VIII-13.00 - USM POLICY ON BUSINESS ENTITIES
(Approved by the USM Board of Regents on July 13, 2001)
General
Section 12-113 of the Education Article of Maryland (effective
7/1/99) allows the Board of Regents "to establish, invest in,
finance, and operate business entities when the Board finds that
doing so would further one or more goals of the University and is
related to the mission of the University."
Any institution (including the USM Office) that wishes to
establish, invest in, finance or operate a for profit business
entity must receive Board of Regents approval before doing so. A
"business entity" for the purposes of this policy is defined to
be any legal entity separate from the University System of
Maryland that an institution establishes, invests in, finances,
or operates.
The requirement of Board of Regents approval does not apply when
an institution takes an equity interest in a company or receives
a license to use company-owned intellectual property as a
condition of the company's participation in an institution
business incubator program, or when an institution takes an
equity interest in a company in consideration for the licensing
of institution-owned intellectual property, provided that the
institution provides no other investment or financing for the
company.
An institution may seek Board of Regents approval for a proposal
to establish, invest in, finance, or operate a nonprofit business
entity, incubator company, or technology company. Any such entity
or company for which Board approval is sought shall be subject to
the requirements of this policy.
The reporting provisions of this policy also apply to the USM
Office or any institution that has received Board of Regents
approval since 7/1/99 even if the approval was prior to the
effective date of this policy.
Process for Seeking Section 12-113 Authorization from the Board
of Regents
1. A President (or the Chancellor for the USM Office) may
request through the Chancellor that the Board of Regents
authorize his or her institution to establish, invest in,
finance, or operate a business entity when it furthers one
or more goals of the institution and is related to the
mission of the institution.
2. The following official shall be the System official
responsible for seeking Board of Regents approval through the
Chancellor and monitoring compliance with System policies for
business entities at his or her institution:
a) The University System of Maryland or USM Office - the Chancellor;
b) The 13 institutions and any component of the institutions -
the appropriate President unless otherwise approved by the Board
of Regents.
These officials shall hereinafter be referred to as the
"Responsible Official".
3. The Responsible Official shall submit a business opportunity
assessment prepared with assistance from independent
experts. The assessment shall include a description of the
product or service, the potential market for the product or
service to be offered by the business entity, the business
opportunities and the financial risks. The assessment shall
also include a plan that describes the financial
relationship between the business entity and the
institution, operating capital requirements, any anticipated
State funding through economic development grant or loan
programs, any venture capital relationships, the start-up
period of operation and funding, and a financial proforma
for at least five years. Additionally, the Responsible
Official shall recommend appropriate performance indicators
for the business entity.
4. The Responsible Official shall also:
a) describe the legal form of the business entity;
b) explain why a separate business entity is needed or is preferable;
c) explain how the business entity will further one or more
goals of the institution or the USM;
d) explain how the business entity is related to the mission of
the institution or the USM;
e) explain how the business entity will compete, if at all,
with the institution or the USM;
f) define the composition of the business entity's governing
body, addressing specifically, any role of the institution or USM
in appointing and removing members of the governing body;
g) describe any Ethics Law issues presented by the proposal and
how they will be resolved;
h) describe any other potential conflict of interest or other
problems which might be anticipated at the time Board's approval
is sought, e.g., individuals who have potential conflicts
regarding compensation; members of the governing board who stand
to financially benefit from the activities of the business
entity; and if the business entity might receive goods or
services at a below market price as a result of actions of a
member of the governing board; and
i) comply with any Board of Regents approved due diligence requirements.
5. Unless otherwise approved by the Board of Regents, the
business entity must be established under Maryland law and
have its primary place of business in Maryland.
6. A copy of the articles of incorporation must be sent to the
Chancellor as the business entity files them with the Maryland
State Department of Assessments and Taxation, or other
appropriate government filing office.
Reporting
7. Within 120 days after the end of the System's fiscal year,
the President of the institution shall provide to the
Chancellor a report of:
a) the business entities established by the institution in
accordance with Section 12-113 and this policy;
b) the funds invested in, or financing provided by the
institutions or any affiliated foundation to business entities in
accordance with Section 12-113 and this policy;
c) ownership interests acquired by an institution in a business
entity in accordance Section 12-113 and with this policy; and
d) the current status of the business entities.
The President shall submit with the report an annual audited
financial statement, if available, and an updated five-year
plan for each business entity, including an evaluation of
whether the entity met the performance indicators
recommended to or adopted by the Board of Regents. An
institution may present alternative information if approved
by the Chancellor or the Board.
8. The Chancellor shall provide to the Board of Regents,
Governor and the General Assembly within 180 days after the
end of the System's fiscal year a report of:
a) the business entities established in accordance with Article
12-113 of the Annotated Code of Maryland;
b) the funds invested in, and financing provided to business
entities established in accordance with Article 12-113;
c) ownership interests in any business entities established in
accordance with Article 12-113; and
d) the current status of the business entities.