85th Texas Legislature

The 85th Texas Legislature will convene in Austin on January 10, 2017 for its 140-day regular session. During the session, TxVCA will post the latest information concerning proposed legislation, hearings, or other issues affecting TxVCA members in this section of the web site.

Members will be notified immediately of any legislative action affecting them through the TxVCA UDPATE - the association's electronic newsletter. Below is a brief summary of some of the association's past accomplishments before the Texas Legislature.

Bill Tracking

During each session of the Texas Legislature, TxVCA monitors legislation filed in both houses that could impact members if passed. When these bills are identified, they will be posted in this section of the site where members can view the bill, read its content, and check its current status.

HB/SB Author Bill Caption
HB 823 Rep. Tan Parker Relating to the self-directed and semi-independent status of the State Securities Board; authorizing fees.
     
     
     

Interim Charges

Currently, the association is monitoring House and Senate committee hearings on the interim charges issued late last year by the Speaker of the House and Lt. Gov. Speaker Straus issued more than 150 interim charges , directing committees to study a laundry list of topics such as the security and the effect of the plummeting cost of oil on the state's economy.

“The next legislative session is more than a year away, but the work of that session starts now,” Straus said. “While these assignments cover a wide variety of issues, they focus on three core priorities: supporting private-sector growth, creating opportunity through education and continuing to make government more transparent and accountable.”

House Interim Charges

Both chambers will also look at whether lawmakers can repeal the unpopular franchise tax paid by businesses next session.

Senate Interim Charges - Part V: Finance and Businesss & Commence

Accomplishments

79th Texas Legislature (2005)
SB 121 - Disclosure Bill
In 2005, the Texas Legislature passed SB 121 - the so-called "disclosure bill" for government bodies investing in private investment funds.

The final bill requires all government entities investing in private investment funds, such as venture capital funds, to disclose 16 items of information about the fund, but not the portfolio companies in the fund. In addition, if information requested beyond the 16 required items was prepared or provided by the fund, or prepared or maintained by the governmental body, the information is not subject to disclosure.

Throughout the legislative process, TxVCA led in changing the original bill language to the final version that protects venture capital funds from disclosing critical information about the portfolio companies within the fund. The following is a summary of the final bill:

  1. 1. The bill contains sufficient safeguards to protect all fund information from disclosure outside of the 16 required items and all portfolio company information.

  2. 2. The 16 required items to be disclosed are general fund performance information, which when disclosed, will not harm the operation or development of the fund, and provide adequate information to the public about the participants and progress of the fund.

  3. 3. Even though under this bill the Attorney General retains the right to rule on whether a request for information is outside of the 16 required items, and whether one or all of the 16 required items apply to portfolio company information, the language contained in Sections 552.143(a) and (b) and Section 552.0225(d) specifically restricts the AG's ability to rule in this manner and significantly improves the legal position of a fund to defend the disclosure of this information when compared to the current legal threshold that must be met under the current "trade secrets" and "competitive harm" provisions of the Open Records Act.

  4. 4. The burden of proof to show that a request for information is outside of the 16 required items would be far less onerous than the current burden under the "trade secrets" and "competitive harm" provisions of the Open Records Act and would be far less likely to require any involvement by a fund whose information is being requested.

Below are the 16 items required to be disclosed by government entities investing in venture capital funds:

  1. the name of the fund.
  2. the date the fund was established.
  3. each date the governmental body invested in the fund.
  4. the amount of money the governmental body has committed to the fund.
  5. the amount of money the governmental body is investing or has invested in the fund.
  6. the total amount of money the governmental body received from the fund.
  7. the internal rate of return used by the governmental body in connection with the fund and the date the return was calculated.
  8. the remaining value of the fund.
  9. the total amount of fees, including expenses, charges, and other compensation assessed to or paid by the governmental body to the fund.
  10. the names of the principals responsible for managing the fund.
  11. each recusal filed by a member of the governing board in connection with a deliberation or action of the governmental body relating to the fund.
  12. a description of the types of businesses in the fund.
  13. the minutes of each portion of a meeting of the governmental body at which one of these 16 items is discussed.
  14. the governmental body’s percentage ownership interest in the fund.
  15. any annual ethics disclosure reports submitted to the governmental body by a fund.
  16. the cash-on-cash return realized by the governmental body for the fund.

80th Texas Legislature (2007)
HB 3928 - Clarification of an Active Trade or Business

In 2007, TxVCA pursued an amendment to the new gross margins tax that was passed by the Texas Legislature during its 2006 special session. The association sought to clarify that holding a seat on the board of directors of an entity does not constitute conduct of an active trade or business. The amendment was contained in the final version of the margins tax “clean-up” bill passed during this session. This amendment was essential to venture capital for several reasons:

  • The new gross margins tax provides that an entity that receives less than 10 percent of its federal gross income from conducting an “active trade or business” is not subject to the new “gross margins tax”. This is the so-called “passive entity” exception in act.

  • Venture capital firms often place a representative on boards of businesses in which they invest to oversee their investment. They are not active in the operation of the business but merely oversee and monitor the management of the other business in which they have invested. 

  • When an otherwise exempt venture capital investment partnership has a representative on the board of directors of another entity, the mere presence of the board member could be misinterpreted to mean that the venture capital investment partnership was engaged in the active conduct of business of the entity in which it had merely invested.

  • The active enterprise (i.e., the business in which the venture capital firm invests) will be subject to and will pay the new gross margins tax. The amendment TxVCA passed clarifies the same income from the active business enterprise is not then imputed to a passive investment entity and taxed again merely because the passive entity (i.e., the venture capital firm) has a representative on the board.

  • The new tax requires the entity perform active “management and operational functions” in order to be subject to the gross margins tax. A board member would only be involved in management functions, not operational functions. To clarify this point, the TxVCA amendment provides that merely holding a seat on a board of directors does not constitute conduct of an active trade or business.

81st-84th Texas Legislature
In the last four sessions of the Texas Legislature, TxVCA has prevented any legislation harmful to the venture capital industry from being passed. This is mainly due to the association being recognized as an established political voice within the Capitol. In most instances, the association is now consulted by legislators beforehand on issues that might impact the venture capital industry within the state.

For example, one of the interim charges issued by House Speaker Joe Straus before last year's session called for the House Committee on Economic and Small Business Development to "Study venture capital investment in the state and determine how Texas compares to other states in attracting venture capital dollars and make recommendations to improve Texas's ability to attract venture capital investment." TxVCA was invited to be the lead witness at the committee's hearing.