C.R.S. § 10-3.5-101 Short title
10-3.5-101. Short title. This article shall be known and may be cited as the "Certified Capital Company Act".
Certified Capital Companies
C.R.S. tit. 10, art. 3.5
in effectC.R.S. § 10-3.5-102 Legislative declaration
10-3.5-102. Legislative declaration. (1) The primary purpose of the "Certified Capital Company Act" is to provide assistance in the formation of new businesses and the expansion of existing businesses that create jobs in the state by providing an incentive for insurance companies to invest in certified capital companies.
(2) The general assembly hereby:
(a) Finds that the legislative audit committee of the general assembly has evaluated the implementation of the "Certified Capital Company Act" pursuant to Senate Joint Resolution 03-050, enacted at the first regular session of the sixty-fourth general assembly;
(b) Determines that the allocation of premium tax credits under the "Certified Capital Company Act" that was to be made after January 31, 2004, has been repealed and reallocated pursuant to the provisions of Senate Bill 04-106 and House Bill 04-1206, enacted at the second regular session of the sixty-fourth general assembly, which leaves only those premium tax credits allocated before January 31, 2004, remaining subject to the "Certified Capital Company Act"; and
(c) Declares that:
(I) The "Certified Capital Company Act" should be modified to more efficiently and effectively achieve the purposes for which it was enacted, in particular by amending the method by which the office of economic development calculates certified capital companies' internal rate of return to address ambiguities and weaknesses in current law; and
(II) Those purposes are best served by prospectively amending the "Certified Capital Company Act" pursuant to Senate Bill 04-247 and House Bill 04-1190, enacted at the second regular session of the sixty-fourth general assembly. No provision of this article shall be construed to retrospectively modify any existing statutory, regulatory, or contractual obligation.
C.R.S. § 10-3.5-103 Definitions
10-3.5-103. Definitions. As used in this article, unless the context otherwise requires:
(1) (a) "Affiliate", with respect to a certified capital company or insurance company, means:
(I) Any person who, directly or indirectly, beneficially owns (whether through rights, options, convertible interests, or otherwise), controls, or holds power to vote fifteen percent or more of the outstanding voting securities or other voting ownership interests of the certified capital company or insurance company, as applicable;
(II) Any person, fifteen percent or more of whose outstanding voting securities or other voting ownership interests are directly or indirectly beneficially owned (whether through rights, options, convertible interests, or otherwise), controlled, or held with power to vote by the certified capital company or insurance company, as applicable;
(III) Any person who, directly or indirectly, controls, is controlled by, or is under common control with the certified capital company or insurance company, as applicable;
(IV) A partnership in which the certified capital company or insurance company, as applicable, is a general partner; or
(V) Any person who is an officer, director, employee, or agent of the certified capital company or insurance company, as applicable, or an immediate family member of such officer, director, employee, or agent.
(b) Notwithstanding paragraph (a) of this subsection (1), an investment by a certified investor in a certified capital company pursuant to an allocation of premium tax credits in accordance with section 10-3.5-106 shall not cause such certified capital company to become an affiliate of such certified investor.
(2) "Allocation date" means the date on which the office allocates premium tax credits to the certified investors of a certified capital company.
(3) "Certified capital" means an amount of cash that:
(a) Is invested by a certified investor in a certified capital company; and
(b) Fully funds the purchase price of either or both the certified investor's equity interest in the certified capital company or a qualified debt instrument issued by the certified capital company.
(4) "Certified capital company" means a partnership, corporation, trust, or limited liability company, organized on a for-profit basis, that has its principal office located or is headquartered in Colorado, that has as its primary business activity the investment of cash in qualified businesses or qualified rural businesses, and that is certified by the office as meeting the criteria of this article.
(5) "Certified investor" means any insurance company that contributes certified capital pursuant to an allocation of premium tax credits as set forth in section 10-3.5-106.
(6) "Designated rural county" means any county, but not any city and county, in this state that, as of June 9, 2001, has a population of not more than one hundred fifty thousand people and, if the county's population exceeds twenty thousand people, that has a growth rate that does not exceed the statewide average for the period 1990-2000 by more than twenty-five percent as defined in the two most recent decennial censuses.
(7) "Distressed urban community" means any county or portion of a county in this state as defined by the office.
(8) "Office" means the Colorado office of economic development, created in section 24-48.5-101, C.R.S.
(9) "Person" means any natural person or entity, including without limitation a corporation, general or limited partnership, trust, or limited liability company.
decennial censuses.
(7) "Distressed urban community" means any county or portion of a county in this state as defined by the office.
(8) "Office" means the Colorado office of economic development, created in section 24-48.5-101, C.R.S.
(9) "Person" means any natural person or entity, including without limitation a corporation, general or limited partnership, trust, or limited liability company.
(10) "Premium tax credit allocation claim" means a claim for allocation of premium tax credits prepared and executed by a certified investor on a form provided by the office and filed by a certified capital company with the office. The form shall indicate whether the premium tax credit allocation claim is for an allocation of premium tax credits pursuant to section 10-3.5-106 (2)(a)(I) or (2)(a)(II) and shall include an affidavit of the certified investor pursuant to which such certified investor shall become legally bound and irrevocably committed to make an investment of certified capital in a certified capital company in the amount allocated, even if such amount is less than the amount of the claim, subject only to the receipt of an allocation pursuant to section 10-3.5-106.
(11) "Qualified business" means a business that:
(a) Meets all of the following conditions as of the time of a certified capital company's first investment in the business if that investment occurred before May 27, 2004:
(I) It is headquartered in this state, and its principal business operations are located in this state;
(II) It is a small business concern as described in the small business size regulations of the United States small business administration, 13 CFR 121.201; and
(III) It is not a business predominantly engaged in professional services provided by accountants or lawyers.
(b) Subject to paragraph (c) of this subsection (11), meets all of the following conditions as of the time of a certified capital company's first investment in the business if that investment occurs on or after May 27, 2004:
(I) Either of the following:
(A) It is headquartered in this state, its principal business operations are located in this state, and the certified capital company has a reasonable expectation, based upon an affidavit of one of the principal officers of the business or other comparable evidence, that the business intends to preserve its headquarters and principal place of business in Colorado for at least three years after the qualified investment and that it will expend substantially all of the qualified investment within Colorado pursuant to criteria adopted by the office by rule. If a business meets some but not all of the criteria of this sub-subparagraph (A), the business may nevertheless be deemed to be a qualified business if the Colorado economic development commission determines that an investment of certified capital proposed by a certified capital company pursuant to this article will further the economic development of the state.
(B) It has entered into a contract with the certified capital company to comply, within ninety days after finalization of the contract, with sub-subparagraph (A) of this subparagraph (I), and the contract contains enforceable provisions requiring a return of any investment of certified capital if the business fails to so comply.
(II) It is a small business concern as described in the small business size regulations of the United States small business administration, 13 CFR 121.201; and
(III) It is not a business predominantly engaged in:
(A) Professional services provided by accountants, doctors, or lawyers;
(B) Banking or lending;
(C) Real estate development;
(D) Insurance;
(E) Oil and gas exploration;
(F) Direct gambling activities, which shall not include ancillary gambling equipment and other indirect gambling activities, as defined by the office; or
(G) Businesses that make loans to or invest in a certified capital company or an affiliate of a certified capital company or insurance company.
(B) Banking or lending;
(C) Real estate development;
(D) Insurance;
(E) Oil and gas exploration;
(F) Direct gambling activities, which shall not include ancillary gambling equipment and other indirect gambling activities, as defined by the office; or
(G) Businesses that make loans to or invest in a certified capital company or an affiliate of a certified capital company or insurance company.
(c) Any business that is classified as a qualified business pursuant to paragraph (b) of this subsection (11) at the time of the first qualified investment in said business shall remain classified as a qualified business, may receive continuing qualified investments, and such continuing investments shall be qualified investments even though such business may not meet the definition of a qualified business at the time of such continuing investments; except that, unless otherwise determined by the economic development commission, such business shall not be eligible to receive further qualified investments if:
(I) It has relocated its headquarters or principal business operations outside of this state; or
(II) It has not expended substantially all of its prior qualified investments within Colorado pursuant to criteria adopted by the office by rule; except that this limitation shall not be deemed to either:
(A) Preclude the purchase of services or goods from outside of Colorado if such services are performed and such goods are used in Colorado; or
(B) Apply retroactively to disqualify a qualified investment previously approved by the office after the qualified investment has been made.
(12) "Qualified debt instrument" means a debt instrument issued by a certified capital company, at par value or a premium, with an original maturity date of at least five years after the date of issuance, a repayment schedule that is no faster than a level principal amortization over five years, and interest, distribution, or payment features that are not related to the profitability of the certified capital company or the performance of the certified capital company's investment portfolio.
(13) "Qualified distribution" means any distribution out of certified capital in connection with any of the following:
(a) Reasonable costs and expenses of forming, syndicating, and organizing the certified capital company, including reasonable and necessary fees paid for professional services, including, but not limited to, legal and accounting services, related to the formation of the certified capital company, and the cost of financing and insuring the obligations of the certified capital company;
(b) Reasonable costs and expenses of managing and operating the certified capital company, including an annual management fee in an amount that does not exceed two and one-half percent of certified capital; except that:
(I) No such cost or expense shall be paid to a certified investor or affiliate of a certified investor;
(II) No such cost or expense shall be paid for federal or state taxes, including penalties and interest related to state and federal income taxes, of the equity owners of a certified capital company resulting from a tax liability of the certified capital company; and
(III) Such costs and expenses in the aggregate shall not exceed five percent of certified capital in any one year;
(c) Reasonable and necessary fees in accordance with industry custom for professional services, including but not limited to legal and accounting services, related to the operation of the certified capital company; except that such professional services shall not be construed to include litigation challenging the validity or effect of this article, lobbying, or governmental relations.
y one year;
(c) Reasonable and necessary fees in accordance with industry custom for professional services, including but not limited to legal and accounting services, related to the operation of the certified capital company; except that such professional services shall not be construed to include litigation challenging the validity or effect of this article, lobbying, or governmental relations.
(d) (Deleted by amendment, L. 2004, p. 1, § 1, effective January 20, 2004.)
(14) (a) "Qualified investment" means the investment of cash by a certified capital company in a qualified business or qualified rural business for the purchase of any debt, debt participation, equity, or hybrid security, including a debt instrument or security that has the characteristics of debt but provides for conversion into equity or equity participation instruments, including, but not limited to, options or warrants; except that, with respect to all certified capital invested pursuant to an allocation of tax credits pursuant to section 10-3.5-106 (2)(a)(I), the investment shall be made in a qualified rural business.
(b) Unless previously approved by the office based upon unique circumstances, a certified capital company shall not make a loan on or after May 27, 2004, to a qualified business or qualified rural business unless the business has received two written loan rejection letters from two different commercial banks that are federally or state chartered in Colorado and that make small business loans, at least one of which banks is a preferred or certified lender designated by the federal small business administration. Any such loan by a certified capital company shall not be made through or in connection with any guaranteed loan program. Additionally, a certified capital company shall not make a loan on or after May 27, 2004, to a qualified business or qualified rural business unless the state's revolving loan fund that covers the area where the business is located has declined the loan.
(15) "Qualified rural business" means a qualified business that has its principal business operations in a designated rural county.
(15.5) "Seed or early stage", in reference to a qualified business, means that the qualified business, at the time of the initial qualified investment, either:
(a) Had less than five hundred thousand dollars in total revenues for the fiscal year immediately preceding the initial qualified investment;
(b) Has received no more than one investment from a professional venture capital firm with funds raised from institutional investors; or
(c) Does not have positive operational cash flow for the fiscal year immediately preceding the initial qualified investment.
(16) "State premium tax liability" means any liability incurred by an insurance company under the provisions of sections 10-3-209 and 10-6-128, or, in the case of a repeal or reduction by the state of the liability imposed by section 10-3-209 or 10-6-128, any other tax liability imposed upon an insurance company by the state.
C.R.S. § 10-3.5-104 Certification - fees
10-3.5-104. Certification - fees. (1) The office shall establish by rule the procedures for making an application to become a certified capital company.
(2) An applicant shall:
(a) File an application with the office;
(b) Pay a nonrefundable application fee of seven thousand five hundred dollars at the time of filing the application;
(c) Have an equity capitalization at the time of seeking certification of five hundred thousand dollars or more in the form of unencumbered cash, marketable securities, or other liquid assets. The applicant shall submit as part of its application an audited balance sheet that contains an unqualified opinion of an independent certified public accountant issued not more than thirty-five days before the application date that states whether the applicant satisfies this equity capitalization requirement.
(d) Have at least two principals or at least two persons employed to manage the funds who each have at least two years of money management experience in the venture capital industry; except that an applicant that seeks to be certified with respect to premium tax credits to be allocated pursuant to section 10-3.5-106 (2)(a)(I) need only have at least two principals or at least two persons employed to manage the funds who each have at least two years of experience in either the venture capital or investment banking industry.
(3) The office shall verify whether the applicant meets the requirements of subsection (2) of this section.
(4) Any offering material involving the sale of securities of the certified capital company shall include the following statement:
By authorizing the formation of a certified capital company, the state does not necessarily endorse the quality of management or the potential for earnings of such company and is not liable for damages or losses to a certified investor in the company. Use of the word "certified" in an offering does not constitute a recommendation or endorsement of the investment by the Colorado office of economic development. If any applicable provisions of the "Certified Capital Company Act" are violated, the state may require forfeiture of unused premium tax credits and repayment of used premium tax credits.
(5) The office shall stamp applications for certification with the date and time of receipt. Within thirty days after receipt of an application, the office shall issue the certification or refuse the certification and communicate in detail to the applicant the grounds for the refusal, including suggestions for the removal of such grounds. The office shall review and approve or reject applications in the order submitted, treating all applications received on the same day as being received simultaneously; except that an application that is incomplete or for which additional information is requested by the office shall be treated as having been received on the date originally submitted only if the applicant submits the additional information within fifteen days after the office's request. The deadline for review may be extended by the office an additional ten days. The certification issued by the office shall indicate whether the certification is applicable only to credits to be allocated pursuant to section 10-3.5-106 (2)(a)(I).
(6) (a) No insurance company or affiliate of an insurance company shall, directly or indirectly:
(I) Beneficially own, whether through rights, options, convertible interests, or otherwise, fifteen percent or more of the voting securities or other voting ownership interests of a certified capital company;
(II) Manage a certified capital company; or
(III) Control the direction of investments for a certified capital company.
or affiliate of an insurance company shall, directly or indirectly:
(I) Beneficially own, whether through rights, options, convertible interests, or otherwise, fifteen percent or more of the voting securities or other voting ownership interests of a certified capital company;
(II) Manage a certified capital company; or
(III) Control the direction of investments for a certified capital company.
(b) A certified capital company may obtain a guaranty, indemnity, bond, insurance policy, or other payment undertaking for the benefit of its certified investors from any entity; except that in no case shall more than one certified investor of such certified capital company or affiliate of such certified investor be entitled to provide such guaranty, indemnity, bond, insurance policy, or other payment undertaking in favor of the certified investors of the certified capital company and its affiliates in this state.
(c) This subsection (6) shall not preclude a certified investor, insurance company, or other party from exercising its legal rights and remedies, including, without limitation, interim management of a certified capital company, in the event that a certified capital company is in default of its statutory obligations or its contractual obligations to such certified investor, insurance company, or other party.
C.R.S. § 10-3.5-105 Premium tax credit
10-3.5-105. Premium tax credit. (1) Any certified investor that makes an investment of certified capital pursuant to an allocation of premium tax credits as set forth in section 10-3.5-106 shall, during the year of investment, earn a vested credit against state premium tax liability equal to one hundred percent of the certified investor's investment of certified capital. With respect to investments of certified capital made after January 31, 2002, but before January 31, 2004, a certified investor shall be entitled to take up to ten percent of the vested premium tax credit each year beginning in tax year 2003 and continuing thereafter for ten years or, if the credit is carried forward pursuant to subsection (2) of this section, until the credit is fully utilized.
(2) The credit to be applied against state premium tax liability in any one year shall not exceed the state premium tax liability of the certified investor for such taxable year. All unused credits against state premium tax liability may be carried forward for up to ten years from the date on which the credit may first be utilized.
(3) A certified investor claiming a credit against state premium tax liability earned through an investment in a certified capital company shall not be required to pay any additional or retaliatory tax as a result of claiming such credit.
C.R.S. § 10-3.5-106 Aggregate limitations on credits
10-3.5-106. Aggregate limitations on credits. (1) (a) The aggregate amount of certified capital for which premium tax credits are allowed for all certified investors under this article shall not exceed the amount that would entitle all certified investors in certified capital companies to take aggregate credits of ten million dollars per year for ten years beginning in tax year 2003, which certified capital may be invested in certified capital companies no earlier than January 31, 2002. A certified capital company, on an aggregate basis together with its affiliates, shall not file premium tax credit allocation claims in excess of the maximum amount of certified capital for which premium tax credits may be allowed at the time of filing as provided in this subsection (1); except that a certified capital company whose certification is applicable only to credits to be allocated pursuant to subparagraph (I) of paragraph (a) of subsection (2) of this section shall not file premium tax credit allocation claims in excess of the maximum amount of certified capital for which premium tax credits may be allowed pursuant to such subparagraph (I) at the time of filing.
(b) (I) Subject to subparagraph (II) of this paragraph (b) and pursuant to rules promulgated by the office, one or more certified investors may claim up to ten million dollars of state premium tax credits annually for ten years beginning in tax year 2005 for investments occurring on or after April 1, 2004, of certified capital in one or more certified capital companies to be used for qualified investments. With regard to such investments:
(A) Twenty-five percent of certified capital for which premium tax credits are allowed shall be allocated to certified investors in certified capital companies for investments in qualified rural businesses in the order in which premium tax credit allocation claims that request an allocation of premium tax credits under this sub-subparagraph (A) are filed with the office by certified capital companies on behalf of their certified investors; and
(B) After the certified capital has been allocated pursuant to sub-subparagraph (A) of this subparagraph (I), seventy-five percent of certified capital for which premium tax credits are allowed shall be allocated to certified investors in certified capital companies in the order in which premium tax credit allocation claims that request an allocation of premium tax credits under this sub-subparagraph (B) are filed with the office by certified capital companies on behalf of their certified investors.
(II) (A) Notwithstanding any other requirement of this article, of the ten million dollars of tax credits that would otherwise be claimed annually for ten years beginning in tax year 2005 pursuant to this subsection (1), five million dollars shall not be claimed pursuant to this subsection (1) and an equivalent amount of credits may instead be claimed annually pursuant to part 2 of article 46 of title 24, C.R.S.; except that, if H.B. 04-1206 is enacted at the second regular session of the sixty-fourth general assembly, becomes law, and is subsequently declared to be unconstitutional by a final judgment that invalidates the tax credits enacted by such bill, the remaining five million dollars of tax credits that would otherwise be claimed pursuant to this subsection (1) annually for each of the remaining calendar years through 2014 shall not be claimed pursuant to this subsection (1), and a total of ten million dollars of tax credits may instead be claimed annually for each of the remaining calendar years through 2014 pursuant to part 2 of article 46 of title 24, C.R.S.
(B) Repealed.
of tax credits that would otherwise be claimed pursuant to this subsection (1) annually for each of the remaining calendar years through 2014 shall not be claimed pursuant to this subsection (1), and a total of ten million dollars of tax credits may instead be claimed annually for each of the remaining calendar years through 2014 pursuant to part 2 of article 46 of title 24, C.R.S.
(B) Repealed.
(2) (a) With regard to investments to be made in certified capital companies no earlier than January 31, 2002, but prior to January 31, 2004:
(I) Twenty-five million dollars of certified capital for which premium tax credits are allowed shall be allocated to certified investors in certified capital companies in the order in which premium tax credit allocation claims that request an allocation of premium tax credits under this subparagraph (I) are filed with the office by certified capital companies on behalf of their certified investors; and
(II) After all twenty-five million dollars have been allocated pursuant to subparagraph (I) of this paragraph (a), seventy-five million dollars of certified capital for which premium tax credits are allowed shall be allocated to certified investors in certified capital companies in the order in which premium tax credit allocation claims that request an allocation of premium tax credits under this subparagraph (II) are filed with the office by certified capital companies on behalf of their certified investors.
(b) (Deleted by amendment, L. 2004, pp. 26, 46, §§ 5, 5, effective March 4, 2004.)
(3) If two or more certified capital companies file premium tax credit allocation claims seeking an allocation of premium tax credits pursuant to the same subparagraph of paragraph (a) of subsection (2) of this section with the office on behalf of their respective certified investors on the same day and the sum of such premium tax credit allocation claims exceeds, in the aggregate, the maximum aggregate amount available under such particular subparagraph at the time of filing, the capital for which premium tax credits are allowed under such particular subparagraph shall be allocated among the certified investors on a pro rata basis. The pro rata allocation for any one certified investor shall bear the same relation to the maximum aggregate amount available under such particular subparagraph at the time of filing, as that certified investor's premium tax credit allocation claim under such particular subparagraph bears to the total of all premium tax credit allocation claims seeking an allocation of premium tax credits pursuant to the same subparagraph of paragraph (a) of subsection (2) of this section filed on behalf of all certified investors on the same day.
(4) Within five business days after the office receives a premium tax credit allocation claim filed by a certified capital company on behalf of one or more of its certified investors, the office shall notify the certified capital company of the amount of tax credits allocated to each of the certified investors in such certified capital company.
n behalf of all certified investors on the same day.
(4) Within five business days after the office receives a premium tax credit allocation claim filed by a certified capital company on behalf of one or more of its certified investors, the office shall notify the certified capital company of the amount of tax credits allocated to each of the certified investors in such certified capital company.
(5) If a certified capital company does not receive an investment of certified capital equaling the amount of premium tax credits allocated to a certified investor for which it filed a premium tax credit allocation claim within five business days after its receipt of notice of allocation, that portion of the premium tax credits allocated to such certified investor in the certified capital company shall be forfeited and the office shall reallocate the certified capital among the other certified investors in all certified capital companies that filed premium tax credit allocation claims under the same subparagraph under which the forfeited credits were allocated on a pro rata basis in accordance with subsection (3) of this section. The office is authorized to levy a fine of not more than fifty thousand dollars on any certified investor that does not invest the full amount of certified capital allocated by the office to such investor in accordance with the premium tax credit allocation claim filed on its behalf.
(6) The maximum amount of premium tax credit allocation claims that any one certified investor and its affiliates may file in one or more certified capital companies shall not exceed fifteen percent of the maximum aggregate amount available under subsection (1) of this section at the time of such filing; except that a certified investor that files a premium tax credit allocation claim for an investment in a certified capital company whose certification is applicable only to credits to be allocated pursuant to subparagraph (I) of paragraph (a) of subsection (2) of this section shall not file, on an aggregate basis with its affiliates, premium tax credit allocation claims in excess of the maximum amount of certified capital for which premium tax credits may be allowed pursuant to such subparagraph (I) at the time of filing.
(7) Unless its certification indicates otherwise, a certified capital company may file premium tax credit allocation claims on behalf of its certified investors pursuant to either or both of the subparagraphs of paragraph (a) of subsection (2) of this section. If the certified investors of a certified capital company are allocated premium tax credits pursuant to both subparagraphs of paragraph (a) of subsection (2) of this section, the requirements of this act shall apply to the certified capital invested pursuant to each such allocation on a separate and independent basis.
C.R.S. § 10-3.5-107 Requirements for continuance of certification - fees
10-3.5-107. Requirements for continuance of certification - fees. (1) To continue to be eligible for certification, a certified capital company shall make qualified investments according to the following schedule:
(a) Within the period ending three years after an allocation date, a certified capital company shall have made qualified investments cumulatively equal to at least thirty percent of the certified capital allocated to its certified investors on such allocation date.
(b) Within the period ending five years after an allocation date, a certified capital company shall have made qualified investments cumulatively equal to at least fifty percent of the certified capital allocated to its certified investors on such allocation date.
(2) The aggregate cumulative amount of all qualified investments made by the certified capital company from an allocation date shall be considered in the calculation of the percentage requirements under this article. For purposes of satisfying the percentage requirements of subsection (1) of this section only, a certified capital company that has raised certified capital pursuant to an allocation under section 10-3.5-106 (2)(a)(II) shall be deemed to have invested two dollars for every dollar actually invested in a qualified rural business or qualified business that has its principal business operations located in a distressed urban community from certified capital raised under such section. Any proceeds received from a qualified investment may be invested in another qualified investment and shall count toward any requirement in this article with respect to investments of certified capital.
(3) Any business that is classified as a qualified business or qualified rural business at the time of the first investment in said business by a certified capital company shall remain classified as a qualified business or qualified rural business, as applicable, may receive continuing investments from any certified capital company or any of its affiliates, and such continuing investments shall be qualified investments even though such business may not meet the definition of a qualified business or qualified rural business, as applicable, at the time of such continuing investments; except that:
(a) A business that is a qualified business or qualified rural business at the time of the first investment by a certified capital company in such business when such investment occurs on or after May 27, 2004, but that subsequently violates the requirements of section 10-3.5-103 (11)(b)(I) or (11)(c) within the first six months after such qualified investment shall not be deemed to be a qualified business or qualified rural business, as applicable, for purposes of subsection (1) of this section and section 10-3.5-109 (2)(a) only, and may not receive continuing investments from any certified capital company or any of its affiliates.
(b) An investment in a business that relocates either its headquarters or its principal business operations outside of Colorado after six months but less than three years after the initial qualified investment shall:
(I) Not be deemed to satisfy a requirement of section 10-3.5-109 (2)(a) if such requirement has not already been complied with and if the relocation occurred during the certified capital company's investment in the business; and
(II) Be deemed to continue to satisfy a requirement of section 10-3.5-109 (2)(a) that has already been complied with and paragraphs (a) and (b) of subsection (1) of this section.
(4) A certified capital company shall not:
(a) Invest more than fifteen percent of its total certified capital in any one qualified business or qualified rural business; or
tal company's investment in the business; and
(II) Be deemed to continue to satisfy a requirement of section 10-3.5-109 (2)(a) that has already been complied with and paragraphs (a) and (b) of subsection (1) of this section.
(4) A certified capital company shall not:
(a) Invest more than fifteen percent of its total certified capital in any one qualified business or qualified rural business; or
(b) Own, through an initial qualified investment occurring on or after May 27, 2004, in aggregate total with a business that was organized by, is a franchisee of, or is an affiliate of, the certified capital company, more than forty-nine percent of any one qualified business or qualified rural business without the specific approval of the office; except that nothing in this paragraph (b) shall preclude a certified capital company from exercising any:
(I) Right or remedy upon a default by the qualified business pursuant to an investment contract; or
(II) Anti-dilution or preemptive rights it may have been granted in connection with an initial qualified investment that can be exercised upon an investment in the business by a party other than the certified capital company or an affiliate of the certified capital company.
(5) At its option, a certified capital company, before making a proposed investment in a specific business, may request from the office a written opinion that the business in which it proposes to invest should be considered a qualified business or qualified rural business, as applicable. Upon receiving such a request, the office shall have ten working days to determine whether the business meets the definition of a qualified business or qualified rural business, as applicable, and notify the certified capital company of its determination with an explanation of the determination. If the office fails to notify the certified capital company with respect to the proposed investment within such ten-working-day period, the business in which the certified capital company proposes to invest shall be deemed to be a qualified business or qualified rural business, as applicable. If the office determines that the business in which the certified capital company proposes to invest before May 27, 2004, does not meet all of the criteria set forth in section 10-3.5-103 (11)(a) or (15), as applicable, the office may nevertheless consider the business a qualified business or qualified rural business, as applicable, and approve the investment if the Colorado economic development commission determines that the proposed investment will further the economic development of the state.
(6) All certified capital not currently invested in qualified investments by the certified capital company shall be invested in:
(a) Cash that is deposited in a federally insured financial institution;
(b) Certificates of deposit in a federally insured financial institution;
(c) Investment securities that are obligations of the United States, its agencies, or instrumentalities or obligations that are guaranteed fully as to principal and interest by the United States;
(d) Debt instruments rated at least "AA" or its equivalent by a nationally recognized credit rating organization, or issued by, or guaranteed with respect to payment by, an entity whose unsecured indebtedness is rated at least "AA" or its equivalent by a nationally recognized credit rating organization, and that is not subordinated to other unsecured indebtedness of the issuer or the guarantor, as the case may be;
(e) Obligations of this state, any municipality in this state, or any political subdivision thereof;
(f) Interests in money market funds, the portfolios of which are limited to cash and obligations described in this subsection (6); or
nationally recognized credit rating organization, and that is not subordinated to other unsecured indebtedness of the issuer or the guarantor, as the case may be;
(e) Obligations of this state, any municipality in this state, or any political subdivision thereof;
(f) Interests in money market funds, the portfolios of which are limited to cash and obligations described in this subsection (6); or
(g) Any other investments approved in advance and in writing by the office.
(7) (a) As soon as practicable after the receipt of certified capital, each certified capital company shall provide the office with a copy of all documents relating to each certified investor's investment of certified capital and shall report the following to the office:
(I) The name of each certified investor from which the certified capital was received, including such certified investor's insurance premium tax identification number;
(II) The amount of each certified investor's investment of certified capital and premium tax credits; and
(III) The date on which the certified capital was received.
(b) On or before January 31 of each year, each certified capital company shall report the following to the office:
(I) The amount of the certified capital company's certified capital at the end of the immediately preceding year;
(II) Whether or not the certified capital company has invested more than fifteen percent of its total certified capital in any one business;
(III) All qualified investments that the certified capital company made during the previous calendar year; and
(IV) The location and number of new jobs that have been created due to the certified capital company's qualified investments during the previous twelve months and since the certified capital company's initial qualified investment.
(c) Annually, and within ninety days after the close of its fiscal year, each certified capital company shall provide to the office an audited financial statement that includes the opinion of an independent certified public accountant. The audit shall address the methods of operation and conduct of the business of the certified capital company to determine if the certified capital company is complying with this article and the rules set forth by the office and that the moneys received by the certified capital company have been invested as required within the time limits provided by subsection (1) of this section.
(d) On or before January 31 of each year, each certified capital company shall pay to the office a nonrefundable certification fee of five thousand dollars; except that no such fee shall be required within six months of the initial allocation date of a certified capital company.
(e) During each calendar year from 2003 to 2010, the office shall hold a meeting in each of five counties that have populations of no more than one hundred fifty thousand persons at which a representative from each certified capital company shall be present to review business plans from qualified businesses headquartered in those counties.
C.R.S. § 10-3.5-108 Distributions - remittance of portion of proceeds
10-3.5-108. Distributions - remittance of portion of proceeds. (1) Subject to section 10-3.5-109 (2)(a), a certified capital company may make qualified distributions at any time.
(2) (a) Subject to section 10-3.5-109 (2)(a) and paragraph (b) of this subsection (2), in order to make a distribution occurring on or after May 27, 2004, out of proceeds or gains from qualified investments, proceeds or gains from any other use of certified capital, equity capitalization contributions paid into the certified capital company on or after May 27, 2004, or certified capital allocated to its certified investors on a particular allocation date other than a qualified distribution or a distribution pursuant to paragraph (b) of this subsection (2), a certified capital company shall:
(I) Have made qualified investments in an amount cumulatively equal to:
(A) One hundred percent of the certified capital allocated to its certified investors on such allocation date and have met the six-month requirement stated in section 10-3.5-107 (3)(a); and
(B) At least one-third of the certified capital allocated to its certified investors under section 10-3.5-106 (2)(a)(II) in qualified businesses that are in the seed or early stage. Seed or early stage investments of certified capital allocated under section 10-3.5-106 (2)(a)(II) and section 10-3.5-106 (2)(a)(I) shall both count toward meeting the requirement of this sub-subparagraph (B).
(II) Have proposed a distribution amount and calculated the amount of the transfers identified in subsection (3) of this section pursuant to rules promulgated by the office; and
(III) Make the transfers to the entities designated in paragraphs (c) and (d) of subsection (3) of this section.
(b) A certified capital company may make repayments of principal and interest on its indebtedness without any restriction whatsoever, including repayments of indebtedness of the certified capital company on which certified investors earned premium tax credits. A certified capital company may make a distribution:
(I) Without any restriction whatsoever to pay any projected increase in federal or state taxes, including penalties and interest related to federal and state income taxes, of the equity owners of a certified capital company resulting from operations or ownership of the certified capital company; or
(II) To return any equity capitalization paid into the certified capital company before May 27, 2004, from any equity capitalization contributions paid into the certified capital company before May 27, 2004, proceeds or gains from qualified investments, or proceeds or gains from any other use of certified capital.
(3) (a) (I) Subject to subparagraphs (II) and (III) of this paragraph (a), distributions out of proceeds or gains from qualified investments, proceeds or gains from any other use of certified capital, proceeds or gains from equity capitalization contributions, equity capitalization contributions, and certified capital allocated to certified investors on a particular allocation date shall be specifically examined as part of the annual review conducted pursuant to section 10-3.5-109. On the basis of such review, the office shall determine pursuant to rules whether the aggregate total of such distributions, when combined with all tax credits allocated on such allocation date and utilized pursuant to this article, have resulted in an annual internal rate of return exceeding ten percent on the certified capital allocated to the certified investors of the certified capital company on such allocation date plus any additional equity capital contributions to the certified capital company. Equity capital contributions shall not be deemed to include proceeds or gains from:
(A) Qualified investments;
(B) Any other use of certified capital; or
(C) Equity capital contributions.
(II) Qualified distributions shall not be subject to the review conducted pursuant to subparagraph (I) of this paragraph (a).
plus any additional equity capital contributions to the certified capital company. Equity capital contributions shall not be deemed to include proceeds or gains from:
(A) Qualified investments;
(B) Any other use of certified capital; or
(C) Equity capital contributions.
(II) Qualified distributions shall not be subject to the review conducted pursuant to subparagraph (I) of this paragraph (a).
(III) The following types of distribution shall specifically be subject to the review conducted pursuant to subparagraph (I) of this paragraph (a):
(A) A distribution to pay any projected increase in federal or state taxes of the equity owners of a certified capital company resulting from operations or ownership of the certified capital company;
(B) Repayments of principal and interest on a certified capital company's indebtedness, including repayments of indebtedness of the certified capital company on which certified investors earned premium tax credits;
(C) A distribution to return any equity capitalization paid into the certified capital company before May 28, 2004;
(D) A distribution to return any equity capitalization paid into the certified capital company on or after May 28, 2004; and
(E) Any other distribution other than a qualified distribution.
(b) (I) If the annual internal rate of return determined in accordance with paragraph (a) of this subsection (3) exceeds ten percent, then the certified capital company shall annually:
(A) Report to the division of housing in the department of local affairs the amount of money equal to twenty percent of any further distributions, from an item subject to subparagraph (I) or (III) of paragraph (a) of this subsection (3), above the amount required to produce such ten percent return; except that distributions for items described specifically in sub-subparagraph (A), (B), or (C) of subparagraph (III) of paragraph (a) of this subsection (3) shall either be reported to the division of housing or accrued for reporting at a later date as determined by the economic development commission; and except that in no event shall this sub-subparagraph (A) restrict a certified capital company's ability to make repayments of indebtedness, including making repayments of indebtedness of the certified capital company on which certified investors earned premium tax credits; and
(B) Make the transfers required pursuant to paragraphs (c) and (d) of this subsection (3).
(II) If the annual internal rate of return determined in accordance with paragraph (a) of this subsection (3) does not exceed ten percent, then the certified capital company shall annually:
(A) Report to the division of housing in the department of local affairs the amount of money equal to fifteen percent of the proposed distribution amount other than qualified distributions and distributions described in sub-subparagraphs (A), (B), and (C) of subparagraph (III) of paragraph (a) of this subsection (3);
(B) Make the transfers required pursuant to paragraphs (c) and (d) of this subsection (3); and
(C) Continue the fifteen percent distribution until the certified capital company's internal rate of return exceeds ten percent. At that time, all future transfer amounts shall be calculated using the method described in subparagraph (I) of this paragraph (b). Amounts previously transferred by the certified capital company shall be taken into consideration when determining the net amount of future transfers.
(III) The office shall promulgate rules to establish the procedures by which the internal rate of return is calculated and to govern other items such as the timing of distributions and the amount and timing of future capital contributions to the certified capital company to ensure that the calculation of the internal rate of return is accurately calculated.
ing the net amount of future transfers.
(III) The office shall promulgate rules to establish the procedures by which the internal rate of return is calculated and to govern other items such as the timing of distributions and the amount and timing of future capital contributions to the certified capital company to ensure that the calculation of the internal rate of return is accurately calculated.
(c) Upon the approval of the state housing board within the division of housing in accordance with rules promulgated by the board, the division shall direct each certified capital company that reports to the division pursuant to paragraph (b) of this subsection (3) to transfer to one or more local housing authorities, public nonprofit corporations, or private nonprofit corporations an amount of money equal to one-half of the amount identified in such report for:
(I) Development or redevelopment costs incurred prior to the completion or occupancy of low- or moderate-income housing, as defined in section 24-32-717 (4)(b), C.R.S., or for the rehabilitation of such housing;
(II) Providing incentives for the additional acquisition, construction, rehabilitation, or renovation of affordable housing that is made available to households of very low incomes and to households of senior citizens and that addresses the special needs of members of these communities, especially in connection with the availability of rental housing;
(III) Providing mixed-income housing to better ensure economic integration;
(IV) Ensuring the affordability of housing over the long term and helping to preserve project-based federally-authorized rental units;
(V) Allowing the state or a local government or any of their agencies to leverage federal, local, and private resources such as low-income housing tax credits, private activity bonds, mortgage revenue bonds, community development block grants, McKinney funds, home funds, private grants, and land donations to increase the pool of capital available to finance the provision of affordable housing;
(VI) Providing resources to local governments and other appropriate entities that result in the operation, construction, and renovation of emergency shelters and direct services linked to housing; or
(VII) Providing resources to local governments to assist home buyers with the financing of down payments or closing costs.
(d) The executive director of the department of human services shall direct each certified capital company that reports to the division pursuant to paragraph (b) of this subsection (3) to transfer to one or more approved community mental health clinics or approved community mental health centers, as defined in section 27-66-101, C.R.S., an amount of money equal to one-half of the amount identified in such report to be used solely for the purposes identified in sections 27-66-103 and 27-66-104 (3), C.R.S., taking into account the standards contained in section 27-66-105, C.R.S.
C.R.S. § 10-3.5-109 Annual review - decertification - penalties
10-3.5-109. Annual review - decertification - penalties. (1) The office shall conduct an annual review of each certified capital company to determine whether the certified capital company is abiding by the requirements of certification, to advise the certified capital company as to the eligibility status of its qualified investments, and to ensure that no investment has been made in violation of this article. The cost of the annual review shall be paid by each certified capital company according to a reasonable fee schedule adopted by the office.
(2) (a) (I) Within the period ending ten years after an allocation date, a certified capital company shall have made qualified investments in an amount cumulatively equal to:
(A) One hundred percent of the certified capital allocated to its certified investors on such allocation date. Failure to comply with this requirement shall not subject the certified capital company to decertification.
(B) At least one-third of the certified capital allocated to its certified investors under section 10-3.5-106 (2)(a)(II) in qualified businesses that are in the seed or early stage. Seed or early stage investments of certified capital allocated under section 10-3.5-106 (2)(a)(II) and section 10-3.5-106 (2)(a)(I) shall both count toward meeting the requirement of this sub-subparagraph (B). Failure to comply with this requirement shall not subject the certified capital company to decertification.
(II) Beginning on the tenth anniversary of an allocation date, a certified capital company shall make no further distributions of any kind, including qualified distributions, from certified capital or proceeds or gains from any type of investment of certified capital, unless and until the certified capital company has made qualified investments cumulatively equal to one hundred percent of the certified capital allocated to its certified investors on such allocation date; except that this subparagraph (II) shall not prohibit payments on indebtedness of the certified capital company, including indebtedness to certified investors, on qualified debt instruments or distributions permitted by section 10-3.5-108 (2)(b).
(III) If a certified capital company fails to have made qualified investments cumulatively equal to one hundred percent of the certified capital allocated to its certified investors on such allocation date within the period ending:
(A) Twelve years after an allocation date, the percentage reported to the division of housing in section 10-3.5-108 (3)(b) shall equal sixty percent.
(B) Sixteen years after an allocation date, the percentage reported to the division of housing in section 10-3.5-108 (3)(b) shall equal one hundred percent, and the economic development commission shall have the authority over all monetary and investment assets of the certified capital company, including, but not limited to, the ability to select a new manager for all future investments of the certified capital company's assets.
ation date, the percentage reported to the division of housing in section 10-3.5-108 (3)(b) shall equal one hundred percent, and the economic development commission shall have the authority over all monetary and investment assets of the certified capital company, including, but not limited to, the ability to select a new manager for all future investments of the certified capital company's assets.
(b) Any material violation of section 10-3.5-107 shall be grounds for decertification of the certified capital company, assessment of an administrative fine determined by the office by rule, or both. Any material violation of this article occurring on or after May 27, 2004, shall be grounds for assessment of an administrative fine pursuant to a schedule determined by the office by rule. Violations involving a use of funds that is unauthorized under this article shall require the repayment or reinvestment of the funds, and fines for such violations shall not exceed an amount equal to the amount of funds involved. Fines for violations not involving the misuse of funds shall not exceed one hundred thousand dollars. If the office determines that a certified capital company is not in compliance with the requirements referenced in this paragraph (b), it shall, by written notice, inform the officers of the certified capital company that the certified capital company may be subject to decertification, or the assessment of a fine as allowed by this paragraph (b), one hundred twenty days after the date of mailing of the notice unless the deficiencies are corrected and the certified capital company is again in compliance with all requirements for certification.
(c) (I) For the purpose of determining compliance with this article, including all requirements for distributions and certification, regardless of any claim that such records or operations are confidential or otherwise exempt from inspection, the office may, upon reasonable notice, inspect the records and operations of:
(A) A certified capital company; or
(B) If the information received pursuant to sub-subparagraph (A) of this subparagraph (I) is insufficient, a qualified business or qualified rural business.
(II) A record that is exempt from inspection pursuant to section 24-72-204, C.R.S., shall be exempt from inspection while in the custody of the office if the requirements of part 2 of article 72 of title 24, C.R.S., are complied with, and the office and its employees shall not disclose the confidential or exempt portions of the contents of any such record to anyone outside of the office unless disclosure of the confidential or exempt portions of the contents of such record is required to effectuate final administrative action against a certified capital company pursuant to this section.
(3) At the end of the one-hundred-twenty-day period provided in subsection (2) of this section, if the certified capital company is still not in compliance with the requirements referenced in paragraph (b) of subsection (2) of this section, the office may do either or both of the following, as appropriate:
(a) Send a notice of decertification to the certified capital company and to all other appropriate state agencies, including without limitation the division of insurance in the department of regulatory agencies;
company is still not in compliance with the requirements referenced in paragraph (b) of subsection (2) of this section, the office may do either or both of the following, as appropriate:
(a) Send a notice of decertification to the certified capital company and to all other appropriate state agencies, including without limitation the division of insurance in the department of regulatory agencies;
(b) Assess an administrative fine pursuant to paragraph (b) of subsection (2) of this section against the certified capital company. The assessment shall occur only after the director of the office holds a hearing in accordance with section 24-4-105, C.R.S. Judicial review may be obtained in the court of appeals pursuant to section 24-4-106 (11), C.R.S. The office shall transfer any such fine that it receives to the state treasurer, who shall credit it to the general fund.
(4) Decertification of a certified capital company may cause the recapture of premium tax credits previously claimed and the forfeiture of future premium tax credits to be claimed by certified investors with respect to such certified capital company, as follows:
(a) Decertification of a certified capital company within three years after an allocation date shall cause the recapture of all premium tax credits allocated to its certified investors on such allocation date that were previously claimed and the forfeiture of all premium tax credits allocated to its certified investors on such allocation date that are still to be claimed by certified investors with respect to such certified capital company.
(b) When a certified capital company meets all requirements for continued certification under section 10-3.5-107 (1)(a) with respect to certified capital allocated on a particular allocation date and subsequently fails to meet the requirements for continued certification under the provisions of section 10-3.5-107 (1)(b) with respect to such certified capital, those premium tax credits allocated to the certified investors of the certified capital company on such allocation date that have been or will be taken by certified investors within three years after such allocation date shall not be subject to recapture or forfeiture, but all other premium tax credits allocated to the certified investors of the certified capital company on such allocation date that have been or will be taken by certified investors shall be subject to recapture or forfeiture.
(c) Once a certified capital company has met all requirements for continued certification under section 10-3.5-107 (1) with respect to certified capital allocated on a particular allocation date and is subsequently decertified, those premium tax credits allocated to the certified investors of the certified capital company on such allocation date that have been or will be taken by certified investors within five years after such allocation date shall not be subject to recapture or forfeiture. Those premium tax credits allocated to the certified investors of the certified capital company on such allocation date to be taken after the fifth anniversary of such allocation date shall be subject to forfeiture only if the certified capital company is decertified within five years after such allocation date.
five years after such allocation date shall not be subject to recapture or forfeiture. Those premium tax credits allocated to the certified investors of the certified capital company on such allocation date to be taken after the fifth anniversary of such allocation date shall be subject to forfeiture only if the certified capital company is decertified within five years after such allocation date.
(d) Once a certified capital company has invested an amount cumulatively equal to one hundred percent of the certified capital allocated to its certified investors on a particular allocation date in qualified investments, all premium tax credits allocated to such certified investors on such allocation date that were claimed or remain to be claimed by its certified investors are no longer subject to recapture or forfeiture.
(5) Once a certified capital company has invested an amount cumulatively equal to one hundred percent of its certified capital in qualified investments and complied with sections 10-3.5-107 (3)(a) and 10-3.5-108 (2)(a)(I)(B), the certified capital company shall no longer be subject to regulation by the office except insofar as is necessary to oversee the distributions made pursuant to section 10-3.5-108 (3)(b).
(6) The office shall send written notice to the address of each certified investor whose premium tax credit has been subject to recapture or forfeiture, using the address shown on the most recent premium tax filing.
(7) The office shall have the authority to waive any recapture or forfeiture of credits if, after considering all facts and circumstances, it determines that such waiver will have the effect of furthering the economic development of the state.
C.R.S. § 10-3.5-110 Transferability
10-3.5-110. Transferability. The premium tax credit established pursuant to this article may be transferred or sold. The office shall promulgate rules to facilitate the transfer or sale of such premium tax credits. A transfer or sale shall not affect the time schedule for taking the premium tax credit as provided in this article. Any premium tax credits recaptured pursuant to section 10-3.5-109 shall be the liability of the taxpayer who actually claimed the premium tax credits.
C.R.S. § 10-3.5-111 Repeal of article
10-3.5-111. Repeal of article. This article 3.5 is repealed, effective July 1, 2025.
Source: Open US Law by Vaquill AI (CC BY 4.0)URL: https://leg.colorado.gov/sites/default/files/images/olls/crs2024-title-10.docxFetched: 10/6/2026