SECTION 21.     NEW LAW     A new section of law to be codified in the Oklahoma Statutes as Section 2357.74A of Title 68, unless there is created a duplication in numbering, reads as follows:

A.  For purposes of claiming any tax credits authorized by Sections 2357.73 and 2357.74 of Title 68 of the Oklahoma Statutes, any funds invested in an Oklahoma rural small business venture shall be subject to the following requirements:

1.  The Oklahoma rural small business venture must issue its equity securities or subordinated debt instruments in exchange for a qualified investment within thirty (30) days of the date as of which the investment occurs;

2.  The qualified rural small business Capital company or any entity making an investment in conjunction with investment by a qualified rural small business Capital company pursuant to Section 2357.74 of Title 68 of the Oklahoma Statutes must reflect the documented qualified investment in the Oklahoma rural small business venture as an asset in its accounting system;

3.  The qualified rural small business Capital company shall not make a qualified investment in an Oklahoma small business venture in which it has, at any time, more than fifty percent (50%) ownership, whether directly or indirectly, of the voting interest entitled to elect the governing board of any Oklahoma rural small business venture in which a qualified investment is to be made by the qualified rural small business Capital company;

4.  The qualified rural small business Capital company cannot enter into any agreement, whether formal or informal, written or unwritten, the purpose of which is to control, directly or indirectly, the return of a specific amount of qualified investment by the Oklahoma rural small business venture to the qualified rural small business Capital company or the purpose of which is to cause or require the transfer of such specific amount of qualified investment to any other entity within five (5) years of the date the qualified investment is made available to the Oklahoma rural small business venture; and

5.  The Oklahoma rural small business venture cannot enter into any agreement, whether formal or informal, written or unwritten, the purpose of which is to control, directly or indirectly, the return of a specific amount of qualified investment to the qualified rural small business Capital company or the purpose of which is to cause or require the transfer of such specific amount of qualified investment to any other entity within five (5) years of the date the qualified investment is made available to the Oklahoma rural small business venture.

B.  The Oklahoma Tax Commission shall have the authority to make an independent determination that any proposed use of monies, assets, funds or other things of value which are to be used for purposes of claiming any credits authorized by Sections 2357.73 and 2357.74 of Title 68 of the Oklahoma Statutes are for a legitimate business purpose of the Oklahoma rural small business venture and not for the primary purpose of obtaining the tax credits authorized by such sections on the basis of activity which does not have substantial economic profit-based potential.

C.  The Tax Commission shall be authorized to recapture the credits otherwise authorized by the provisions of Sections 2357.73 and 2357.74 of Title 68 of the Oklahoma Statutes according to the provisions of Section 22 of this act if it finds that the transaction does not meet the requirements of the Rural Venture Capital Formation Incentive Act.

D.  The provisions of this section shall not prohibit a qualified rural small business Capital company from using near equity or subordinated debt, as those terms are defined by Section 2357.72 of Title 68 of the Oklahoma Statutes, if the near equity or subordinated debt is a contractual obligation owed by the Oklahoma rural small business venture directly to the qualified rural small business Capital company and if the agreement governing the obligation complies with all of the other requirements of this section.

E.  The provisions of this section shall not prohibit the shareholders or partners of a qualified rural small business Capital company from using near equity or subordinated debt, as those terms are defined by Section 2357.72 of Title 68 of the Oklahoma Statutes, if the near equity or subordinated debt is a contractual obligation owed by the Oklahoma rural small business venture directly to a shareholder or partner of a qualified rural small business Capital company that has invested funds in an Oklahoma rural small business venture pursuant to Section 2357.74 of Title 68 of the Oklahoma Statutes and if the agreement governing the obligation complies with all of the other requirements of this section.

F.  Any offering material involving the solicitation of qualified investments in exchange for equity securities or subordinated debt instruments of the qualified small business Capital company shall include the following statement:

"Any favorable determination letter obtained from the Oklahoma Tax Commission does not guarantee the granting of tax credits under the provisions of the Rural Venture Capital Formation Incentive Act.  In the event applicable provisions of the Rural Venture Capital Formation Incentive Act are violated, the Tax Commission may require forfeiture of unused tax credits and recapture or repayment of tax credits* as provided by law."

* Note: A special recapture exemption was added in 2006 for certain rural business investment company allowing the keeping of any tax credits that involved wrong doing. Section 22.G