its application within the fifteen-day (15)

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period, the application remains denied and must be resubmitted in full with a new submission date.

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     (d) If the application is deemed to be complete and the applicant deemed to meet all of the

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requirements of subsections (a) and (b), the corporation shall certify the proposed equity or debt

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investment as a capital investment that is eligible for credits under this chapter, subject to the

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limitations contained in subsection (g) of this section. The corporation shall provide written notice

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of the certification to the small business development fund.

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     (e) The corporation shall certify capital investments in the order that the applications were

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received by the corporation. Applications received on the same day shall be deemed to have been

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received simultaneously.

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     (f) For applications that are complete and received on the same day, the corporation shall

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certify applications in proportionate percentages based upon the ratio of the amount of capital

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investments requested in an application to the total amount of capital investments requested in all

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applications.

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     (g) The corporation shall certify sixty-five million dollars ($65,000,000) in capital

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investments pursuant to this section; provided that not more than twenty million dollars

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($20,000,000) may be allocated to any individual small business development fund certified under

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this section except that the corporation in its discretion may allocate more than twenty million

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dollars ($20,000,000) to a small business development fund or its affiliate that has already fully

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deployed an allocation certified under this section.

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     (h) Within sixty (60) days of the applicant receiving notice of certification, the small

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business development fund shall issue the capital investment to and receive cash in the amount of

 

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the certified amount from a small business fund investor. At least forty-five percent (45%) of the

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small business fund investor’s capital investment shall be composed of capital raised by the small

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business fund investor from sources, including directors, members, employees, officers, and

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affiliates of the small business fund investor, other than the amount of capital invested by the

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allocatee claiming the tax credits in exchange for the allocation of tax credits; provided that at least

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ten percent (10%) of the capital investment shall be derived from the small business investment

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fund’s managers. The small business development fund shall provide the corporation with evidence

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of the receipt of the cash investment within sixty-five (65) days of the applicant receiving notice of

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certification. If the small business development fund does not receive the cash investment and issue

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the capital investment within the time period following receipt of the certification notice, the

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certification shall lapse and the small business development fund shall not issue the capital

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investment without reapplying to the corporation for certification. Lapsed certifications revert to

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the authority and shall be reissued pro rata to applicants whose capital investment allocations were

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reduced pursuant to this chapter and then in accordance with the application process.

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     SECTION 2. This act shall take effect upon passage.

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EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N   A C T

RELATING TO STATE AFFAIRS AND GOVERNMENT -- THE RHODE ISLAND SMALL

BUSINESS DEVELOPMENT FUND

***

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     This act would expand on the definition of a minority business as a business which self-

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certifies that it meets the eligibility criteria of a minority business enterprise as defined under the

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Rhode Island department of administration’s rules 220-RICR-80-10-1. Additionally, this act would

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allow a corporation in its discretion to allocate more than twenty million dollars ($20,000,000) to

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a small business development fund or its affiliate that has already fully deployed an allocation

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certified under this section.

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     This act would take effect upon passage.

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