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.