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Volume

46, No. 7

B.C. Reg. 145/2003

The

British Columbia Gazette,

Part II

April 8, 2003

B.C. Reg. 145/2003, deposited March 28, 2003, pursuant to the SMALL BUSINESS VENTURE CAPITAL ACT [Sections 8 and 37]. Order in Council 278/2003, approved and ordered March 28, 2003.

On the recommendation of the undersigned, the Lieutenant Governor, by and with the advice and consent of the Executive Council, orders that effective April 1, 2003, the Small Business Venture Capital Regulation, B.C. Reg. 390/98, is amended as set out in the attached Schedule. — R. THORPE, Minister of Competition, Science and Enterprise; G. CAMPBELL, Presiding Member of the Executive Council.

Schedule

Section 1 of the Small Business Venture Capital Regulation, B.C. Reg. 390/98, is amended by adding the following subsections:

(3.1) A debt instrument that meets all of the following criteria is hereby prescribed as an investment that is an eligible investment for the purposes of the definition of "eligible investment" in

section 1 of the Act:

(

a) if the debt instrument is secured by property, the property has a value that does not exceed 50% of the amount of the indebtedness under the debt instrument at the time of the investment;

(

b) the debt instrument does not

(

i) restrict the borrower from incurring other indebtedness, or

(ii) penalize the borrower for incurring other indebtedness;

(

c) the outstanding balance from time to time under the debt instrument bears interest at a rate not exceeding 12% a year, calculated semi-annually not in advance;

(

d) the debt instrument will be converted within 18 months after its issuance into one or more equity shares issued by a small business.

(3.2) A limited partnership unit for which the following criteria are met is a limited partnership unit for the purposes of

section 10 (1) (d) (iv) of the Act:

(

a) the limited partnership unit is issued by a limited partnership that

(

i) is formed under

section 51 of the Partnership Act ,

(ii) is managed by general partner who, if an individual, resides in British Columbia or, if a corporation, has a permanent establishment, as determined under the Income Tax Act (Canada), that is located in British Columbia,

(iii) within the same period as that prescribed under

section 8 (2) (

a) of the Act will make eligible investments in small businesses in amounts that, in total, are at least twice the amounts, in total, that the limited partnership has received from a venture capital corporation as investments made by it under

section 10, and

(iv) will keep the eligible investments described in subparagraph (iii) for at least the same period as that prescribed under

section 8 (2) (

b) of the Act;

(

b) the venture capital corporation investing in a limited partnership by acquiring the limited partnership unit as a limited partner has satisfied the administrator through agreements to which the venture capital corporation is a party, or by other documentary evidence, that

(

i) the venture capital corporation, or

(ii) any of its shareholders or their associates

will not claim, take advantage of or otherwise avail itself, himself or herself of any benefits, rights or entitlements, including, but not limited to, any benefits, rights or entitlements that are or may be available under the Income Tax Act (Canada), for the purpose of reducing the impact of any loss the venture capital corporation or a shareholder may sustain in holding or disposing of the limited partnership unit.

2 The following sections are added:

Eligible business corporation — permitted share transfers

3.1 The following circumstances are prescribed for the purposes of

section 28.6 (5) (

d) of the Act:

(

a) the share transfer is a direct share transfer by the purchaser to the purchaser's retirement savings plan or registered retirement income fund;

(

b) the share transfer is a direct share transfer by the purchaser to a spousal retirement savings plan or registered retirement income fund;

(

c) the share transfer is a share transfer to an executor or estate due to the death of a purchaser.

Minimum capital requirements

3.2

(1) For the purposes of

section 8 (2) (

a) of the Act, a venture capital corporation must have invested in eligible investments

(

a) an amount at least equal to 40% of the equity capital it has raised during any fiscal year, by the end of its first following fiscal year, and

(

b) an amount at least equal to 80% of the equity capital it has raised during any fiscal year, by the end of its second following fiscal year.

(2) For the purposes of

section 8 (2) (

b) of the Act, the a venture capital corporation must keep the amounts referred to in subsection (1) invested in eligible investments for at least 5 years after the date of the applicable investment.

(3) An amount referred to in subsection (

a) or (

b) is reduced by the amount of any dividend paid from the venture capital corporation to its shareholders or associates if the dividend is not one that is paid from the venture capital corpo-ration's

(

a) net income, or

(

b) retained earnings

calculated in accordance with generally accepted accounting principles.

Section 5 is amended by adding the following subsection:

(5) Despite the Company Act , a venture capital corporation, subject to its memorandum and articles,

(

a) may allot or issue fractional shares for any purpose, and

(

b) may purchase or redeem any of its fractional shares and need not consolidate them into whole shares.

Section 9 (1) (

b) is amended by striking out "29 000" and substituting "45 000".

Section 11 (1) is repealed and the following substituted:

(1) For the purposes of

section 10 (1) (

c) of the Act the following business activities are prescribed:

(

a) the manufacture and processing of goods within British Columbia, including services that are directly associated with the export of the goods and are provided inside or outside of British Columbia;

(

b) the development and operation of a destination tourist resort, a tourist attraction or a tourist service, if 50% or more of the gross revenue of the resort, attraction or service is derived from tourists;

(

c) the research and development of proprietary technologies produced within British Columbia including services that are directly associated with the export of the technology and are provided inside or outside of British Columbia;

(

d) an activity

(

i) that is carried on by a business located in a region outside the Greater Vancouver Regional District or the Capital Regional District, and

(ii) that promotes community diversification within the region;

(

e) the development within British Columbia for commercial exploitation of interactive digital media product that

(

i) educates, informs or entertains the user,

(ii) presents information using at least 2 of the mediums of text, sound or visual images,

(iii) is not developed for internal use for the promotion of the qualifying business including its products or services,

(iv) is not used primarily for interpersonal communication, and

(

v) is not a product for which public financial support would, in the opinion of the certifying authority, be contrary to public policy.

Section 12 (1) is amended by repealing everything before paragraph (

b) and substituting the following:

(1) A venture capital corporation may incur annual expenses of no more than 20% of its equity capital raised under

section 9 of the Act, other than expenses paid out of retained earnings, if

(

a) the expenses are reasonable and are incurred for

(

i) share issuance,

(ii) office occupancy,

(iii) legal fees,

(iv) preparation of financial accounts by an external accountant,

(

v) preparation of the annual return under

section 20, or

(vi) a management fee of no more than 3% per annum of the equity capital raised, and .

Section 14 is amended

(

a) by adding "or eligible business corporation" after "venture capital corporation",

(

b) in paragraph (

e) by striking out "or 19 of the Act" and substituting ", 19, 28.3, 28.4, 28.5, 28.6 (3), 28.6 (4) or 28.93 of the Act",

(

c) in paragraph (

f) by adding "or eligible business corporation" after "venture capital corporation", and

(

d) in paragraph (

g) by adding ", redeeming or canceling" after "acquiring".

Section 15 is amended by striking out "section 12 (1) (e) (ii)" and substituting "sections 12 (1) (

e) and 28.93 (e)".

Section 21 is repealed and the following substituted:

Annual maximum venture capital incentive

21 With respect to venture capital tax credits for venture capital corporations to hold eligible investments in small businesses that have permanent establishments as determined under the Income Tax Act (Canada) or an eligible business corporation registered under

Part 2 of the Act, the annual maximum venture capital incentive for the 1999 calendar year and for each subsequent calendar year is

(a) $12 000 000,

(

b) if the eligible investment is outside the Greater Vancouver Regional District or the Capital Regional District, a further $3 000 000 in addition to the $12 000 000 specified in paragraph (a), and

(

c) if the eligible investment is substantially engaged in an activity prescribed under

section 11 (1) (e), a further $5 000 000 in addition to the $12 000 000 specified in paragraph (

a) and the $3 000 000 specified in paragraph (b).

10 Form 2 is repealed and the attached Form 2 is substituted.

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