The Office of General Counsel issued the following informal opinion on June 27, 2001 representing the position of the New York State Insurance Department.

Re: CAPCO Program

Questions Presented:

Will the four year-50% investment test be affected in the event that a qualified business moves out of New York State?

Will the Department issue a letter to New York Small Business Venture Fund LLC confirming that the Certified Capital Company ("CAPCO") has satisfied the timetables specified in N.Y. Tax Law § 11(c)(A), (B), and (C)?


The four year-50% investment test will not be affected in the event a qualified business moves out of New York State. Such a departure from New York State would, however, affect the distributions available to the CAPCO.

The Department will issue not issue a confirmation letter without the completion of either a Departmental or independent verification of the conclusions.


A CAPCO has inquired about the effect of the relocation of a business in which the CAPCO has invested. Written confirmation from the Department that the CAPCO has satisfied the investment timetables required by N.Y. Tax Law § 11(c)(A), (B), and (C) is also sought.


Four Year – 50% Test

In order for a CAPCO to continue to maintain its certification, it must comply with the provisions of N.Y. Tax Law §11(c) (McKinney Supp. 2001). In particular, §11(c)(1)(C) mandates that within four years after the starting date of the certified capital company program, at least 50% of the certified capital allocated to the CAPCO must be placed in qualified investments.

It is suggested that in the event a qualified business moves out of New York State at some point prior to the fulfillment of the four year-50% requirement, such an occurrence would not have any effect on the CAPCO’s fulfillment of the two, three, or four year investment "milestones" set forth in §11(c)(1). This presumption is correct. As indicated by the definition of "qualified business", the conditions which must be satisfied for an entity to be considered a qualified business are tested as of the time of the first investment in the business by the CAPCO. A change in the location of the qualified business subsequent to this date would thus not alter a qualified investment’s status as such.

Finally, it is correctly concluded that the relocation outside of New York State of a qualified business would affect the distributions that a CAPCO could make. This is required by the N.Y. Tax Law §11(d). Section 11(d)(1) allows a CAPCO to make distributions other than qualified distributions only if either the aggregate cumulative amount of all qualified investments made by the CAPCO equals or exceeds 100% of the CAPCO’s certified capital or the CAPCO receives written authorization from the Superintendent. That section further provides that in all cases a non-qualified distribution may only be made if at least 90% of the CAPCO’s certified capital is invested in companies that conduct their principal operations in New York State. Section 11(d)(2) further provides that in the event that a business in which a qualified investment was made relocates, such a relocation will reduce the CAPCO’s cumulative qualified investment amount will be reduced by the amount of the qualified investment made in the relocated company. Section 11(d)(3) sets forth a similar rule relevant only to CAPCO Program Three.

Confirmation Letter

The Department will not issue a confirmation letter as to a CAPCO’s satisfaction of the statutorily mandated investment timetable unless there has been an independent or departmental examination to provide verification of such a conclusion.

For further information you may contact Supervising Attorney Michael Campanelli.