2023 Laws of Puerto Rico › TITLE SEVEN - Banking (§§ 1 — 3116) › PART III - Other Financial Institutions (§§ 551 — 1390) › Chapter 81 - Investment Capital Fund (§§ 1241 — 1260a) › § 1250a - Designated entities; requirements; obligations and duties

(a) Applications, interagency coordination, effectiveness, audit or inspection. —
(1) Every trust, corporation or partnership interested in operating as a designated entity shall submit an application to such effects with the Bank. The Bank shall establish through regulations the information to be submitted as part of said application.
(2) If the Bank determines that the proposed venture business, project or activity is eligible to operate as a designated entity, it shall remit a copy of the application and of such determination to the Commissioner and the Secretary for their consideration and analysis. The applicant shall submit that additional documents and information to the Commissioner and the Secretary and shall pay those nonrefundable registration charges established by the Commissioner and the Secretary through regulations. The Bank shall coordinate the issuing of the joint resolution designating the applicant as a designated entity.
(3) The designations made pursuant to this section shall be effective up to the date established by joint resolution of the Bank, the Commissioner and the Secretary. No resolutions under this section shall be issued after December 31, 2006. However, resolutions issued prior to said date may be extended for an additional period and shall be subject to the conditions established by the Bank, the Commissioner and the Secretary in the extension resolution.
(4) The issues of eligible proprietary interests in designated entities shall be subject to the issuing fees, limitations, and the audit and inspection requirements established in subsections (c), (d) and (e) of § 1247 of this title.
(5) The designated entities shall be subject to the provisions of subsections (c), (d) and (e) of § 1250 of this title, with regard to their restricted use capital.
(b) Special provisions. — In the case of designated entities:
(1) The provisions of §§ 1251, 1252, and 1255 of this title shall apply only with regard to eligible proprietary interests. The proprietary interests in a designated entity that are not eligible proprietary interests shall be governed by §§ 8401 et seq. of Title 13.
(2) The credit for losses that an investor may claim pursuant to subsections (b) and (c) of § 1256 of this title shall be limited to an amount that does not exceed eighty percent (80%) of the cost of the eligible proprietary interests acquired thereby:
(A) Reduced by the investment credit claimed or ceded by the investor pursuant to § 1254 of this title, or if the investment in eligible proprietary interests in the designated entity was acquired to replace eligible proprietary interest in another fund or a designated entity that was sold, exchanged or transferred by said investor and with regard to which the investor did not recognize, any profit, in whole or in part, pursuant to § 1255 of this title, reduced by the amount of the unrecognized profit, as provided in subsection (c) of said section.
(B) Reduced by the amount of the distributions made by the designated entity that have been treated as a recovery of the investment in eligible proprietary interests of the designated entity under § 1251(a) of this title.
(C) Reduced by the tax benefit derived by the investor for losses of the designated entity that the investor may claim in his/her income tax return under §§ 8401 et seq. of Title 13, and
(D) increased by the tax cost of the designated entity’s profits or income which the investor may claim in his/her income tax return under §§ 8401 et seq. of Title 13.
(3) The credit for losses provided in § 1256 of this title, as limited by subsection (b)(2) of this section, shall only be ceded, sold or transferred pursuant to § 1256(d) of this title if the ceding investor is a passive investor who is, in turn, an exempt person.
(4) The Commissioner shall establish by regulations the consequences of revoking a joint resolution, which consequences may include:
(A) The transfer of eligible proprietary interests in a designated entity to a fund (preexistent or new), or to a trust created by the Bank pursuant to § 1253 of this title, or
(B) the revoking of the tax benefits granted under this chapter; Provided, That in the case of passive investors (as said term is defined in § 1242 of this title), such revocation shall be prospective and shall not affect the right to the credit for losses provided in § 1256 of this title, as limited by subsection (b)(2) of this section.
(5) If the Commissioner revokes a designated entity’s joint resolution, the amount of the investment credit claimed or ceded by each investor pursuant to § 1254 of this title, shall be treated as income tax due and payable in two payments, corresponding to the two taxable years following the revocation of the joint resolution; Provided, That:
(A) In the case of investment credit claimed or ceded by passive investors, the tax shall be understood as owed by the designated entity, and
(B) in case of credits for investments claimed or ceded by non-passive investors, the contribution shall be deemed to be owed by the investor who claimed or ceded said credit.
(6) The Bank, the Commissioner and the Secretary shall establish in the designated entity’s joint resolution those other terms and conditions deemed necessary or convenient, including the provisions related to:
(A) Limiting the collection of administration fees;
(B) prohibiting the designated entity’s administration to be in charge of the proprietary interests distributors in said designated entity or of persons whose interests are not compatible with the designated entity’s best administration (including, for these purposes, organizations, industries or businesses controlled by the same interests as the later, under similar principles to those established under § 8447 of Title 13;
(C) requiring the prompt application of the designated entity’s restricted use capital in the venture business, project or activity authorized in the joint resolution;
(D) establishing parameters for the investment of restricted use capital in authorized risk-free activities subject to their application in the authorized venture business, project or activity;
(E) requiring the posting of bonds, and
(F) requiring that eligible proprietary interests in the designated entity provide for the mandatory redemption or preference in liquidation with regard to all the interests of non-passive investors, in the case of the joint resolution’s revocation, for the passive investors’ interests protection; Provided, That none of the above shall affect the rights of those creditors who are not nonpassive investors.
History —Oct. 6, 1987, No. 3, p. 840, added as § 11 on July 11, 1996, No. 70, § 11.