3871

(a) Any corporation or group of natural persons wishing to organize a special employee-owned corporation shall comply with the provisions of this chapter. In order for a special employee-owned corporation to be organized and subject to the provisions of this chapter, it shall state it in its certificate of incorporation or through an amendment thereto. Every corporation organized under this chapter shall have at least three (3) regular members who are not interrelated up to the fourth degree of consanguinity or second degree of affinity. Provided that a special employee-owned corporation shall only be constituted by a group of natural persons organized as such for the purpose of engaging in a new economic activity, as defined below.\nIn the case of corporations that amend their certificates of incorporation or otherwise convert all or part of their operations to be carried out through a special employee-owned corporation, said amendment or conversion shall be limited to the following situations:\n(1) Conversion of corporations or partnerships in risk of closing, as said term is defined below.\n(2) Conversion of nonprofit entities, regardless of the form or program under which said

ituations:\n(1) Conversion of corporations or partnerships in risk of closing, as said term is defined below.\n(2) Conversion of nonprofit entities, regardless of the form or program under which said entities were originally organized.\n(3) Privatization of public services.\n(b) When the special employee-owned corporation is organized through an amendment to the certificate of incorporation of a previously existing corporation, it shall submit together with the certificate of amendment, a detailed reorganization plan for the conversion of capital stock, and other titles representing the interest in the corporation converted by certificates of membership, credits to the internal capital accounts, new capital stock or other titles that represent the capital paid in to the corporation created with the amendment. When submitting the plan, it shall be certified that it was approved by at least two-thirds (⅔) of the shareholders or members of the existing corporation prior to the amendment. The plan shall also include the reasons or purposes for said amendment as limited to the circumstances listed in clauses (1), (2), and (3) of subsection (a) of this section.

n prior to the amendment. The plan shall also include the reasons or purposes for said amendment as limited to the circumstances listed in clauses (1), (2), and (3) of subsection (a) of this section. Said requirements shall likewise be applicable in the case of other types of corporate conversion or reorganization of the existing corporation.\n(c) For the purposes of this chapter, a 'new economic activity' means an activity carried out by a special employee-owned corporation that meets any and all of the following requirements:\n(1) An economic activity of any nature whose regular members do not jointly own more than twenty percent (20%) of the shares issued, or other interest in the property of the former for profit or a partnership of any kind that performs or carries out an activity similar to or like the activity to be performed by the special employee-owned corporation in which ten percent (10%) of the regular members have had any type of proprietary interest in said entity denominated as the former business. The holding of shares or other interest in the ownership of said former business shall be determined according to the rules regarding the holding of corporate shares or

inated as the former business. The holding of shares or other interest in the ownership of said former business shall be determined according to the rules regarding the holding of corporate shares or interest in partnerships under the Internal Revenue Code of 1994, as the case may be.\n(2) The former business has not ceased operations prior to the constitution of the special employee-owned corporation, nor during a five (5)-year period after its constitution, unless said fact is due to special circumstances such as wars, Government acts or of the elements, or any other exceptional natural cause beyond the control of said former business.\n(3) The former business maintains a number of jobs, during the above mentioned period of time, equal to seventy-five percent (75%) of its average annual employment for the three (3) taxable years prior to the constitution of the special employee-owned corporation, unless said average cannot be maintained because of the above stated special circumstances.\n(4) The special employee-owned corporation does not use physical facilities, including lands, buildings, machinery, equipment, inventory, supplies or tangible assets of any nature which have

tances.\n(4) The special employee-owned corporation does not use physical facilities, including lands, buildings, machinery, equipment, inventory, supplies or tangible assets of any nature which have been previously used by former business, as defined in clause (1) of this subsection.\n(5) The special employee-owned corporation is not administered directly or indirectly through a management contract or is otherwise controlled by a former business, as defined in clause (1) of this subsection.\nProvided, That the above requirements as well as the limitation of new economic activity shall not apply to special employee-owned corporations that are related among themselves or other nonprofit entities, regardless of the form or program under which said entities were originally created.\n(d) The term 'corporations or partnerships at risk of closing' includes profitable corporations or partnerships of any kind which meet one (1) or more of the following requirements:\n(1) Have filed or are in the process of filing an application to avail themselves of the provisions of the Federal Bankruptcy Act.\n(2) For bookkeeping purposes, have generated operating losses equal to twenty-five percent

n the process of filing an application to avail themselves of the provisions of the Federal Bankruptcy Act.\n(2) For bookkeeping purposes, have generated operating losses equal to twenty-five percent (25%) or more of its gross income during the last five (5) taxable years without taking into account depreciation or other expenses which do not involve cash disbursements, administration expenses or management services between related entities, nor losses that are the result of the sale or other type of disposal of capital assets or inventory adjustments.\n(3) The entity is part of a group controlled by a foreign entity, which is to close operations in the Commonwealth permanently due to a financial restructuring of said controlled group.\n(4) The entity is to be permanently closed due to the retirement of its owner or owners because of death, retirement or disability, and none of the surviving or remaining owners shall become a regular member of the new entity, nor may own any type of interest therein, except during the period provided in § 3879 of this title.\n(5) The entity is to be permanently closed due to a natural disaster or other reason of force majeure which is beyond the

interest therein, except during the period provided in § 3879 of this title.\n(5) The entity is to be permanently closed due to a natural disaster or other reason of force majeure which is beyond the control of such entity.\n(6) The entity has been forced to reduce its production employment by more than fifty percent (50%) of its average annual employment for the last five (5) taxable years, which reduction is not due to a substitution of manpower for capital investment.\n(e) Those provisions that are not inconsistent with this chapter shall be applied to special corporations organized under this chapter, with regard to corporations authorized to issue capital stock, even when the certificate of incorporation does not grant such authorization. To such effects, the special employee-owned corporations shall be classified as for profit corporations.\nHistory —Dec. 16, 2009, No. 164, § 16.01.