GENERAL PROVISIONS
This act shall be known as the Corporations Code.
The provisions of this code, insofar as they are substantially the same as existing statutory provisions relating to the same subject matter, shall be construed as restatements and continuations, and not as new enactments.
All persons who, at the time this code goes into effect, hold office under any of the acts repealed by this code, which offices are continued by this code, continue to hold them according to their former tenure.
No action or proceeding commenced before this code takes effect, and no right accrued, is affected by the provisions of this code, but all procedure thereafter taken therein shall conform to the provisions of this code so far as possible.
Unless the provision or the context otherwise requires, these general provisions, rules of construction, and definitions govern the construction of this code.
Title, division, part, chapter, article, and section headings contained herein do not in any manner affect the scope, meaning, or intent of the provisions of this code.
Whenever, by the provisions of this code, a power is granted to, or a duty imposed upon, a public officer, the power may be exercised or the duty performed by a deputy of the officer or by a person authorized, pursuant to law, by the officer, unless this code expressly provides otherwise.
Writing includes any form of recorded message capable of comprehension by ordinary visual means; and when used to describe communications between a corporation, partnership, or limited liability company and its shareholders, members, partners, directors, or managers, writing shall include electronic transmissions by and to a corporation (Sections 20 and 21), electronic transmissions by and to a partnership (Section 16101), and electronic transmissions by and to a limited liability company (Section 17701.02). Whenever any notice, report, statement, or record is required or authorized by this code, it shall be made in writing in the English language.
Wherever any notice or other communication is required by this code to be mailed by registered mail by or to any person or corporation, the mailing of such notice or other communication by certified mail shall be deemed to be a sufficient compliance with the requirements of law.
Whenever reference is made to any portion of this code or of any other law of this State, the reference applies to all amendments and additions now or hereafter made.
“Section” means a section of this code unless some other statute is specifically mentioned. “Subdivision” means a subdivision of the section in which the term appears unless some other section is expressly mentioned.
The present tense includes the past and future tenses, and the future tense includes the present.
The masculine gender includes the feminine and neuter.
“Spouse” includes “registered domestic partner,” as required by Section 297.5 of the Family Code.
The singular number includes the plural, and the plural number includes the singular.
“County” includes “city and county.”
“Shall” is mandatory and “may” is permissive.
“Oath” includes affirmation.
“Signature” includes mark when the signer cannot write, such signer’s name being written near the mark by a witness who writes his own name near the signer’s name; but a signature by mark can be acknowledged or can serve as a signature to a sworn statement only when two witnesses so sign their own names thereto.
In addition to the definition set forth in Section 17, the term “signature” includes a signature in a facsimile document filed pursuant to this code or pursuant to regulations adopted under this code, and presented to the Secretary of State.
The terms “signed” and “executed,” when used with respect to the documents filed pursuant to this code or pursuant to regulations adopted under this code, and presented to the Secretary of State, include a document bearing a signature under subdivision (a).
The Secretary of State shall accept facsimile signatures on documents that are delivered by mail or by hand.
A person on whose behalf a document bearing a facsimile signature is submitted for filing to the Secretary of State shall maintain the originally signed document for at least five years from the date of filing.
The Secretary of State may adopt procedures permitting the direct electronic or facsimile presentation of the documents specified in subdivisions (a) and (b). However, the Secretary of State is not required to accept those direct electronic or facsimile filings until procedures are adopted.
“Person” includes a corporation as well as a natural person.
If any provision of this code, or the application thereof to any person or circumstance, is held invalid, the remainder of the code, or the application of such provision to other persons or circumstances, shall not be affected thereby.
“Electronic transmission by the corporation” means a communication (a) delivered by (1) facsimile telecommunication or electronic mail when directed to the facsimile number or electronic mail address, respectively, for that recipient on record with the corporation, (2) posting on an electronic message board or network which the corporation has designated for those communications, together with a separate notice to the recipient of the posting, which transmission shall be validly delivered upon the later of the posting or delivery of the separate notice thereof, or (3) other means of electronic communication, (b) to a recipient who has provided an unrevoked consent to the use of those means of transmission for communications under or pursuant to this code, and (c) that creates a record that is capable of retention, retrieval, and review, and that may thereafter be rendered into clearly legible tangible form. However, an electronic transmission under this code by a corporation to an individual shareholder or member of the corporation who is a natural person, and if an officer or director of the corporation, only if communicated to the recipient in that person’s capacity as a shareholder or member, is not authorized unless, in addition to satisfying the requirements of this section, the consent to the transmission has been preceded by or includes a clear written statement to the recipient as to (a) any right of the recipient to have the record provided or made available on paper or in nonelectronic form, (b) whether the consent applies only to that transmission, to specified categories of communications, or to all communications from the corporation, and (c) the procedures the recipient must use to withdraw consent.
“Electronic transmission to the corporation” means a communication (a) delivered by (1) facsimile telecommunication or electronic mail when directed to the facsimile number or electronic mail address, respectively, which the corporation has provided from time to time to shareholders or members and directors for sending communications to the corporation, (2) posting on an electronic message board or network which the corporation has designated for those communications, and which transmission shall be validly delivered upon the posting, or (3) other means of electronic communication, (b) as to which the corporation has placed in effect reasonable measures to verify that the sender is the shareholder or member (in person or by proxy) or director purporting to send the transmission, and (c) that creates a record that is capable of retention, retrieval, and review, and that may thereafter be rendered into clearly legible tangible form.
TITLE 1. CORPORATIONS [100. - 14707.]
DIVISION 1. GENERAL CORPORATION LAW [100. - 2319.]
CHAPTER 1. General Provisions and Definitions [100. - 195.]
This division shall be known and may be cited as the General Corporation Law.
This title of the Corporations Code, or any division, part, chapter, article or section thereof, may at any time be amended or repealed.
Unless the provision or the context otherwise requires, the general provisions and definitions set forth in this chapter govern the construction of this division.
Subject to Chapter 23 (commencing with Section 2300) (transition provisions), this division applies to corporations organized under this division and to domestic corporations that are not subject to Division 1.5 (commencing with Section 2500), and to domestic corporations that are not subject to Division 2 (commencing with Section 5000) or Part 1 (commencing with Section 12000), 2 (commencing with Section 12200), 3 (commencing with Section 13200), or 5 (commencing with Section 14000) of Division 3 on December 31, 1976, and that are not organized or existing under any statute of this state other than this code; this division applies to any other corporation only to the extent expressly included in a particular provision of this division.
The existence of corporations formed or existing on the date of enactment or reenactment of this division shall not be affected by the enactment or reenactment of this division nor by any change in the requirements for the formation of corporations nor by the amendment or repeal of the laws under which they were formed or created.
Neither the repeals effected by the enactment or reenactment of this division nor the enactment of this title nor the amendment thereof shall impair or take away any existing liability or cause of action against any corporation, its shareholders, directors, or officers incurred prior to the time of the enactment, reenactment, or amendment.
Every corporation organized under the laws of this state, any other state of the United States or the District of Columbia or under an act of the Congress of the United States, all of the capital stock of which is beneficially owned by the United States, an agency or instrumentality of the United States or any corporation the whole of the capital stock of which is owned by the United States or by an agency or instrumentality of the United States, is conclusively presumed to be an agency and instrumentality of the United States and is entitled to all privileges and immunities to which the holders of all of its stock are entitled as agencies of the United States.
Unless otherwise expressly provided, whenever reference is made in this division to any other state or federal statute, such reference is to that statute as it may be amended from time to time, whether before or after the enactment of this division.
A corporation or association may be sued as provided in the Code of Civil Procedure.
Any corporation heretofore or hereafter formed under this division shall, as a condition of its existence as a corporation, be subject to the provisions of the Code of Civil Procedure authorizing the attachment of corporate property.
No corporation, social purpose corporation, association, or individual shall issue or put in circulation, as money, anything but the lawful money of the United States.
The fees of the Secretary of State for filing instruments by or on behalf of corporations are prescribed in Article 3 (commencing with Section 12180) of Chapter 3 of Part 2 of Division 3 of Title 2 of the Government Code.
Any agreement, certificate or other instrument relating to a domestic or foreign corporation filed pursuant to this division may be corrected with respect to any misstatement of fact contained therein, any defect in the execution thereof or any other error or defect contained therein, by filing a certificate of correction entitled “Certificate of Correction of ____ (insert here the title of the agreement, certificate or other instrument to be corrected and name(s) of corporation or corporations)”; provided, however, that no such certificate of correction shall alter the wording of any resolution or written consent which was in fact adopted by the board or the shareholders or effect a corrected amendment of articles which amendment as so corrected would not in all respects have complied with the requirements of this division at the time of filing of the agreement, certificate, or other instrument being corrected.
If the certificate of correction corrects original articles, the certificate of correction shall be either an officers’ certificate or a certificate signed and verified by the incorporators, or a majority of them. If the certificate of correction corrects an agreement of merger or an officers’ certificate accompanying an agreement of merger, the certificate of correction shall be an officers’ certificate of the surviving corporation only. In all other instances, the certificate of correction shall be either an officer’s certificate or a certificate signed and verified as provided in this division with respect to the agreement, certificate or other instrument being corrected.
A certificate of correction shall set forth the following:
The name or names of the corporation or corporations.
The date the agreement, certificate or other instrument being corrected was filed.
The provision in the agreement, certificate or other instrument as corrected and, if the execution was defective, wherein it was defective.
If applicable, that the certificate does not alter the wording of any resolution or written consent which was in fact adopted by the board or the shareholders.
A provision of the articles, amended articles, restated articles, or certificate of determination being corrected by a certificate of correction shall be identified in the certificate of correction in accordance with subdivision (a) of Section 907.
The filing of the certificate of correction shall not alter the effective time of the agreement, certificate or instrument being corrected, which shall remain as its original effective time, and such filing shall not affect any right or liability accrued or incurred before such filing, except that any right or liability accrued or incurred by reason of the error or defect being corrected shall be extinguished by such filing if the person having that right has not detrimentally relied on the original instrument.
Provisions of the articles described in paragraph (3) of subdivision (g) of Section 202 and subdivisions (a) and (b) of Section 204 may be made dependent upon facts ascertainable outside the articles, if the manner in which those facts shall operate upon those provisions is clearly and expressly set forth in the articles. Similarly, any of the terms of an agreement of merger pursuant to Section 1101 may be made dependent upon facts ascertainable outside that agreement, if the manner in which those facts shall operate upon the terms of the agreement is clearly and expressly set forth in the agreement of merger.
Notwithstanding subdivision (a), when any provisions or terms of articles or an agreement of merger are made dependent upon facts ascertainable outside the filed instrument through a reference to an agreement or similar document, the corporation filing that instrument shall (1) maintain at its principal office a copy of any such agreement or document and all amendments and (2) provide to its shareholders, in the case of articles, or to shareholders of any constituent corporation, in the case of an agreement of merger, a copy of them upon written request and without charge.
If the reference to an agreement or contract is a reference to an agreement or contract to which the corporation is a party (a “referenced agreement” in this section), any amendment or revision of the referenced agreement requires shareholder approval, in addition to approvals otherwise required, in the following instances and no other:
If the amendment or revision of the referenced agreement would result in a material change in the rights, preferences, privileges, or restrictions of a class or series of shares, the amendment or revision of the referenced agreement is required to be approved by the outstanding shares (Section 152) of that class or series.
If the amendment or revision of the referenced agreement would result in a material change in the rights or liabilities of any class or series of shares with respect to the subject matter of paragraph (1), (2), (3), (5), or (9) of subdivision (a) of Section 204, the amendment or revision of the referenced agreement is required to be approved by the outstanding shares (Section 152) of that class or series.
If the amendment or revision of the referenced agreement would result in a material change in the restrictions on transfer or hypothecation of any class or series of shares, the amendment or revision of the referenced agreement is required to be approved by the outstanding shares (Section 152) of that class or series.
If the amendment or revision of the referenced agreement would result in a change of any of the principal terms of an agreement of merger, the amendment or revision of the referenced agreement is required to be approved in the same manner as required by Section 1104 for a change in the principal terms of an agreement of merger.
Upon receipt of any instrument by the Secretary of State for filing pursuant to this division, if it conforms to law, it shall be filed by, and in the office of, the Secretary of State and the date of filing endorsed thereon. Except for instruments filed pursuant to Section 1502, the date of filing shall be the date the instrument is received by the Secretary of State unless the instrument provides that it is to be withheld from filing until a future date, other than instruments filed pursuant to Section 119, or, unless in the judgment of the Secretary of State, the filing is intended to be coordinated with the filing of some other corporate document which cannot be filed. The Secretary of State shall file a document as of any requested future date not more than 90 days after its receipt, including a Saturday, Sunday, or legal holiday, if the document is received in the Secretary of State’s office at least one business day prior to the requested date of filing. An instrument does not fail to conform to law because it is not accompanied by the full filing fee if the unpaid portion of the fee does not exceed the limits established by the policy of the Secretary of State for extending credit in these cases.
If the Secretary of State determines that an instrument submitted for filing or otherwise submitted does not conform to law and returns it to the person submitting it, the instrument may be resubmitted accompanied by a written opinion of the member of the State Bar of California submitting the instrument, or representing the person submitting it, to the effect that the specific provision of the instrument objected to by the Secretary of State does conform to law and stating the points and authorities upon which the opinion is based. The Secretary of State shall rely, with respect to any disputed point of law (other than the application of Sections 119, 201, 2101, and 2106), upon that written opinion in determining whether the instrument conforms to law. The date of filing in that case shall be the date the instrument is received on resubmission.
Any instrument filed with respect to a corporation, other than original articles or instruments filed pursuant to Section 119, may provide that it is to become effective not more than 90 days subsequent to its filing date. In case such a delayed effective date is specified, the instrument may be prevented from becoming effective by a certificate stating that by appropriate corporate action it has been revoked and is null and void, executed in the same manner as the original instrument and filed before the specified effective date. In the case of a merger agreement, the certificate revoking the earlier filing need only be executed on behalf of one of the constituent corporations. If no revocation certificate is filed, the instrument becomes effective on the date specified.
Any instrument submitted to the Secretary of State for filing by a domestic corporation or a foreign corporation that is qualified to transact business in California under Section 2105 shall include the entity name and number as they exist on the Secretary of State’s records.
The Secretary of State may cancel the filing of articles of a domestic corporation, including articles effecting a conversion, or the filing of a statement and designation by a foreign corporation if a check or other remittance accepted in payment of the filing fee or franchise tax is not paid upon presentation. Within 90 days of receiving written notification that the item presented for payment has not been honored for payment, the Secretary of State shall give written notice of the applicability of this section and the cancellation date, which shall be not less than 20 days from the date of mailing the written notice as certified by the Secretary of State, to the agent for service of process or to the person submitting the instrument. Thereafter, if the amount has not been paid by cashier’s check or equivalent before the date of cancellation as stated in the written notice of cancellation, the cancellation shall thereupon be effective.
All references in this division to the voting of shares include the voting of other securities given voting rights in the articles pursuant to subdivision (a)(7) of Section 204.
If the articles provide for more or less than one vote for any share on any matter, the references in Sections 152, 153 and 602 to a majority or other proportion of shares means, as to such matter, a majority or other proportion of the votes entitled to be cast. Whenever in this division shares are disqualified from voting on any matter, they shall not be considered outstanding for the determination of a quorum at any meeting to act upon, or the required vote to approve action upon, that matter under any other provision of this division or the articles or bylaws.
Any reference in this division to mailing means first-class mail, postage prepaid, unless registered or some other form of mail is specified or permitted. Registered mail includes certified mail.
All references in this division to financial statements, balance sheets, income statements, and statements of cashflows, and all references to assets, liabilities, earnings, retained earnings, and similar accounting items of a corporation mean those financial statements or comparable statements or items prepared or determined in conformity with generally accepted accounting principles then applicable, fairly presenting in conformity with generally accepted accounting principles the matters that they purport to present, subject to any specific accounting treatment required by a particular section of this division. Unless otherwise expressly stated, all references in this division to financial statements mean, in the case of a corporation that has subsidiaries, consolidated statements of the corporation and each of its subsidiaries as are required to be included in the consolidated statements under generally accepted accounting principles then applicable and all references to accounting items mean the items determined on a consolidated basis in accordance with the consolidated financial statements. Financial statements other than annual statements may be condensed or otherwise presented as permitted by authoritative accounting pronouncements.
As used in this division, independent accountant means a certified public accountant or public accountant who is independent of the corporation as determined in accordance with generally accepted auditing standards and who is engaged to audit financial statements of the corporation or perform other accounting services.
Nothing contained in this division modifies the provisions of subdivision (h) of Section 25102 or the conditions provided therein to the availability of an exemption under that subdivision.
Any requirement in this division for a vote of each class of outstanding shares means such a vote regardless of limitations or restrictions upon the voting rights thereof, unless expressly limited to voting shares.
Any reference in this division to the time a notice is given or sent means, unless otherwise expressly provided, any of the following:
The time a written notice by mail is deposited in the United States mails, postage prepaid.
The time any other written notice, including facsimile, telegram, or electronic mail message, is personally delivered to the recipient or is delivered to a common carrier for transmission, or actually transmitted by the person giving the notice by electronic means, to the recipient.
The time any oral notice is communicated, in person or by telephone, including a voice messaging system or other system or technology designed to record and communicate messages, or wireless, to the recipient, including the recipient’s designated voice mailbox or address on the system, or to a person at the office of the recipient who the person giving the notice has reason to believe will promptly communicate it to the recipient.
Otherwise lawful corporate actions not in compliance, or purportedly not in compliance, with this division or the articles, bylaws, or a plan or agreement to which the corporation is a party in effect at the time of the corporate action, may be ratified, or validated by the superior court, in accordance with the provisions of this section.
Except as otherwise determined by the superior court pursuant to subdivision (e), a ratification or validation of a corporate action in accordance with this section is conclusive in the absence of fraud.
This section does not limit the authority of the board, the shareholders, or the corporation to effect any other lawful means of ratification or validation of a corporate action or correction of a record.
No corporate action may be ratified under subdivision (b) by a dissolved corporation or a foreign corporation, and no petition may be filed under subdivision (e) in respect of any corporate action or security of such a corporation.
This section shall not be used to ratify or validate any corporate action in respect of any of the following:
Noncompliance with subdivision (a) of Section 309.
Noncompliance with subdivision (a) or (b) of Section 310.
Noncompliance with Section 315.
Noncompliance with subdivision (a) of Section 500.
Noncompliance with Section 501.
A ratification of a corporate action pursuant to this section, other than a ratification relating to the election of the initial directors pursuant to paragraph (2) of this subdivision, shall be approved by the board and, as applicable, approved by the shareholders or approved by the outstanding shares in accordance with any provision set forth in this division or the articles, bylaws, or a plan or agreement to which the corporation is a party that is applicable to the type of corporate action proposed to be ratified and in effect at the time of the ratification, unless there are no shares outstanding and entitled to vote on the ratification at the time of the ratification, in which case the ratification shall be approved solely by the board, or a higher approval standard that was or would have been applicable to the original taking or purported taking of the corporate action, in which case the ratification shall be approved in accordance with such higher approval standard. In order to approve a ratification of a corporate action pursuant to this paragraph, the board and, as applicable, the shareholders or the outstanding shares shall adopt resolutions setting forth all of the following:
Each corporate action to be ratified.
The date when each such corporate action was purportedly taken, and the date any such corporate action shall be deemed to have become effective pursuant to this section if different than the date the corporate action was purportedly taken.
For a corporate action involving the purported issuance of shares, the number and type of shares purportedly issued and the date or dates upon which such shares were purported to have been issued.
The nature of the noncompliance or purported noncompliance of each such corporate action.
A statement that the ratification of each such corporate action is approved.
The votes of any shares issued, or purportedly issued, pursuant to any corporate action being ratified shall be disregarded for all purposes of approval of the ratification as required by this subdivision, including, but not limited to, for the purpose of determining a quorum at a meeting of shareholders or required class vote.
If the corporate action to be ratified relates to the election of the initial directors pursuant to Section 210, a majority of the persons who, at the time of the ratification, are exercising the powers of directors may approve that ratification by adopting resolutions setting forth all of the following:
The name of the person or persons who first took action in the name of the corporation as the initial directors of the corporation.
The earlier of the date on which such persons first took such action or were purported to have been elected as the initial directors, and the date on which such person or persons shall be deemed to have become the initial directors of the corporation pursuant to this section if different than the date of such first action or purported election, as applicable.
That the ratification of the election of such person or persons as the initial directors is approved.
Notice of any ratification of a corporate action pursuant to this section shall be given promptly after ratification pursuant to subdivision (b) to each shareholder and holder of shares purportedly issued at the time of the ratification, regardless of whether approval of the shareholders or of the outstanding shares is required for the ratification. The notice shall be given as provided in subdivision (b) of Section 601 and shall include a copy of any resolutions adopted pursuant to subdivision (b) and a copy of this section. If a corporation that is subject to the reporting requirements of Section 13 or 15(d) of the federal Securities Exchange Act of 1934 includes the disclosures required by this section in a report, proxy statement, or information statement filed with or furnished to the Securities and Exchange Commission, notice shall be deemed given when that report or statement is filed with or furnished to the Securities and Exchange Commission.
If a corporate action ratified pursuant to this section would have required the filing of an instrument with the Secretary of State pursuant to the provisions of this division, or if such ratification would cause any instrument previously filed with the Secretary of State to be inaccurate or incomplete in any material respect after giving effect to the ratification, the corporation shall file a certificate of ratification to make, amend, or correct each such instrument. The certificate of ratification shall have the effect as specified therein, and shall be filed with the Secretary of State. A certificate of ratification shall consist of an officers’ certificate setting forth all of the following:
The date any such instrument was filed with the Secretary of State, or a statement that any such instrument was not previously filed with the Secretary of State and, as applicable, a statement that the ratification approved pursuant to the resolutions set forth in the certificate of ratification would cause any such instrument to be inaccurate or incomplete in any material respect after giving effect to the ratification.
The date any such instrument shall be deemed to have become effective pursuant to this section, which may be prior to or after the filing date.
A statement that the certificate of ratification is making, amending, or correcting any such instrument, as applicable, and a copy of any such instrument containing all of the information required to be included under this division for such instrument to be so made, amended, or corrected. An instrument attached to a certificate of ratification pursuant to this subparagraph need not be separately executed and acknowledged and need not include any statement required by any other section of this division that such instrument has been approved and adopted in accordance with the provisions of such other section.
A statement that the ratification has been approved pursuant to subdivision (b), a copy of the resolutions adopted pursuant to subdivision (b) in respect of the ratification including, in the case of the ratification of any corporate action involving the purported issuance of shares, the number and type of shares purportedly issued and the date or dates upon which such shares were purported to have been issued and, if applicable, a statement of the total number of outstanding shares of each class entitled to vote with respect to the ratification.
A statement that the number of shares of each class voting in favor of the ratification equaled or exceeded the vote required, specifying the percentage vote required of each class entitled to vote.
Upon the filing of a petition by an authorized person, the superior court of the proper county shall have jurisdiction in equity to determine the validity of any corporate action (whether or not such corporate action is a ratification or has been the subject of any ratification) or security of the corporation, validate and declare effective any such corporate action or security of the corporation, and declare the date any such corporate action or security of the corporation shall be deemed to have become effective or valid, as applicable, pursuant to this section.
This section does not prescribe or circumscribe the facts and circumstances the superior court may consider or which remedies the superior court may grant in exercising its jurisdiction under this section, except as described in this subdivision. The superior court may make any order concerning the corporate action as justice and equity may require.
Any petition relating to a ratification taken or proposed to be taken pursuant to this section shall be filed not later than 180 days after the notice required by subdivision (c) is given, except this paragraph shall not apply to an action asserting that a ratification was not accomplished in accordance with this section or to any person to whom notice of the ratification was required to have been given pursuant to subdivision (c), but to whom such notice was not given.
For purposes of this subdivision, the proper county shall be the county where the principal office of the corporation is located or, if the principal office is not located in this state, in the county in which the corporation’s agent for service of process is located.
Service of the petition under paragraph (1) upon the registered agent of the corporation shall be deemed to be service upon the corporation, and no other party need be joined in order for the superior court to adjudicate the matter. The superior court may require notice of the action to be provided to other persons specified by the court and permit those other persons to intervene in the action.
For purposes of this subdivision, “authorized person” means the corporation, any successor entity to the corporation, any director, any shareholder or holder of shares purportedly issued, any shareholder or holder of shares purportedly issued as of the time of a corporate action ratified pursuant to this section, or any other person, so long as the other person claims to be substantially and adversely affected by the ratification of a corporate action pursuant to this section.
Any petition seeking validation of a corporate action shall identify every pending legal proceeding of which the petitioner is aware and in which (A) the validity of the corporate action is being directly challenged or (B) the validation of the corporate action would result in the dismissal of the proceeding in whole or in part. If the petitioner becomes aware of any additional such legal proceeding, the petitioner shall amend, or, to the extent required by applicable rules, move for leave to amend, the petition within 10 court days to identify each such proceeding. Identification of a proceeding shall include the venue or forum in which the proceeding was filed, any case number or other unique identifier assigned to the proceeding in that venue or forum, the names of the parties to the proceeding, and the date on which the proceeding was filed.
If a corporate action validated by the superior court pursuant to this section would have required the filing of an instrument with the Secretary of State pursuant to the provisions of this division, or if such validation would cause any instrument previously filed with the Secretary of State to be inaccurate or incomplete in any material respect after giving effect to the validation, the corporation shall file a certificate of validation to make, amend, or correct each such instrument. The certificate of validation shall have the effect as specified therein, and shall be filed with the Secretary of State. A certificate of validation shall consist of an officers’ certificate setting forth all of the following:
The name of the corporation and the Secretary of State’s file number of the corporation.
The title of any such instrument whose making, amendment, or correction is being effected by the certificate of validation.
The date any such instrument was filed with the Secretary of State, or a statement that any such instrument was not previously filed with the Secretary of State and, as applicable, a statement that the validation ordered pursuant to the superior court order set forth in the certificate of validation would cause any such instrument to be inaccurate or incomplete in any material respect after giving effect to the validation.
The date any such instrument shall be deemed to have become effective pursuant to this section, which may be prior to or after the filing date.
A statement that the certificate of validation is making, amending, or correcting any such instrument, as applicable, and a copy of any such instrument containing all of the information required to be included under this division for such instrument to be so made, amended, or corrected. An instrument attached to a certificate of validation pursuant to this paragraph need not be separately executed and acknowledged and need not include any statement required by any other section of this division that such instrument has been approved and adopted in accordance with the provisions of such other section.
A statement that the validation has been ordered pursuant to subdivision (e), and a copy of the superior court order issued pursuant to subdivision (e) in respect of such validation.
Unless otherwise stated in resolutions adopted pursuant to subdivision (b) or determined by the superior court pursuant to subdivision (e), a corporate action or security of the corporation ratified or validated in accordance with this section relates back to the date of the original corporate action.
As used in this section:
“Corporate action” means any of the following:
Any action or purported action of the board.
Any action or purported action of the shareholders.
Any other action or transaction taken, or purportedly taken, by or on behalf of the corporation, including, but not limited to, any issuance, or purported issuance, of securities of the corporation.
“Higher approval standard” means any provision set forth in this division or the articles, bylaws, or a plan or agreement to which the corporation was a party in effect at the time of the original taking or purported taking of a corporate action:
Requiring action of the board or shareholders, at a meeting or by written consent, to be taken by a proportion greater than would have been required pursuant to this division or the articles, bylaws, or a plan or agreement to which the corporation is a party in effect at the time of the ratification of the corporate action pursuant to this section.
Requiring a greater proportion of the directors or shareholders to constitute a quorum for the transaction of business at a meeting than would have been required pursuant to this division or the articles, bylaws, or a plan or agreement to which the corporation is a party in effect at the time of the ratification of the corporate action pursuant to this section.
Requiring, prohibiting, or prescribing conditions on action of the board or shareholders at a meeting or by written consent, which would not have been required, prohibited, or prescribed pursuant to this division or the articles, bylaws, or a plan or agreement to which the corporation is a party in effect at the time of the ratification of the corporate action pursuant to this section.
Requiring separate action of the holders of any class or series of the corporation’s shares or of directors elected, appointed, or nominated by the holders of any class or series of the corporation’s shares voting as a class or series, which would not have been required pursuant to this division or the articles, bylaws, or a plan or agreement to which the corporation is a party in effect at the time of the ratification of the corporate action pursuant to this section, unless no shares of that class or series are outstanding at the time of the ratification of the corporate action pursuant to this section.
Requiring separate action of the holders of securities of the corporation other than shares, which would not have been required pursuant to this division or the articles, bylaws, or a plan or agreement to which the corporation is a party in effect at the time of the ratification of the corporate action pursuant to this section, unless those securities are not outstanding at the time of the ratification of the corporate action pursuant to this section.
Requiring separate action of any specified person or persons, which would not have been required pursuant to this division or the articles, bylaws, or a plan or agreement to which the corporation is a party in effect at the time of the ratification of the corporate action pursuant to this section.
“Security” means a share, option, or other security of a corporation.
The corporation shall retain all records related to the ratification or validation of a corporate action under this section in accordance with Section 1500.
If the corporation is a party to a pending legal proceeding in which (1) the validity of a corporate action sought to be ratified or validated pursuant to this section is at issue or (2) the ratification or validation of a corporate action pursuant to this section would result in the dismissal in whole or in part of the proceeding, the corporation shall notify the judge, arbitrator, or other person presiding over the proceeding at least 10 court days prior to adopting resolutions pursuant to subdivision (b) or filing a petition pursuant to subdivision (e) with respect to that corporate action. That person shall have power to stay the ratification or validation as justice and equity may require.
“Acknowledged” means that an instrument is either:
Formally acknowledged as provided in Article 3 (commencing with Section 1180) of Chapter 4 of Title 4 of Part 4 of Division 2 of the Civil Code, or
Accompanied by a declaration in writing signed by the persons executing the same that they are such persons and that the instrument is the act and deed of the person or persons executing the same.
Any certificate of acknowledgment taken without this state before a notary public or a judge or clerk of a court of record having an official seal need not be further authenticated.
A corporation is an “affiliate” of, or a corporation is “affiliated” with, another specified corporation if it directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with the other specified corporation.
“Approved by (or approval of) the board” means approved or ratified by the vote of the board or by the vote of a committee authorized to exercise the powers of the board, except as to matters not within the competence of the committee under Section 311.
“Approved by (or approval of) the outstanding shares” means approved by the affirmative vote of a majority of the outstanding shares entitled to vote. Such approval shall include the affirmative vote of a majority of the outstanding shares of each class or series entitled, by any provision of the articles or of this division, to vote as a class or series on the subject matter being voted upon and shall also include the affirmative vote of such greater proportion (including all) of the outstanding shares of any class or series if such greater proportion is required by the articles or this division.
“Approved by (or approval of) the shareholders” means approved or ratified by the affirmative vote of a majority of the shares represented and voting at a duly held meeting at which a quorum is present (which shares voting affirmatively also constitute at least a majority of the required quorum) or by the written consent of shareholders (Section 603) or by the affirmative vote or written consent of such greater proportion (including all) of the shares of any class or series as may be provided in the articles or in this division for all or any specified shareholder action.
“Articles” includes the articles of incorporation, amendments thereto, amended articles, restated articles, certificate of incorporation and certificates of determination. All references in this division to a vote required by the “articles” include, in the case of a close corporation (Section 158), any vote required by a shareholders’ agreement.
“Board” means the board of directors of the corporation.
“Certificate of determination” means a certificate executed and filed pursuant to Section 401.
“Certificated security” means a share (Section 184), as defined in paragraph (4) of subdivision (a) of Section 8102 of, or an obligation of the issuer as described in paragraph (15) of subdivision (a) of, the Commercial Code.
“Certificate of Redomestication” is the document by which the appropriate official of another state approves the redomestication of a California insurer.
All references in this division to “chairperson of the board” shall be deemed to refer to all permissible titles for the chairperson of the board, as permitted by Section 312.
“Chapter” refers to a chapter of this Division 1 of Title 1 of the Corporations Code, unless otherwise expressly stated.
“Close corporation” means a corporation, including a close social purpose corporation, whose articles contain, in addition to the provisions required by Section 202, a provision that all of the corporation’s issued shares of all classes shall be held of record by not more than a specified number of persons, not exceeding 35, and a statement, “This corporation is a close corporation.”
The special provisions referred to in subdivision (a) may be included in the articles by amendment, but if such amendment is adopted after the issuance of shares only by the affirmative vote of all of the issued and outstanding shares of all classes.
The special provisions referred to in subdivision (a) may be deleted from the articles by amendment, or the number of shareholders specified may be changed by amendment, but if such amendment is adopted after the issuance of shares, only by the affirmative vote of at least two-thirds of each class of the outstanding shares; provided, however, that the articles may provide for a lesser vote, but not less than a majority of the outstanding shares, or may deny a vote to any class, or both.
In determining the number of shareholders for the purposes of the provision in the articles authorized by this section, spouses and the personal representative of either shall be counted as one regardless of how shares may be held by either or both of them, a trust or personal representative of a decedent holding shares shall be counted as one regardless of the number of trustees or beneficiaries, and a partnership or corporation or business association holding shares shall be counted as one (except that any such trust or entity the primary purpose of which was the acquisition or voting of the shares shall be counted according to the number of beneficial interests therein).
A corporation shall cease to be a close corporation upon the filing of an amendment to its articles pursuant to subdivision (c) or, if it shall have more than the maximum number of holders of record of its shares specified in its articles as a result of an inter vivos transfer of shares which is not void under subdivision (d) of Section 418, the transfer of shares on distribution by will or pursuant to the laws of descent and distribution, the dissolution of a partnership or corporation or business association, or the termination of a trust which holds shares, by court decree upon dissolution of a marriage or otherwise by operation of law. Promptly upon acquiring more than the specified number of holders of record of its shares, a close corporation shall execute and file an amendment to its articles deleting the special provisions referred to in subdivision (a) and deleting any other provisions not permissible for a corporation which is not a close corporation, which amendment shall be promptly approved and filed by the board and need not be approved by the outstanding shares.
Nothing contained in this section shall invalidate any agreement among the shareholders to vote for the deletion from the articles of the special provisions referred to in subdivision (a) upon the lapse of a specified period of time or upon the occurrence of a certain event or condition or otherwise.
“Common shares” means shares which have no preference over any other shares with respect to distribution of assets on liquidation or with respect to payment of dividends.
Except as provided in subdivision (b), “control” means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a corporation.
“Constituent corporation” means a corporation which is merged with or into one or more other corporations or one or more other business entities and includes a surviving corporation.
“Constituent limited partnership” means a limited partnership which is merged with one or more corporations and includes the surviving limited partnership.
“Constituent other business entity” means an other business entity that is merged with or into one or more corporations and includes the surviving other business entity.
“Conversion” means a conversion pursuant to Chapter 11.5 (commencing with Section 1150).
“Corporation”, unless otherwise expressly provided, refers only to a corporation organized under this division or a corporation subject to this division under the provisions of subdivision (a) of Section 102.
“Corporation subject to the Banking Law” (Division 1.1 (commencing with Section 1000) of the Financial Code) means:
Any corporation which, with the approval of the Commissioner of Financial Protection and Innovation, is incorporated for the purpose of engaging in, or which is authorized by the Commissioner of Financial Protection and Innovation to engage in, the commercial banking business under Division 1.1 (commencing with Section 1000) of the Financial Code.
Any corporation which, with the approval of the Commissioner of Financial Protection and Innovation, is incorporated for the purpose of engaging in, or which is authorized by the Commissioner of Financial Protection and Innovation to engage in, the industrial banking business under Division 1.1 (commencing with Section 1000) of the Financial Code.
Any corporation (other than a corporation described in subdivision (d)) which, with the approval of the Commissioner of Financial Protection and Innovation, is incorporated for the purpose of engaging in, or which is authorized by the Commissioner of Financial Protection and Innovation to engage in, the trust business under Division 1.1 (commencing with Section 1000) of the Financial Code.
Any corporation which is authorized by the Commissioner of Financial Protection and Innovation and the Commissioner of Insurance to maintain a title insurance department to engage in title insurance business and a trust department to engage in trust business; or
Any corporation which, with the approval of the Commissioner of Financial Protection and Innovation, is incorporated for the purpose of engaging in, or which is authorized by the Commissioner of Financial Protection and Innovation to engage in, business under Article 1 (commencing with Section 1850), Chapter 21, Division 1.1 of the Financial Code.
For purposes of subdivision (b) of Section 500 and subdivision (b) of Section 506, “cumulative dividends in arrears” means only cumulative dividends that have not been paid as required on a scheduled payment date set forth in, or determined pursuant to, the articles of incorporation, regardless of whether those dividends had been declared prior to that scheduled payment date.
“Directors” means natural persons designated in the articles as such or elected by the incorporators and natural persons designated, elected or appointed by any other name or title to act as directors, and their successors.
“Disappearing corporation” means a constituent corporation which is not the surviving corporation.
“Disappearing limited partnership” means a constituent limited partnership which is not the surviving limited partnership.
“Distribution to its shareholders” means the transfer of cash or property by a corporation to its shareholders without consideration, whether by way of dividend or otherwise, except a dividend in shares of the corporation, or the purchase or redemption of its shares for cash or property, including the transfer, purchase, or redemption by a subsidiary of the corporation. The time of any distribution by way of dividend shall be the date of declaration thereof and the time of any distribution by purchase or redemption of shares shall be the date cash or property is transferred by the corporation, whether or not pursuant to a contract of an earlier date; provided, that where a debt obligation that is a security (as defined in Section 8102 of the Commercial Code) is issued in exchange for shares the time of the distribution is the date when the corporation acquires the shares in the exchange. In the case of a sinking fund payment, cash or property is transferred within the meaning of this section at the time that it is delivered to a trustee for the holders of preferred shares to be used for the redemption of the shares or physically segregated by the corporation in trust for that purpose. “Distribution to its shareholders” shall not include (a) satisfaction of a final judgment of a court or tribunal of appropriate jurisdiction ordering the rescission of the issuance of shares, (b) the rescission by a corporation of the issuance of it shares, if the board determines (with any director who is, or would be, a party to the transaction not being entitled to vote) that (1) it is reasonably likely that the holder or holders of the shares in question could legally enforce a claim for the rescission, (2) that the rescission is in the best interests of the corporation, and (3) the corporation is likely to be able to meet its liabilities (except those for which payment is otherwise adequately provided) as they mature, or (c) the repurchase by a corporation of its shares issued by it pursuant to Section 408, if the board determines (with any director who is, or would be, a party to the transaction not being entitled to vote) that (1) the repurchase is in the best interests of the corporation and that (2) the corporation is likely to be able to meet its liabilities (except those for which payment is otherwise adequately provided) as they mature.
“Domestic corporation” means a corporation formed under the laws of this state.
“Domestic limited liability company” means a limited liability company as defined in subdivision (t) of Section 17000.
“Domestic limited partnership” means any limited partnership formed under the laws of this state.
“Domestic other business entity” means an other business entity organized under the laws of this state.
“Disappearing other business entity” means a constituent other business entity that is not the surviving other business entity.
“Equity security” in Sections 181, 1001, 1113, 1200, and 1201 means any share or membership of a domestic or foreign corporation; any partnership interest, membership interest, or equivalent equity interest in an other business entity; and any security convertible with or without consideration into, or any warrant or right to subscribe to or purchase, any of the foregoing.
“Filed”, unless otherwise expressly provided, means filed in the office of the Secretary of State.
“Foreign association” means a business association organized as a trust under the laws of a foreign jurisdiction.
“Foreign corporation” means any corporation other than a domestic corporation and, when used in Section 191, Section 201, Section 2203, Section 2258 and Section 2259 and Chapter 21, includes a foreign association, unless otherwise stated. “Foreign corporation” as used in Chapter 21 does not include a corporation or association chartered under the laws of the United States.
“Foreign limited liability company” means a foreign limited liability company as defined in subdivision (j) of Section 17701.02.
“Foreign limited partnership” means any limited partnership, including a limited liability limited partnership, formed under the laws of any state other than this state or of the District of Columbia or under the laws of a foreign country.
“Foreign other business entity” means an other business entity organized under the laws of any state, other than this state, or of the District of Columbia or under the laws of a foreign country.
“Social purpose corporation” means any social purpose corporation formed under Division 1.5 (commencing with Section 2500).
“Initial transaction statement” means a statement signed by or on behalf of the issuer sent to the new registered owner or registered pledgee, and “written statements,” when used in connection with uncertificated securities, means the written statements that are periodically, or at the request of the registered owner or registered pledgee, sent by the issuer to the registered owner or registered pledgee describing the issue of which the uncertificated security is a part.
“Limited liability company” means a limited liability company as defined in subdivision (k) of Section 17701.02.
“Limited partnership” means a partnership formed by two or more persons and having one or more general partners and one or more limited partners, or their equivalents under any name.
“Liquidation price” or “liquidation preference” means amounts payable on shares of any class upon voluntary or involuntary dissolution, winding up or distribution of the entire assets of the corporation, including any cumulative dividends accrued and unpaid, in priority to shares of another class or classes.
“Officers’ certificate” means a certificate signed and verified by the chairperson of the board, the president or any vice president and by the secretary, the chief financial officer, the treasurer or any assistant secretary or assistant treasurer.
“On the certificate” means that a statement appears on the face of a share certificate or on the reverse thereof with a reference thereto on the face or, in the case of an uncertificated security, that the applicable provisions of subdivision (a) of Section 8202 and Section 8204 of the Commercial Code have been complied with.
“Other business entity” means a domestic or foreign limited liability company, limited partnership, general partnership, business trust, real estate investment trust, unincorporated association (other than a nonprofit association), or a domestic reciprocal insurer organized after 1974 to provide medical malpractice insurance as set forth in Article 16 (commencing with Section 1550) of Chapter 3 of Part 2 of Division 1 of the Insurance Code. As used herein, “general partnership” means a “partnership” as defined in Section 16101; “business trust” means a business organization formed as a trust; “real estate investment trust” means a “real estate investment trust” as defined in subsection (a) of Section 856 of the Internal Revenue Code of 1986, as amended; and “unincorporated association” has the meaning set forth in Section 18035.
Except as used in Sections 1001, 1101, and 1113, a “parent” of a specified corporation is an affiliate in control (Section 160(a)) of that corporation directly or indirectly through one or more intermediaries. In Sections 1001, 1101, and 1113, “parent” means a person in control (Section 160(b)) of a domestic corporation, a foreign corporation, or an other business entity.
“Preferred shares” means shares other than common shares.
“Proper county” means the county where the principal office of the corporation is located or, if the principal office of the corporation is not located in this state, or the corporation has no such office, the County of Sacramento.
“Proxy” means a written authorization signed or an electronic transmission authorized by a shareholder or the shareholder’s attorney in fact giving another person or persons power to vote with respect to the shares of such shareholder. “Signed” for the purpose of this section means the placing of the shareholder’s name or other authorization on the proxy (whether by manual signature, typewriting, telegraphic, or electronic transmission or otherwise) by the shareholder or the shareholder’s attorney in fact.
A proxy may be transmitted by an oral telephonic transmission if it is submitted with information from which it may be determined that the proxy was authorized by the shareholder, or his or her attorney in fact.
“Proxyholder” means the person or persons to whom a proxy is given.
“Redemption price” means the amount or amounts (in cash, property or securities, or any combination thereof) payable on shares of any class or series upon the redemption of the shares. Unless otherwise expressly provided, the redemption price is payable in cash.
“Redomestication” means the transfer of an insurer’s place of incorporation from another state to this state or from this state to another state.
“Reorganization” means either:
A merger pursuant to Chapter 11 (commencing with Section 1100) other than a short-form merger (a “merger reorganization”).
The acquisition by one domestic corporation, foreign corporation, or other business entity in exchange, in whole or in part, for its equity securities (or the equity securities of a domestic corporation, a foreign corporation, or an other business entity which is in control of the acquiring entity) of equity securities of another domestic corporation, foreign corporation, or other business entity if, immediately after the acquisition, the acquiring entity has control of the other entity (an “exchange reorganization”).
The acquisition by one domestic corporation, foreign corporation, or other business entity in exchange in whole or in part for its equity securities (or the equity securities of a domestic corporation, a foreign corporation, or an other business entity which is in control of the acquiring entity) or for its debt securities (or debt securities of a domestic corporation, foreign corporation, or other business entity which is in control of the acquiring entity) which are not adequately secured and which have a maturity date in excess of five years after the consummation of the reorganization, or both, of all or substantially all of the assets of another domestic corporation, foreign corporation, or other business entity (a “sale-of-assets reorganization”).
“Reverse stock split” means the pro rata combination of all the outstanding shares of a class into a smaller number of shares of the same class by an amendment to the articles stating the effect on outstanding shares.
“Series” of shares means those shares within a class which have the same rights, preferences, privileges and restrictions but which differ in one or more rights, preferences, privileges or restrictions from other shares within the same class. Certificated securities and uncertificated securities do not constitute different series if the only difference is certificated and uncertificated status.
“Share exchange tender offer” means any acquisition by one corporation in exchange in whole or in part for its equity securities (or the equity securities of a corporation which is in control of the acquiring corporation) of shares of another corporation, other than an exchange reorganization (subdivision (b) of Section 181).
“Shares” means the units into which the proprietary interests in a corporation are divided in the articles.
“Shareholder” means one who is a holder of record of shares.
“Shareholders’ agreement” means a written agreement among all of the shareholders of a close corporation, or if a close corporation has only one shareholder between such shareholder and the corporation, as authorized by subdivision (b) of Section 300.
“Short-form merger” means a merger pursuant to Section 1110.
“Stock split” means the pro rata division, otherwise than by a share dividend, of all the outstanding shares of a class into a greater number of shares of the same class by an amendment to the articles stating the effect on outstanding shares.
Except as provided in subdivision (b), “subsidiary” of a specified corporation means a corporation shares of which possessing more than 50 percent of the voting power are owned directly or indirectly through one or more subsidiaries by the specified corporation.
For the purpose of Section 703, “subsidiary” of a specified corporation means a corporation shares of which possessing more than 25 percent of the voting power are owned directly or indirectly through one or more subsidiaries as defined in subdivision (a) by the specified corporation.
“Surviving corporation” means a corporation into which one or more other corporations or one or more other business entities are merged.
“Surviving limited partnership” means a limited partnership into which one or more other limited partnerships or one or more corporations are merged.
“Surviving other business entity” means an other business entity into which one or more other business entities or one or more corporations are merged.
For the purposes of Chapter 21 (commencing with Section 2100), “transact intrastate business” means entering into repeated and successive transactions of its business in this state, other than interstate or foreign commerce.
A foreign corporation shall not be considered to be transacting intrastate business merely because its subsidiary transacts intrastate business or merely because of its status as any one or more of the following:
A shareholder of a domestic corporation.
A shareholder of a foreign corporation transacting intrastate business.
A limited partner of a domestic limited partnership.
A limited partner of a foreign limited partnership transacting intrastate business.
A member or manager of a domestic limited liability company.
A member or manager of a foreign limited liability company transacting intrastate business.
Without excluding other activities that may not constitute transacting intrastate business, a foreign corporation shall not be considered to be transacting intrastate business within the meaning of subdivision (a) solely by reason of carrying on in this state any one or more of the following activities:
Creating evidences of debt or mortgages, liens or security interests on real or personal property.
Conducting an isolated transaction completed within a period of 180 days and not in the course of a number of repeated transactions of like nature.
Without excluding other activities that may not constitute transacting intrastate business, any foreign lending institution, including, but not limited to: any foreign banking corporation, any foreign corporation all of the capital stock of which is owned by one or more foreign banking corporations, any foreign savings and loan association, any foreign insurance company or any foreign corporation or association authorized by its charter to invest in loans secured by real and personal property, whether organized under the laws of the United States or of any other state, district or territory of the United States, shall not be considered to be doing, transacting, or engaging in business in this state solely by reason of engaging in any or all of the following activities either on its own behalf or as a trustee of a pension plan, employee profit sharing or retirement plan, testamentary or inter vivos trust, or in any other fiduciary capacity:
“Vacancy” when used with respect to the board means any authorized position of director which is not then filled by a duly elected director, whether caused by death, resignation, removal, change in the authorized number of directors (by the board or the shareholders) or otherwise.
“Verified” means that the statements contained in a certificate or other document are declared to be true of the own knowledge of the persons executing the same in either:
An affidavit signed by them under oath before an officer authorized by the laws of this state or of the place where it is executed to administer oaths, or
A declaration in writing executed by them “under penalty of perjury” and stating the date and place (whether within or without this state) of execution.
Any affidavit sworn to without this state before a notary public or a judge or clerk of a court of record having an official seal need not be further authenticated.
“Vote” includes authorization by written consent, subject to the provisions of subdivision (b) of Section 307 and subdivision (d) of Section 603.
“Voting power” means the power to vote for the election of directors at the time any determination of voting power is made and does not include the right to vote upon the happening of some condition or event which has not yet occurred. In any case where different classes of shares are entitled to vote as separate classes for different members of the board, the determination of percentage of voting power shall be made on the basis of the percentage of the total number of authorized directors which the shares in question (whether of one or more classes) have the power to elect in an election at which all shares then entitled to vote for the election of any directors are voted.
“Voting shift” means a change, pursuant to or by operation of a provision of the articles, in the relative rights of the holders of one or more classes or series of shares, voting as one or more separate classes or series, to elect one or more directors.
“Written” or “in writing” includes facsimile, telegraphic, and other electronic communication when authorized by this code, including an electronic transmission by a corporation that satisfies the requirements of Section 20.
CHAPTER 2. Organization and Bylaws [200. - 213.]
One or more natural persons, partnerships, associations or corporations, domestic or foreign, may form a corporation under this division by executing and filing articles of incorporation.
If initial directors are named in the articles, each director named in the articles shall sign and acknowledge the articles; if initial directors are not named in the articles, the articles shall be signed by one or more persons described in subdivision (a) who thereupon are the incorporators of the corporation.
The corporate existence begins upon the filing of the articles and continues perpetually, unless otherwise expressly provided by law or in the articles.
An existing business association organized as a trust under the laws of this state or of a foreign jurisdiction may incorporate under this division upon approval by its board of trustees or similar governing body and approval by the affirmative vote of a majority of the outstanding voting shares of beneficial interest (or such greater proportion of the outstanding shares of beneficial interest or the vote of such other classes of shares of beneficial interest as may be specifically required by its declaration of trust or bylaws) and the filing of articles of incorporation with certificate attached pursuant to this chapter.
In addition to the matters required to be set forth in the articles pursuant to Section 202, the articles in the case of an incorporation authorized by subdivision (a) shall set forth that an existing unincorporated association, stating its name, is being incorporated by the filing of the articles.
The articles filed pursuant to this section shall be signed by the president, or any vice president, and the secretary, or any assistant secretary, of the existing association and shall be accompanied by a certificate signed and verified by such officers signing the articles and stating that the incorporation of the association has been approved by the trustees and by the required vote of holders of shares of beneficial interest in accordance with subdivision (a).
Upon the filing of articles of incorporation pursuant to this section, the corporation shall succeed automatically to all of the rights and property of the association being incorporated and shall be subject to all of its debts and liabilities in the same manner as if the corporation had itself incurred them. The incumbent trustees of the association shall constitute the initial directors of the corporation and shall continue in office until the next annual meeting of the shareholders, unless they die, resign or are removed prior thereto. All rights of creditors and all liens upon the property of the association shall be preserved unimpaired. Any action or proceeding pending by or against the association may be prosecuted to judgment, which shall bind the corporation, or the corporation may be proceeded against or substituted in its place.
The filing for record in the office of the county recorder of any county in this state in which any of the real property of the association is located of a copy of the articles of incorporation filed pursuant to this section, certified by the Secretary of State, shall evidence record ownership in the corporation of all interests of the association in and to the real property located in that county.
The Secretary of State shall not file articles setting forth a name in which “bank,” “ trust,” “trustee,” or related words appear, unless the certificate of approval of the Commissioner of Financial Protection and Innovation is attached thereto. This subdivision does not apply to the articles of any corporation subject to the Banking Law on which is endorsed the approval of the Commissioner of Financial Protection and Innovation.
The name of a corporation shall not be a name that the Secretary of State determines is likely to mislead the public and shall be distinguishable in the records of the Secretary of State from all of the following:
The name of any corporation.
The name of any foreign corporation authorized to transact intrastate business in this state.
Each name that is under reservation pursuant to this title.
The name of a foreign corporation that has registered its name pursuant to Section 2101.
An alternate name of a foreign corporation under subdivision (b) of Section 2106.
A name that will become the record name of a domestic or foreign corporation upon a corporate instrument when there is a delayed effective or file date.
Subject to Section 2106, this section applies to a foreign corporation transacting business in this state or that has applied for a certificate of qualification.
The use by a corporation of a name in violation of this section may be enjoined notwithstanding the filing of its articles by the Secretary of State.
Any applicant may, upon payment of the fee prescribed therefor in Article 3 (commencing with Section 12180) of Chapter 3 of Part 2 of Division 3 of Title 2 of the Government Code, obtain from the Secretary of State a certificate of reservation of any name not prohibited by subdivision (b), and upon the issuance of the certificate the name stated therein shall be reserved for a period of 60 days. The Secretary of State shall not, however, issue certificates reserving the same name for two or more consecutive 60-day periods to the same applicant or for the use or benefit of the same person; nor shall consecutive reservations be made by or for the use or benefit of the same person; of names so similar as to fall within the prohibitions of subdivision (b).
The Secretary of State shall not file articles in which the business is to be an insurer unless the certificate of the Insurance Commissioner approving the corporate name is attached thereto.
When an insurer has been approved by the Insurance Commissioner pursuant to Section 709.5 of the Insurance Code to redomesticate to this state, the redomesticating insurer shall file with the Secretary of State articles of incorporation that include a provision setting forth all of the following information:
The name and former jurisdiction of the redomesticating insurer.
The redomesticating insurer’s Secretary of State file number.
A statement that the redomesticating insurer was authorized to effect the redomestication by the laws under which it formerly was organized.
A statement that the redomesticating insurer has approved a plan of redomestication or other instrument as may be required to effect the redomestication to this state pursuant to the laws under which the redomesticating insurer was organized.
A statement that the Insurance Commissioner has approved the redomestication of the insurer to this state.
The Secretary of State shall not file articles of incorporation containing the information required by paragraph (1) unless a copy of the amended certificate of authority, evidencing the approval of the redomestication by the Insurance Commissioner, is attached thereto.
If a redomesticating insurer is qualified to transact business in this state, by virtue of its filing of articles of incorporation in this state, the redomesticating insurer shall automatically surrender its right to transact intrastate business.
An insurer that has filed articles of incorporation in this state and has been approved by the Insurance Commissioner pursuant to Section 709.5 of the Insurance Code to redomesticate to another jurisdiction, shall file with the Secretary of State a statement of redomestication, on a form prescribed by the Secretary of State, containing all of the following information:
The name of the redomesticating insurer.
The redomesticating insurer’s Secretary of State file number.
The jurisdiction of the redomesticated insurer.
The name and street address of the redomesticated insurer’s agent for service of process.
A statement that the redomesticating insurer is authorized to effect the redomestication under California law and the jurisdiction to which the insurer is redomesticating.
A statement that the redomesticating insurer has complied with the requirements to redomesticate as required by California law and the jurisdiction to which the insurer is redomesticating.
A statement that the Insurance Commissioner has approved the redomestication of the insurer.
The Secretary of State shall not file the statement of redomestication required by paragraph (1) unless a copy of the amended certificate of authority, evidencing the approval of the redomestication by the Insurance Commissioner, is attached thereto.
Upon receipt of a certified copy of the commissioner’s authorization issued pursuant to subdivision (a) of Section 11542 or subdivision (a) of Section 4097.11 of the Insurance Code and subject to subdivision (a) of Section 110 of the Corporations Code, the Secretary of State shall accept for filing the certificate of amendment of the articles of incorporation of the domestic mutual insurer certified by the secretary thereof.
Upon receipt of a certified copy of the commissioner’s authorization to file articles of incorporation of a mutual holding company and a stock holding company authorized pursuant to conversion proceedings pursuant to subdivision (a) of Section 11542 or subdivision (a) of Section 4097.11 of the Insurance Code and subject to subdivision (a) of Section 110 of the Corporations Code, the Secretary of State shall accept for filing the articles of incorporation of the mutual holding company and stock holding company.
The articles of incorporation shall set forth:
The name of the corporation; provided, however, that in order for the corporation to be subject to the provisions of this division applicable to a close corporation (Section 158), the name of the corporation must contain the word “corporation,” “incorporated,” or “limited” or an abbreviation of one of such words.
The applicable one of the following statements:
The purpose of the corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code; or
The purpose of the corporation is to engage in the profession of ____ (with the insertion of a profession permitted to be incorporated by the California Corporations Code) and any other lawful activities (other than the banking or trust company business) not prohibited to a corporation engaging in such profession by applicable laws and regulations.
In case the corporation is a corporation subject to the Banking Law (Division 1.1 (commencing with Section 1000) of the Financial Code), the articles shall set forth a statement of purpose which is prescribed in the applicable provision of the Banking Law.
In case the corporation is a corporation subject to the Insurance Code as an insurer, the articles shall additionally state that the business of the corporation is to be an insurer.
If the corporation is intended to be a “professional corporation” within the meaning of the Moscone-Knox Professional Corporation Act (Part 4 (commencing with Section 13400) of Division 3), the articles shall additionally contain the statement required by Section 13404.
The articles shall not set forth any further or additional statement with respect to the purposes or powers of the corporation, except by way of limitation or except as expressly required by any law of this state other than this division or any federal or other statute or regulation (including the Internal Revenue Code and regulations thereunder as a condition of acquiring or maintaining a particular status for tax purposes).
The name and street address in this state of the corporation’s initial agent for service of process in accordance with subdivision (b) of Section 1502.
The initial street address of its principal office.
The initial mailing address of the corporation, if different from the initial street address.
If the corporation is authorized to issue only one class of shares, the total number of shares which the corporation is authorized to issue.
If the corporation is authorized to issue more than one class of shares, or if any class of shares is to have two or more series:
The total number of shares of each class the corporation is authorized to issue, and the total number of shares of each series which the corporation is authorized to issue or that the board is authorized to fix the number of shares of any such series;
The designation of each class, and the designation of each series or that the board may determine the designation of any such series; and
The rights, preferences, privileges, and restrictions granted to or imposed upon the respective classes or series of shares or the holders thereof, or that the board, within any limits and restrictions stated, may determine or alter the rights, preferences, privileges, and restrictions granted to or imposed upon any wholly unissued class of shares or any wholly unissued series of any class of shares. As to any series the number of shares of which is authorized to be fixed by the board, the articles may also authorize the board, within the limits and restrictions stated therein or stated in any resolution or resolutions of the board originally fixing the number of shares constituting any series, to increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any such series subsequent to the issue of shares of that series. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the status which they had before the adoption of the resolution originally fixing the number of shares of such series.
Except as specified in the articles or in any shareholders’ agreement, no distinction shall exist between classes or series of shares or the holders thereof.
If the articles include the designation and number of shares of one or more series within a class, the stated number of shares for all series within the class shall not exceed, and may be less than, the stated number of shares for the class.
If so authorized in the articles and if the articles state the number of shares of the class, the articles may be amended by approval of the board alone to increase or decrease (but not below the number of shares of the series then outstanding) the number of shares of a series.
If the articles authorize a class of shares which is stated to be issuable in series, the articles shall include either the designation and number of shares for at least one series within that class or an authorization of common shares.
The articles of incorporation may set forth:
Any or all of the following provisions, which shall not be effective unless expressly provided in the articles:
Granting, with or without limitations, the power to levy assessments upon the shares or any class of shares.
Granting to shareholders preemptive rights to subscribe to any or all issues of shares or securities.
Special qualifications of persons who may be shareholders.
A provision limiting the duration of the corporation’s existence to a specified date.
A provision requiring, for any or all corporate actions, except as provided in Section 303, subdivision (b) of Section 402.5, subdivision (c) of Section 708, and Section 1900, the vote of a larger proportion or of all of the shares of any class or series, or the vote or quorum for taking action of a larger proportion or of all of the directors, than is otherwise required by this division.
A provision limiting or restricting the business in which the corporation may engage or the powers which the corporation may exercise or both.
A provision conferring upon the holders of any evidences of indebtedness, issued or to be issued by the corporation, the right to vote in the election of directors and on any other matters on which shareholders may vote.
A provision conferring upon shareholders the right to determine the consideration for which shares shall be issued.
Provisions eliminating or limiting the personal liability of a director for monetary damages in an action brought by or in the right of the corporation for breach of a director’s duties to the corporation and its shareholders, as set forth in Section 309, provided, however, that (A) such a provision may not eliminate or limit the liability of directors (i) for acts or omissions that involve intentional misconduct or a knowing and culpable violation of law, (ii) for acts or omissions that a director believes to be contrary to the best interests of the corporation or its shareholders or that involve the absence of good faith on the part of the director, (iii) for any transaction from which a director derived an improper personal benefit, (iv) for acts or omissions that show a reckless disregard for the director’s duty to the corporation or its shareholders in circumstances in which the director was aware, or should have been aware, in the ordinary course of performing a director’s duties, of a risk of serious injury to the corporation or its shareholders, (v) for acts or omissions that constitute an unexcused pattern of inattention that amounts to an abdication of the director’s duty to the corporation or its shareholders, (vi) under Section 310, or (vii) under Section 316, (B) no such provision shall eliminate or limit the liability of a director for any act or omission occurring prior to the date when the provision becomes effective, and (C) no such provision shall eliminate or limit the liability of an officer for any act or omission as an officer, notwithstanding that the officer is also a director or that his or her actions, if negligent or improper, have been ratified by the directors.
A provision authorizing, whether by bylaw, agreement, or otherwise, the indemnification of agents (as defined in Section 317) in excess of that expressly permitted by Section 317 for those agents of the corporation for breach of duty to the corporation and its stockholders, provided, however, that the provision may not provide for indemnification of any agent for any acts or omissions or transactions from which a director may not be relieved of liability as set forth in the exception to paragraph (10) or as to circumstances in which indemnity is expressly prohibited by Section 317.
Notwithstanding this subdivision, in the case of a close corporation any of the provisions referred to above may be validly included in a shareholders’ agreement. Notwithstanding this subdivision, bylaws may require for all or any actions by the board the affirmative vote of a majority of the authorized number of directors. Nothing contained in this subdivision shall affect the enforceability, as between the parties thereto, of any lawful agreement not otherwise contrary to public policy.
Reasonable restrictions upon the right to transfer or hypothecate shares of any class or classes or series, but no restriction shall be binding with respect to shares issued prior to the adoption of the restriction unless the holders of such shares voted in favor of the restriction.
The names and addresses of the persons appointed to act as initial directors.
Any other provision, not in conflict with law, for the management of the business and for the conduct of the affairs of the corporation, including any provision which is required or permitted by this division to be stated in the bylaws.
This section shall become operative on January 1, 2022.
If the articles of a corporation include a provision reading substantially as follows: “The liability of the directors of the corporation for monetary damages shall be eliminated to the fullest extent permissible under California law”; the corporation shall be considered to have adopted a provision as authorized by paragraph (10) of subdivision (a) of Section 204 and more specific wording shall not be required.
This section shall not be construed as setting forth the exclusive method of adopting an article provision as authorized by paragraph (10) of subdivision (a) of Section 204.
This section shall not change the otherwise applicable standards or duties to make full and fair disclosure to shareholders when approval of such a provision is sought.
Solely for the purpose of any statute or regulation imposing any tax or fee based upon the capitalization of a corporation, all authorized shares of a corporation organized under this division shall be deemed to have a nominal or par value of one dollar ($1) per share. If any federal or other statute or regulation applicable to a particular corporation requires that the shares of such corporation have a par value, such shares shall have the par value determined by the board in order to satisfy the requirements of such statute or regulation.
Subject to any limitation contained in the articles and to compliance with any other applicable laws, any corporation other than a corporation subject to the Banking Law or a professional corporation may engage in any business activity; and a corporation subject to the Banking Law or a professional corporation may engage in any business activity not prohibited by the respective statutes and regulations to which it is subject.
Subject to any limitations contained in the articles and to compliance with other provisions of this division and any other applicable laws, a corporation shall have all of the powers of a natural person in carrying out its business activities, including, without limitation, the power to:
Adopt, use, and at will alter a corporate seal, but failure to affix a seal does not affect the validity of any instrument.
Adopt, amend, and repeal bylaws.
Qualify to do business in any other state, territory, dependency, or foreign country.
Subject to the provisions of Section 510, issue, purchase, redeem, receive, take or otherwise acquire, own, hold, sell, lend, exchange, transfer or otherwise dispose of, pledge, use, and otherwise deal in and with its own shares, bonds, debentures, and other securities.
Make donations, regardless of specific corporate benefit, for the public welfare or for community fund, hospital, charitable, educational, scientific, civic, or similar purposes.
Pay pensions, and establish and carry out pension, profit-sharing, share bonus, share purchase, share option, savings, thrift, and other retirement, incentive, and benefit plans, trusts, and provisions for any or all of the directors, officers, and employees of the corporation or any of its subsidiary or affiliated corporations, and to indemnify and purchase and maintain insurance on behalf of any fiduciary of such plans, trusts, or provisions.
Subject to the provisions of Section 315, assume obligations, enter into contracts, including contracts of guaranty or suretyship, incur liabilities, borrow and lend money, and otherwise use its credit, and secure any of its obligations, contracts, or liabilities by mortgage, pledge, or other encumbrance of all or any part of its property, franchises, and income.
Participate with others in any partnership, joint venture, or other association, transaction, or arrangement of any kind, whether or not such participation involves sharing or delegation of control with or to others.
In anticipation of or during an emergency, take either or both of the following actions necessary to conduct the corporation’s business operations and affairs, unless emergency bylaws provide otherwise pursuant to subdivision (c) of Section 212:
Modify lines of succession to accommodate the incapacity of any director, officer, employee, or agent resulting from the emergency.
Relocate the principal office, designate alternative principal offices or regional offices, or authorize the officers to do so.
During an emergency, take either or both of the following actions necessary to conduct the corporation’s business operations and affairs, unless emergency bylaws provide otherwise pursuant to subdivision (c) of Section 212:
Give notice to a director or directors in any practicable manner under the circumstances, including, but not limited to, by publication and radio, when notice of a meeting of the board cannot be given to that director or directors in the manner prescribed by the bylaws or Section 307.
Deem that one or more officers of the corporation present at a board meeting is a director, in order of rank and within the same rank in order of seniority, as necessary to achieve a quorum for that meeting.
In anticipation of or during an emergency, the board may take any action that it determines to be necessary or appropriate to respond to the emergency, mitigate the effects of the emergency, or comply with lawful federal and state government orders, but shall not take any action that requires the vote of the shareholders, unless the required vote of the shareholders was obtained prior to the emergency.
Any actions taken in good faith in anticipation of or during an emergency under this subdivision bind the corporation and shall not be used to impose liability on a corporate director, officer, employee, or agent.
For purposes of this subdivision, “emergency” means any of the following events or circumstances as a result of which, and only so long as, a quorum of the corporation’s board of directors cannot be readily convened for action:
A natural catastrophe, including, but not limited to, a hurricane, tornado, storm, high water, wind-driven water, tidal wave, tsunami, earthquake, volcanic eruption, landslide, mudslide, snowstorm, drought, epidemic, pandemic, or disease outbreak, or, regardless of cause, any fire, flood, or explosion.
An attack on or within this state or on the public security of its residents by an enemy of this state or on the nation by an enemy of the United States of America, or upon receipt by this state of a warning from the federal government indicating that any such enemy attack is probable or imminent.
An act of terrorism or other manmade disaster that results in extraordinary levels of casualties or damage or disruption severely affecting the infrastructure, environment, economy, government functions, or population, including, but not limited to, mass evacuations.
A state of emergency proclaimed by the Governor of this state, including any person serving as Governor in accordance with Section 10 of Article V of the California Constitution and Section 12058 of the Government Code, or by the President of the United States of America.
No limitation upon the business, purposes or powers of the corporation or upon the powers of the shareholders, officers or directors, or the manner of exercise of such powers, contained in or implied by the articles or by Chapters 18, 19 and 20 or by any shareholders’ agreement shall be asserted as between the corporation or any shareholder and any third person, except in a proceeding (1) by a shareholder or the state to enjoin the doing or continuation of unauthorized business by the corporation or its officers, or both, in cases where third parties have not acquired rights thereby, or (2) to dissolve the corporation or (3) by the corporation or by a shareholder suing in a representative suit against the officers or directors of the corporation for violation of their authority.
Any contract or conveyance made in the name of a corporation which is authorized or ratified by the board, or is done within the scope of the authority, actual or apparent, conferred by the board or within the agency power of the officer executing it, except as the board’s authority is limited by law other than this division, binds the corporation, and the corporation acquires rights thereunder, whether the contract is executed or wholly or in part executory.
This section applies to contracts and conveyances made by foreign corporations in this state and to all conveyances by foreign corporations of real property situated in this state.
For all purposes other than an action in the nature of quo warranto, a copy of the articles of a corporation duly certified by the Secretary of State is conclusive evidence of the formation of the corporation and prima facie evidence of its corporate existence.
If initial directors have not been named in the articles, the incorporator or incorporators, until the directors are elected, may do whatever is necessary and proper to perfect the organization of the corporation, including the adoption and amendment of bylaws of the corporation and the election of directors and officers.
Bylaws may be adopted, amended or repealed either by approval of the outstanding shares (Section 152) or by the approval of the board, except as provided in Section 212. Subject to subdivision (a)(5) of Section 204, the articles or bylaws may restrict or eliminate the power of the board to adopt, amend or repeal any or all bylaws.
The bylaws shall set forth (unless such provision is contained in the articles, in which case it may only be changed by an amendment of the articles) the number of directors of the corporation; or that the number of directors shall be not less than a stated minimum nor more than a stated maximum (which in no case shall be greater than two times the stated minimum minus one), with the exact number of directors to be fixed, within the limits specified, by approval of the board or the shareholders (Section 153) in the manner provided in the bylaws, subject to paragraph (5) of subdivision (a) of Section 204. The number or minimum number of directors shall not be less than three; provided, however, that (1) before shares are issued, the number may be one, (2) before shares are issued, the number may be two, (3) so long as the corporation has only one shareholder, the number may be one, (4) so long as the corporation has only one shareholder, the number may be two, and (5) so long as the corporation has only two shareholders, the number may be two. After the issuance of shares, a bylaw specifying or changing a fixed number of directors or the maximum or minimum number or changing from a fixed to a variable board or vice versa may only be adopted by approval of the outstanding shares (Section 152); provided, however, that a bylaw or amendment of the articles reducing the fixed number or the minimum number of directors to a number less than five cannot be adopted if the votes cast against its adoption at a meeting or the shares not consenting in the case of action by written consent are equal to more than 1623 percent of the outstanding shares entitled to vote.
The bylaws may contain any provision, not in conflict with law or the articles for the management of the business and for the conduct of the affairs of the corporation, including, but not limited to:
Any provision referred to in subdivision (b), (c), or (d) of Section 204.
The time, place, and manner of calling, conducting, and giving notice of shareholders’, directors’, and committee meetings.
The manner of execution, revocation, and use of proxies.
The qualifications, duties, and compensation of directors; the time of their annual election; and the requirements of a quorum for directors’ and committee meetings.
The appointment and authority of committees of the board.
The appointment, duties, compensation, and tenure of officers.
The mode of determination of holders of record of its shares.
The making of annual reports and financial statements to the shareholders.
Every corporation shall keep at its principal office in this state, or if its principal office is not in this state at its principal business office in this state, the original or a copy of its bylaws as amended to date, which shall be open to inspection by the shareholders at all reasonable times during office hours. If the principal office of the corporation is outside this state and the corporation has no principal office in this state, it shall upon the written request of any shareholder furnish to such shareholder a copy of the bylaws as amended to date.
CHAPTER 3. Directors and Management [300. - 318.]
Subject to the provisions of this division and any limitations in the articles relating to action required to be approved by the shareholders (Section 153) or by the outstanding shares (Section 152), or by a less than majority vote of a class or series of preferred shares (Section 402.5), the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the board. The board may delegate the management of the day-to-day operation of the business of the corporation to a management company or other person provided that the business and affairs of the corporation shall be managed and all corporate powers shall be exercised under the ultimate direction of the board.
Notwithstanding subdivision (a) or any other provision of this division, but subject to subdivision (c), no shareholders’ agreement, which relates to any phase of the affairs of a close corporation, including but not limited to management of its business, division of its profits or distribution of its assets on liquidation, shall be invalid as between the parties thereto on the ground that it so relates to the conduct of the affairs of the corporation as to interfere with the discretion of the board or that it is an attempt to treat the corporation as if it were a partnership or to arrange their relationships in a manner that would be appropriate only between partners. A transferee of shares covered by such an agreement which is filed with the secretary of the corporation for inspection by any prospective purchaser of shares, who has actual knowledge thereof or notice thereof by a notation on the certificate pursuant to Section 418, is bound by its provisions and is a party thereto for the purposes of subdivision (d). Original issuance of shares by the corporation to a new shareholder who does not become a party to the agreement terminates the agreement, except that if the agreement so provides it shall continue to the extent it is enforceable apart from this subdivision. The agreement may not be modified, extended or revoked without the consent of such a transferee, subject to any provision of the agreement permitting modification, extension or revocation by less than unanimous agreement of the parties. A transferor of shares covered by such an agreement ceases to be a party thereto upon ceasing to be a shareholder of the corporation unless the transferor is a party thereto other than as a shareholder. An agreement made pursuant to this subdivision shall terminate when the corporation ceases to be a close corporation, except that if the agreement so provides it shall continue to the extent it is enforceable apart from this subdivision. This subdivision does not apply to an agreement authorized by subdivision (a) of Section 706.
No agreement entered into pursuant to subdivision (b) may alter or waive any of the provisions of Sections 158, 417, 418, 500, 501, and 1111, subdivision (e) of Section 1201, Sections 2009, 2010, and 2011, or of Chapters 15 (commencing with Section 1500), 16 (commencing with Section 1600), 18 (commencing with Section 1800), and 22 (commencing with Section 2200). All other provisions of this division may be altered or waived as between the parties thereto in a shareholders’ agreement, except the required filing of any document with the Secretary of State.
An agreement of the type referred to in subdivision (b) shall, to the extent and so long as the discretion or powers of the board in its management of corporate affairs is controlled by such agreement, impose upon each shareholder who is a party thereto liability for managerial acts performed or omitted by such person pursuant thereto that is otherwise imposed by this division upon directors, and the directors shall be relieved to that extent from such liability.
The failure of a close corporation to observe corporate formalities relating to meetings of directors or shareholders in connection with the management of its affairs, pursuant to an agreement authorized by subdivision (b), shall not be considered a factor tending to establish that the shareholders have personal liability for corporate obligations.
Except as provided in Section 301.5, at each annual meeting of shareholders, directors shall be elected to hold office until the next annual meeting. However, to effectuate a voting shift (Section 194.7) the articles may provide that directors hold office for a shorter term. The articles may provide for the election of one or more directors by the holders of the shares of any class or series voting as a class or series.
Each director, including a director elected to fill a vacancy, shall hold office until the expiration of the term for which elected and until a successor has been elected and qualified.
No later than the close of the 2019 calendar year, a publicly held domestic or foreign corporation whose principal executive offices, according to the corporation’s SEC 10-K form, are located in California shall have a minimum of one female director on its board. A corporation may increase the number of directors on its board to comply with this section.
No later than the close of the 2021 calendar year, a publicly held domestic or foreign corporation whose principal executive offices, according to the corporation’s SEC 10-K form, are located in California shall comply with the following:
If its number of directors is six or more, the corporation shall have a minimum of three female directors.
If its number of directors is five, the corporation shall have a minimum of two female directors.
If its number of directors is four or fewer, the corporation shall have a minimum of one female director.
No later than July 1, 2019, the Secretary of State shall publish a report on its internet website documenting the number of domestic and foreign corporations whose principal executive offices, according to the corporation’s SEC 10-K form, are located in California and who have at least one female director.
No later than March 1, 2020, and annually thereafter, the Secretary of State shall publish a report on its internet website regarding, at a minimum, information required by subdivision (c) of Section 301.4 and all of the following:
The Secretary of State may adopt regulations to implement this section. The Secretary of State may impose fines for violations of this section as follows:
For failure to timely file board member information with the Secretary of State pursuant to a regulation adopted pursuant to this paragraph, the amount of one hundred thousand dollars ($100,000).
For a first violation, the amount of one hundred thousand dollars ($100,000).
For a second or subsequent violation, the amount of three hundred thousand dollars ($300,000).
For the purposes of this subdivision, each director seat required by this section to be held by a female, which is not held by a female during at least a portion of a calendar year, shall count as a violation.
For purposes of this subdivision, a female director having held a seat for at least a portion of the year shall not be a violation.
Fines collected pursuant to this section shall be available, upon appropriation by the Legislature, for use by the Secretary of State to offset the cost of administering this section.
For purposes of this section, the following definitions apply:
“Female” means an individual who self-identifies her gender as a woman, without regard to the individual’s designated sex at birth.
“Publicly held corporation” means a corporation with outstanding shares listed on a major United States stock exchange.
No later than the close of the 2021 calendar year, a publicly held domestic or foreign corporation whose principal executive offices, according to the corporation’s SEC 10-K form, are located in California shall have a minimum of one director from an underrepresented community on its board. A corporation may increase the number of directors on its board to comply with this section.
No later than the close of the 2022 calendar year, a publicly held domestic or foreign corporation whose principal executive offices, according to the corporation’s SEC 10-K form, are located in California shall comply with the following:
If its number of directors is nine or more, the corporation shall have a minimum of three directors from underrepresented communities.
If its number of directors is more than four but fewer than nine, the corporation shall have a minimum of two directors from underrepresented communities.
If its number of directors is four or fewer, the corporation shall have a minimum of one director from an underrepresented community.
No later than March 1, 2022, and annually thereafter, the Secretary of State shall include in its report required by subdivision (d) of Section 301.3, at a minimum, all of the following:
For failure to timely file board member information with the Secretary of State pursuant to a regulation adopted pursuant to this paragraph, the amount of one hundred thousand dollars ($100,000).
For a first violation, as described in paragraph (2), the amount of one hundred thousand dollars ($100,000).
For a second or subsequent violation, as described in paragraph (2), the amount of three hundred thousand dollars ($300,000).
Each director seat required by this section to be held by a director from an underrepresented community, which is not held by a director from an underrepresented community during at least a portion of a calendar year, shall count as a violation.
A director from an underrepresented community having held a seat for at least a portion of the year shall not be a violation.
For purposes of this section, the following definitions apply:
“Director from an underrepresented community” means an individual who self-identifies as Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, or Alaska Native, or who self-identifies as gay, lesbian, bisexual, or transgender.
“Publicly held corporation” means a corporation with outstanding shares listed on a major United States stock exchange.
A listed corporation may, by amendment of its articles or bylaws, adopt provisions to divide the board of directors into two or three classes to serve for terms of two or three years respectively, or to eliminate cumulative voting, or both. After the issuance of shares, a corporation that is not a listed corporation may, by amendment of its articles or bylaws, adopt provisions to be effective when the corporation becomes a listed corporation to divide the board of directors into two or three classes to serve for terms of two or three years respectively, or to eliminate cumulative voting, or both. An article or bylaw amendment providing for division of the board of directors into classes, or any change in the number of classes, or the elimination of cumulative voting may only be adopted by the approval of the board and the outstanding shares (Section 152) voting as a single class, notwithstanding Section 903.
If the board of directors is divided into two classes pursuant to subdivision (a), the authorized number of directors shall be no less than six and one-half of the directors or as close an approximation as possible shall be elected at each annual meeting of shareholders. If the board of directors is divided into three classes, the authorized number of directors shall be no less than nine and one-third of the directors or as close an approximation as possible shall be elected at each annual meeting of shareholders. Directors of a listed corporation may be elected by classes at a meeting of shareholders at which an amendment to the articles or bylaws described in subdivision (a) is approved, but the extended terms for directors are contingent on that approval, and in the case of an amendment to the articles, the filing of any necessary amendment to the articles pursuant to Section 905 or 910.
If directors for more than one class are to be elected by the shareholders at any one meeting of shareholders and the election is by cumulative voting pursuant to Section 708, votes may be cumulated only for directors to be elected within each class.
For purposes of this section, a “listed corporation” means a corporation with outstanding shares listed on the New York Stock Exchange, the NYSE American, the NASDAQ Global Market, or the NASDAQ Capital Market.
Subject to subdivision (h), if a listed corporation having a board of directors divided into classes pursuant to subdivision (a) ceases to be a listed corporation for any reason, unless the articles of incorporation or bylaws of the corporation provide for the elimination of classes of directors at an earlier date or dates, the board of directors of the corporation shall cease to be divided into classes as to each class of directors on the date of the expiration of the term of the directors in that class and the term of each director serving at the time the corporation ceases to be a listed corporation (and the term of each director elected to fill a vacancy resulting from the death, resignation, or removal of any of those directors) shall continue until its expiration as if the corporation had not ceased to be a listed corporation.
Subject to subdivision (h), if a listed corporation having a provision in its articles or bylaws eliminating cumulative voting pursuant to subdivision (a) or permitting noncumulative voting in the election of directors pursuant to that subdivision, or both, ceases to be a listed corporation for any reason, the shareholders shall be entitled to cumulate their votes pursuant to Section 708 at any election of directors occurring while the corporation is not a listed corporation notwithstanding that provision in its articles of incorporation or bylaws.
Subject to subdivision (i), if a corporation that is not a listed corporation adopts amendments to its articles of incorporation or bylaws to divide its board of directors into classes or to eliminate cumulative voting, or both, pursuant to subdivision (a) and then becomes a listed corporation, unless the articles of incorporation or bylaws provide for those provisions to become effective at some other time and, in cases where classes of directors are provided for, identify the directors who, or the directorships that, are to be in each class or the method by which those directors or directorships are to be identified, the provisions shall become effective for the next election of directors after the corporation becomes a listed corporation at which all directors are to be elected.
If a corporation ceases to be a listed corporation on or after the record date for a meeting of shareholders and before the conclusion of the meeting, including the conclusion of the meeting after an adjournment or postponement that does not require or result in the setting of a new record date, then, solely for purposes of subdivisions (e) and (f), the corporation shall not be deemed to have ceased to be a listed corporation until the conclusion of the meeting of shareholders.
If a corporation becomes a listed corporation on or after the record date for a meeting of shareholders and before the conclusion of the meeting, including the conclusion of the meeting after an adjournment or postponement that does not require or result in the setting of a new record date, then, solely for purposes of subdivision (g), the corporation shall not be deemed to have become a listed corporation until the conclusion of the meeting of shareholders.
If an article amendment referred to in subdivision (a) is adopted by a listed corporation, the certificate of amendment shall include a statement of the facts showing that the corporation is a listed corporation within the meaning of subdivision (d). If an article or bylaw amendment referred to in subdivision (a) is adopted by a corporation which is not a listed corporation, the provision, as adopted, shall include the following statement or the substantial equivalent: “This provision shall become effective only when the corporation becomes a listed corporation within the meaning of Section 301.5 of the Corporations Code.”
A listed corporation engaged in business limited to the operation and maintenance of a recreation venture having golf and tennis facilities and ancillary dining and beverage services may, by amendment of its articles or bylaws, adopt provisions allowing division of its board of directors into two classes, with one-half of the directors or as close an approximation as possible to be elected at each annual meeting of shareholders, provided that the corporation’s bylaws or articles limit each holder of the securities to no more than five shares and require some of those holders to occupy dwellings immediately contiguous to the real property of the corporation. An article or bylaw amendment providing for division of the board of directors into classes may only be adopted by the approval of the board and the outstanding shares (Section 152) voting as a single class, notwithstanding Section 903. Directors of a listed corporation that meet these conditions may be elected by classes at a meeting of shareholders at which an amendment to the articles or bylaws described in this paragraph is approved, but the extended terms for directors are contingent on that approval, and in the case of an amendment to the articles, the filing of any necessary amendment to the articles pursuant to Section 905 or 910.
For purposes of this section, a “listed corporation” means a corporation described in subdivision (d) of Section 301.5.
If an article amendment referred to in subdivision (a) is adopted by a listed corporation, the certificate of amendment shall include a statement of the facts showing that the corporation is a listed corporation within the meaning of subdivision (b).
Notwithstanding Section 301, a mutual water company organized under this division may elect directors to serve staggered four-year terms if authorized in the corporation’s articles of incorporation or bylaws. Upon the initial election of directors to staggered terms, the elected directors shall determine by lot who among them shall serve initial two-year terms and who among them shall serve four-year terms. Prior to any election in which the terms of elected directors shall be determined by lot, the mutual water company shall notify its shareholders that the terms of the directors elected shall be determined among those directors by lot.
The board may declare vacant the office of a director who has been declared of unsound mind by an order of court or convicted of a felony.
Any or all of the directors may be removed without cause if the removal is approved by the outstanding shares (Section 152), subject to the following:
Except for a corporation to which paragraph (3) is applicable, no director may be removed (unless the entire board is removed) when the votes cast against removal, or not consenting in writing to the removal, would be sufficient to elect the director if voted cumulatively at an election at which the same total number of votes were cast (or, if the action is taken by written consent, all shares entitled to vote were voted) and the entire number of directors authorized at the time of the director’s most recent election were then being elected.
When by the provisions of the articles the holders of the shares of any class or series, voting as a class or series, are entitled to elect one or more directors, any director so elected may be removed only by the applicable vote of the holders of the shares of that class or series.
A director of a corporation whose board of directors is classified pursuant to Section 301.5 may not be removed if the votes cast against removal of the director, or not consenting in writing to the removal, would be sufficient to elect the director if voted cumulatively (without regard to whether shares may otherwise be voted cumulatively) at an election at which the same total number of votes were cast (or, if the action is taken by written consent, all shares entitled to vote were voted) and either the number of directors elected at the most recent annual meeting of shareholders, or if greater, the number of directors for whom removal is being sought, were then being elected.
Any reduction of the authorized number of directors or amendment reducing the number of classes of directors does not remove any director prior to the expiration of the director’s term of office.
The superior court of the proper county may, at the suit of shareholders holding at least 10 percent of the number of outstanding shares of any class, remove from office any director in case of fraudulent or dishonest acts or gross abuse of authority or discretion with reference to the corporation and may bar from reelection any director so removed for a period prescribed by the court. The corporation shall be made a party to such action.
Unless otherwise provided in the articles or bylaws and except for a vacancy created by the removal of a director, vacancies on the board may be filled by approval of the board (Section 151) or, if the number of directors then in office is less than a quorum, by (1) the unanimous written consent of the directors then in office, (2) the affirmative vote of a majority of the directors then in office at a meeting held pursuant to notice or waivers of notice complying with Section 307 or (3) a sole remaining director. Unless the articles or a bylaw adopted by the shareholders provide that the board may fill vacancies occurring in the board by reason of the removal of directors, such vacancies may be filled only by approval of the shareholders (Section 153).
The shareholders may elect a director at any time to fill any vacancy not filled by the directors. Any such election by written consent other than to fill a vacancy created by removal, which requires the unanimous consent of all shares entitled to vote for the election of directors, requires the consent of a majority of the outstanding shares entitled to vote.
If, after the filling of any vacancy by the directors, the directors then in office who have been elected by the shareholders shall constitute less than a majority of the directors then in office, then both of the following shall be applicable:
Any holder or holders of an aggregate of 5 percent or more of the total number of shares at the time outstanding having the right to vote for those directors may call a special meeting of shareholders, or
The superior court of the proper county shall, upon application of such shareholder or shareholders, summarily order a special meeting of shareholders, to be held to elect the entire board. The term of office of any director shall terminate upon that election of a successor.
The hearing on any application filed pursuant to this subdivision shall be held on not less than 10 business days notice to the corporation. If the corporation intends to oppose the application, it shall file with the court a notice of opposition not later than five business days prior to the date set for the hearing. The application and any notice of opposition shall be supported by appropriate affidavits and the court’s determination shall be made on the basis of the papers in the record; but, for good cause shown, the court may receive and consider at the hearing additional evidence, oral or documentary, and additional points and authorities. The hearing shall take precedence over all other matters not of a similar nature pending on the date set for the hearing.
Any director may resign effective upon giving written notice to the chairperson of the board, the president, the secretary or the board of directors of the corporation, unless the notice specifies a later time for the effectiveness of such resignation. If the resignation is effective at a future time, a successor may be elected to take office when the resignation becomes effective.
If (a) a corporation has not issued shares and all the directors resign, die, or become incompetent, or (b) a corporation’s initial directors have not been named in the articles, and all the incorporators resign, die, or become incompetent prior to the election of the initial directors, the superior court of any county may appoint directors of the corporation upon application by any party in interest.
Unless otherwise provided in the articles or, subject to paragraph (5) of subdivision (a) of Section 204, in the bylaws, all of the following apply:
Meetings of the board may be called by the chairperson of the board or the president or any vice president or the secretary or any two directors.
Regular meetings of the board may be held without notice if the time and place of the meetings are fixed by the bylaws or the board. Special meetings of the board shall be held upon four days’ notice by mail or 48 hours’ notice delivered personally or by telephone, including a voice messaging system or by electronic transmission by the corporation (Section 20). The articles or bylaws may not dispense with notice of a special meeting. A notice, or waiver of notice, need not specify the purpose of any regular or special meeting of the board.
Notice of a meeting need not be given to a director who provides a waiver of notice or a consent to holding the meeting or an approval of the minutes thereof in writing, whether before or after the meeting, or who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to that director. These waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting.
A majority of the directors present, whether or not a quorum is present, may adjourn any meeting to another time and place. If the meeting is adjourned for more than 24 hours, notice of an adjournment to another time or place shall be given prior to the time of the adjourned meeting to the directors who were not present at the time of the adjournment.
Meetings of the board may be held at a place within or without the state that has been designated in the notice of the meeting or, if not stated in the notice or there is no notice, designated in the bylaws or by resolution of the board.
Members of the board may participate in a meeting through use of conference telephone, electronic video screen communication, or electronic transmission by and to the corporation (Sections 20 and 21). Participation in a meeting through use of conference telephone or electronic video screen communication pursuant to this subdivision constitutes presence in person at that meeting as long as all members participating in the meeting are able to hear one another. Participation in a meeting through electronic transmission by and to the corporation (other than conference telephone and electronic video screen communication), pursuant to this subdivision constitutes presence in person at that meeting if both of the following apply:
Each member participating in the meeting can communicate with all of the other members concurrently.
Each member is provided the means of participating in all matters before the board, including, without limitation, the capacity to propose, or to interpose an objection to, a specific action to be taken by the corporation.
A majority of the authorized number of directors constitutes a quorum of the board for the transaction of business. The articles or bylaws may not provide that a quorum shall be less than one-third the authorized number of directors or less than two, whichever is larger, unless the authorized number of directors is one, in which case one director constitutes a quorum.
An act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present is the act of the board, subject to the provisions of Section 310 and subdivision (e) of Section 317. The articles or bylaws may not provide that a lesser vote than a majority of the directors present at a meeting is the act of the board. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting.
An action required or permitted to be taken by the board may be taken without a meeting, if all members of the board shall individually or collectively consent in writing to that action and if the number of members of the board serving at the time constitutes a quorum. The written consent or consents shall be filed with the minutes of the proceedings of the board. For purposes of this subdivision only, “all members of the board” shall include an “interested director” as described in subdivision (a) of Section 310 or a “common director” as described in subdivision (b) of Section 310 who abstains in writing from providing consent, where the disclosures required by Section 310 have been made to the noninterested or noncommon directors, as applicable, prior to their execution of the written consent or consents, the specified disclosures are conspicuously included in the written consent or consents executed by the noninterested or noncommon directors, and the noninterested or noncommon directors, as applicable, approve the action by a vote that is sufficient without counting the votes of the interested or common directors. If written consent is provided by the directors in accordance with the immediately preceding sentence and the disclosures made regarding the action that is the subject of the consent do not comply with the requirements of Section 310, the action that is the subject of the consent shall be deemed approved, but in any suit brought to challenge the action, the party asserting the validity of the action shall have the burden of proof in establishing that the action was just and reasonable to the corporation at the time it was approved.
This section applies also to committees of the board and incorporators and action by those committees and incorporators, mutatis mutandis.
If a corporation has an even number of directors who are equally divided and cannot agree as to the management of its affairs, so that its business can no longer be conducted to advantage or so that there is danger that its property and business will be impaired or lost, the superior court of the proper county may, notwithstanding any provisions of the articles or bylaws and whether or not an action is pending for an involuntary winding up or dissolution of the corporation, appoint a provisional director pursuant to this section. Action for such appointment may be brought by any director or by the holders of not less than 3313 percent of the voting power.
If the shareholders of a corporation are deadlocked so that they cannot elect the directors to be elected at an annual meeting of shareholders, the superior court of the proper county may, notwithstanding any provisions of the articles or bylaws, upon petition of a shareholder or shareholders holding 50 percent of the voting power, appoint a provisional director or directors pursuant to this section or order such other equitable relief as the court deems appropriate.
A provisional director shall be an impartial person, who is neither a shareholder nor a creditor of the corporation, nor related by consanguinity or affinity within the third degree according to the common law to any of the other directors of the corporation or to any judge of the court by which such provisional director is appointed. A provisional director shall have all the rights and powers of a director until the deadlock in the board or among shareholders is broken or until such provisional director is removed by order of the court or by approval of the outstanding shares (Section 152). Such person shall be entitled to such compensation as shall be fixed by the court unless otherwise agreed with the corporation.
This section does not apply to corporations subject to the Public Utilities Act (Part 1 (commencing with Section 201) of Division 1 of the Public Utilities Code).
A director shall perform the duties of a director, including duties as a member of any committee of the board upon which the director may serve, in good faith, in a manner such director believes to be in the best interests of the corporation and its shareholders and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances.
In performing the duties of a director, a director shall be entitled to rely on information, opinions, reports or statements, including financial statements and other financial data, in each case prepared or presented by any of the following:
One or more officers or employees of the corporation whom the director believes to be reliable and competent in the matters presented.
Counsel, independent accountants or other persons as to matters which the director believes to be within such person’s professional or expert competence.
A committee of the board upon which the director does not serve, as to matters within its designated authority, which committee the director believes to merit confidence,
so long as, in any such case, the director acts in good faith, after reasonable inquiry when the need therefor is indicated by the circumstances and without knowledge that would cause such reliance to be unwarranted.
A person who performs the duties of a director in accordance with subdivisions (a) and (b) shall have no liability based upon any alleged failure to discharge the person’s obligations as a director. In addition, the liability of a director for monetary damages may be eliminated or limited in a corporation’s articles to the extent provided in paragraph (10) of subdivision (a) of Section 204.
No contract or other transaction between a corporation and one or more of its directors, or between a corporation and any corporation, firm or association in which one or more of its directors has a material financial interest, is either void or voidable because such director or directors or such other corporation, firm or association are parties or because such director or directors are present at the meeting of the board or a committee thereof which authorizes, approves or ratifies the contract or transaction, if
The material facts as to the transaction and as to such director’s interest are fully disclosed or known to the shareholders and such contract or transaction is approved by the shareholders (Section 153) in good faith, with the shares owned by the interested director or directors not being entitled to vote thereon, or
The material facts as to the transaction and as to such director’s interest are fully disclosed or known to the board or committee, and the board or committee authorizes, approves or ratifies the contract or transaction in good faith by a vote sufficient without counting the vote of the interested director or directors and the contract or transaction is just and reasonable as to the corporation at the time it is authorized, approved or ratified, or
As to contracts or transactions not approved as provided in paragraph (1) or (2) of this subdivision, the person asserting the validity of the contract or transaction sustains the burden of proving that the contract or transaction was just and reasonable as to the corporation at the time it was authorized, approved or ratified.
A mere common directorship does not constitute a material financial interest within the meaning of this subdivision. A director is not interested within the meaning of this subdivision in a resolution fixing the compensation of another director as a director, officer or employee of the corporation, notwithstanding the fact that the first director is also receiving compensation from the corporation.
No contract or other transaction between a corporation and any corporation or association of which one or more of its directors are directors is either void or voidable because such director or directors are present at the meeting of the board or a committee thereof which authorizes, approves or ratifies the contract or transaction, if
The material facts as to the transaction and as to such director’s other directorship are fully disclosed or known to the board or committee, and the board or committee authorizes, approves or ratifies the contract or transaction in good faith by a vote sufficient without counting the vote of the common director or directors or the contract or transaction is approved by the shareholders (Section 153) in good faith, or
As to contracts or transactions not approved as provided in paragraph (1) of this subdivision, the contract or transaction is just and reasonable as to the corporation at the time it is authorized, approved or ratified.
This subdivision does not apply to contracts or transactions covered by subdivision (a).
Interested or common directors may be counted in determining the presence of a quorum at a meeting of the board or a committee thereof which authorizes, approves or ratifies a contract or transaction.
The board may, by resolution adopted by a majority of the authorized number of directors, designate one or more committees, each consisting of two or more directors, to serve at the pleasure of the board. The board may designate one or more directors as alternate members of any committee, who may replace any absent member at any meeting of the committee. The appointment of members or alternate members of a committee requires the vote of a majority of the authorized number of directors. Any such committee, to the extent provided in the resolution of the board or in the bylaws, shall have all the authority of the board, except with respect to:
The filling of vacancies on the board or in any committee.
The fixing of compensation of the directors for serving on the board or on any committee.
The amendment or repeal of bylaws or the adoption of new bylaws.
The amendment or repeal of any resolution of the board which by its express terms is not so amendable or repealable.
A distribution (Section 166), except at a rate, in a periodic amount or within a price range set forth in the articles or determined by the board.
The appointment of other committees of the board or the members thereof.
A corporation shall have (1) a chairperson of the board, who may be given the title of chair of the board, chairperson of the board, chairperson, or a president or both, (2) a secretary, (3) a chief financial officer, and (4) such other officers with such titles and duties as shall be stated in the bylaws or determined by the board and as may be necessary to enable it to sign instruments and share certificates. The president, or if there is no president the chairperson of the board, is the general manager and chief executive officer of the corporation, unless otherwise provided in the articles or bylaws. Any number of offices may be held by the same person unless the articles or bylaws provide otherwise.
Except as otherwise provided by the articles or bylaws, officers shall be chosen by the board and serve at the pleasure of the board, subject to the rights, if any, of an officer under any contract of employment. Any officer may resign at any time upon written notice to the corporation without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party.
Subject to the provisions of subdivision (a) of Section 208, any note, mortgage, evidence of indebtedness, contract, share certificate, initial transaction statement or written statement, conveyance, or other instrument in writing, and any assignment or endorsement thereof, executed or entered into between any corporation and any other person, when signed by the chairperson of the board, the president or any vice president and the secretary, any assistant secretary, the chief financial officer or any assistant treasurer of such corporation, is not invalidated as to the corporation by any lack of authority of the signing officers in the absence of actual knowledge on the part of the other person that the signing officers had no authority to execute the same.
The original or a copy in writing or in any other form capable of being converted into clearly legible tangible form of the bylaws or of the minutes of any incorporators’, shareholders’, directors’, committee or other meeting or of any resolution adopted by the board or a committee thereof, or shareholders, certified to be a true copy by a person purporting to be the secretary or an assistant secretary of the corporation, is prima facie evidence of the adoption of such bylaws or resolution or of the due holding of such meeting and of the matters stated therein.
A corporation shall not make any loan of money or property to, or guarantee the obligation of, any director or officer of the corporation or of its parent, unless the transaction, or an employee benefit plan authorizing the loans or guaranties after disclosure of the right under such a plan to include officers or directors, is approved by a majority of the shareholders entitled to act thereon.
Notwithstanding subdivision (a), if the corporation has outstanding shares held of record by 100 or more persons (determined as provided in Section 605) on the date of approval by the board, and has a bylaw approved by the outstanding shares (Section 152) authorizing the board alone to approve such a loan or guaranty to an officer, whether or not a director, or an employee benefit plan authorizing such a loan or guaranty to an officer, such a loan or guaranty or employee benefit plan may be approved by the board alone by a vote sufficient without counting the vote of any interested director or directors if the board determines that such a loan or guaranty or plan may reasonably be expected to benefit the corporation.
A corporation shall not make any loan of money or property to, or guarantee the obligation of, any person upon the security of shares of the corporation or of its parent if the corporation’s recourse in the event of default is limited to the security for the loan or guaranty, unless the loan or guaranty is adequately secured without considering these shares, or the loan or guaranty is approved by a majority of the shareholders entitled to act thereon.
Notwithstanding subdivision (a), a corporation may advance money to a director or officer of the corporation or of its parent for any expenses reasonably anticipated to be incurred in the performance of the duties of the director or officer, provided that in the absence of the advance the director or officer would be entitled to be reimbursed for the expenses by the corporation, its parent, or any subsidiary.
The provisions of subdivision (a) do not apply to the payment of premiums in whole or in part by a corporation on a life insurance policy on the life of a director or officer so long as repayment to the corporation of the amount paid by it is secured by the proceeds of the policy and its cash surrender value.
This section does not apply to any of the following:
Any transaction, plan, or agreement permitted under Section 408.
Any depository institution, as defined in Section 202 of the Depository Institutions Management Interlocks Act (12 U.S.C. Sec. 3201).
Any loan or guaranty made by a corporation that makes loans or guaranties in the ordinary course of its business if statutes or regulations pertaining to the corporation expressly regulate the making by the corporation of loans to its officers or directors or the undertaking of guaranties of the obligations of its officers or directors.
For the purposes of subdivisions (a) and (c), “approval by a majority of the shareholders entitled to act” means either (1) written consent of a majority of the outstanding shares without counting as outstanding or as consenting any shares owned by any officer or director eligible to participate in the plan or transaction that is subject to this approval, (2) the affirmative vote of a majority of the shares present and voting at a duly held meeting at which a quorum is otherwise present, without counting for purposes of the vote as either present or voting any shares owned by any officer or director eligible to participate in the plan or transaction that is subject to the approval, or (3) the unanimous vote or written consent of the shareholders. In the case of a corporation which has more than one class or series of shares outstanding, the “shareholders entitled to act” within the meaning of this section includes only holders of those classes or series entitled under the articles to vote on all matters before the shareholders or to vote on the subject matter of this section, and includes a requirement for separate class or series voting, or for more or less than one vote per share, only to the extent required by the articles.
Subject to the provisions of Section 309, directors of a corporation who approve any of the following corporate actions shall be jointly and severally liable to the corporation for the benefit of all of the creditors or shareholders entitled to institute an action under subdivision (c):
The distribution of assets to shareholders after institution of dissolution proceedings of the corporation, without paying or adequately providing for all known liabilities of the corporation, excluding any claims not filed by creditors within the time limit set by the court in a notice given to creditors under Chapters 18 (commencing with Section 1800), 19 (commencing with Section 1900) and 20 (commencing with Section 2000).
The making of any loan or guaranty contrary to Section 315.
A director who is present at a meeting of the board, or any committee thereof, at which action specified in subdivision (a) is taken and who abstains from voting shall be considered to have approved the action.
Suit may be brought in the name of the corporation to enforce the liability (1) under paragraph (1) of subdivision (a) against any or all directors liable by the persons entitled to sue under subdivision (b) of Section 506, (2) under paragraph (2) or (3) of subdivision (a) against any or all directors liable by any one or more creditors of the corporation whose debts or claims arose prior to the time of any of the corporate actions specified in paragraph (2) or (3) of subdivision (a) and who have not consented to the corporate action, whether or not they have reduced their claims to judgment, or (3) under paragraph (3) of subdivision (a) against any or all directors liable by any one or more holders of shares outstanding at the time of any corporate action specified in paragraph (3) of subdivision (a) who have not consented to the corporate action, without regard to the provisions of Section 800.
The damages recoverable from a director under this section shall be the amount of the illegal distribution (or if the illegal distribution consists of property, the fair market value of that property at the time of the illegal distribution) plus interest thereon from the date of the distribution at the legal rate on judgments until paid, together with all reasonably incurred costs of appraisal or other valuation, if any, of that property or loss suffered by the corporation as a result of the illegal loan or guaranty, as the case may be, but not exceeding the liabilities of the corporation owed to nonconsenting creditors at the time of the violation and the injury suffered by nonconsenting shareholders, as the case may be.
Any director sued under this section may implead all other directors liable and may compel contribution, either in that action or in an independent action against directors not joined in that action.
Directors liable under this section shall also be entitled to be subrogated to the rights of the corporation:
With respect to paragraph (1) of subdivision (a), against shareholders who received the distribution.
With respect to paragraph (2) of subdivision (a), against shareholders who received the distribution of assets.
With respect to paragraph (3) of subdivision (a), against the person who received the loan or guaranty. Any director sued under this section may file a cross-complaint against the person or persons who are liable to the director as a result of the subrogation provided for in this subdivision or may proceed against them in an independent action.
For the purposes of this section, “agent” means any person who is or was a director, officer, employee or other agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise, or was a director, officer, employee or agent of a foreign or domestic corporation which was a predecessor corporation of the corporation or of another enterprise at the request of the predecessor corporation; “proceeding” means any threatened, pending or completed action or proceeding, whether civil, criminal, administrative or investigative; and “expenses” includes without limitation attorneys’ fees and any expenses of establishing a right to indemnification under subdivision (d) or paragraph (4) of subdivision (e).
A corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to any proceeding (other than an action by or in the right of the corporation to procure a judgment in its favor) by reason of the fact that the person is or was an agent of the corporation, against expenses, judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with the proceeding if that person acted in good faith and in a manner the person reasonably believed to be in the best interests of the corporation and, in the case of a criminal proceeding, had no reasonable cause to believe the conduct of the person was unlawful. The termination of any proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent shall not, of itself, create a presumption that the person did not act in good faith and in a manner which the person reasonably believed to be in the best interests of the corporation or that the person had reasonable cause to believe that the person’s conduct was unlawful.
A corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action by or in the right of the corporation to procure a judgment in its favor by reason of the fact that the person is or was an agent of the corporation, against expenses actually and reasonably incurred by that person in connection with the defense or settlement of the action if the person acted in good faith, in a manner the person believed to be in the best interests of the corporation and its shareholders.
No indemnification shall be made under this subdivision for any of the following:
In respect of any claim, issue or matter as to which the person shall have been adjudged to be liable to the corporation in the performance of that person’s duty to the corporation and its shareholders, unless and only to the extent that the court in which the proceeding is or was pending shall determine upon application that, in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for expenses and then only to the extent that the court shall determine.
Of amounts paid in settling or otherwise disposing of a pending action without court approval.
Of expenses incurred in defending a pending action which is settled or otherwise disposed of without court approval.
To the extent that an agent of a corporation has been successful on the merits in defense of any proceeding referred to in subdivision (b) or (c) or in defense of any claim, issue, or matter therein, the agent shall be indemnified against expenses actually and reasonably incurred by the agent in connection therewith.
Except as provided in subdivision (d), any indemnification under this section shall be made by the corporation only if authorized in the specific case, upon a determination that indemnification of the agent is proper in the circumstances because the agent has met the applicable standard of conduct set forth in subdivision (b) or (c), by any of the following:
A majority vote of a quorum consisting of directors who are not parties to such proceeding.
If such a quorum of directors is not obtainable, by independent legal counsel in a written opinion.
Approval of the shareholders (Section 153), with the shares owned by the person to be indemnified not being entitled to vote thereon.
The court in which the proceeding is or was pending upon application made by the corporation or the agent or the attorney or other person rendering services in connection with the defense, whether or not the application by the agent, attorney or other person is opposed by the corporation.
Expenses incurred in defending any proceeding may be advanced by the corporation prior to the final disposition of the proceeding upon receipt of an undertaking by or on behalf of the agent to repay that amount if it shall be determined ultimately that the agent is not entitled to be indemnified as authorized in this section. The provisions of subdivision (a) of Section 315 do not apply to advances made pursuant to this subdivision.
The indemnification authorized by this section shall not be deemed exclusive of any additional rights to indemnification for breach of duty to the corporation and its shareholders while acting in the capacity of a director or officer of the corporation to the extent the additional rights to indemnification are authorized in an article provision adopted pursuant to paragraph (11) of subdivision (a) of Section 204. The indemnification provided by this section for acts, omissions, or transactions while acting in the capacity of, or while serving as, a director or officer of the corporation but not involving breach of duty to the corporation and its shareholders shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any bylaw, agreement, vote of shareholders or disinterested directors, or otherwise, to the extent the additional rights to indemnification are authorized in the articles of the corporation. An article provision authorizing indemnification “in excess of that otherwise permitted by Section 317” or “to the fullest extent permissible under California law” or the substantial equivalent thereof shall be construed to be both a provision for additional indemnification for breach of duty to the corporation and its shareholders as referred to in, and with the limitations required by, paragraph (11) of subdivision (a) of Section 204 and a provision for additional indemnification as referred to in the second sentence of this subdivision. The rights to indemnity hereunder shall continue as to a person who has ceased to be a director, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of the person. Nothing contained in this section shall affect any right to indemnification to which persons other than the directors and officers may be entitled by contract or otherwise.
No indemnification or advance shall be made under this section, except as provided in subdivision (d) or paragraph (4) of subdivision (e), in any circumstance where it appears:
That it would be inconsistent with a provision of the articles, bylaws, a resolution of the shareholders, or an agreement in effect at the time of the accrual of the alleged cause of action asserted in the proceeding in which the expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification.
That it would be inconsistent with any condition expressly imposed by a court in approving a settlement.
A corporation shall have power to purchase and maintain insurance on behalf of any agent of the corporation against any liability asserted against or incurred by the agent in that capacity or arising out of the agent’s status as such whether or not the corporation would have the power to indemnify the agent against that liability under this section. The fact that a corporation owns all or a portion of the shares of the company issuing a policy of insurance shall not render this subdivision inapplicable if either of the following conditions are satisfied: (1) if the articles authorize indemnification in excess of that authorized in this section and the insurance provided by this subdivision is limited as indemnification is required to be limited by paragraph (11) of subdivision (a) of Section 204; or (2) (A) the company issuing the insurance policy is organized, licensed, and operated in a manner that complies with the insurance laws and regulations applicable to its jurisdiction of organization, (B) the company issuing the policy provides procedures for processing claims that do not permit that company to be subject to the direct control of the corporation that purchased that policy, and (C) the policy issued provides for some manner of risk sharing between the issuer and purchaser of the policy, on one hand, and some unaffiliated person or persons, on the other, such as by providing for more than one unaffiliated owner of the company issuing the policy or by providing that a portion of the coverage furnished will be obtained from some unaffiliated insurer or reinsurer.
This section does not apply to any proceeding against any trustee, investment manager, or other fiduciary of an employee benefit plan in that person’s capacity as such, even though the person may also be an agent as defined in subdivision (a) of the employer corporation. A corporation shall have power to indemnify such a trustee, investment manager, or other fiduciary to the extent permitted by subdivision (f) of Section 207.
The Secretary of State shall develop and maintain a registry of distinguished women and minorities who are available to serve on corporate boards of directors. As used in this section, “minority” means an ethnic person of color including American Indians, Asians (including, but not limited to, Chinese, Japanese, Koreans, Pacific Islanders, Samoans, and Southeast Asians), Blacks, Filipinos, and Hispanics.
For each woman or minority who participates in the registry, the Secretary of State shall maintain information on his or her educational, professional, community service, and corporate governance background. That information may include, but is not limited to:
Paid or volunteer employment.
Service in elected public office or on public boards or commissions.
Directorships, officerships, and trusteeships of business and nonprofit entities, including committee experience.
Professional, academic, or community awards or honors.
Publications.
Government relations experience.
Experience with corporate constituents.
Any other areas of special expertise.
In addition to the information subdivision (b) requires, each woman or minority who participates in the registry may disclose any number of personal attributes that may contribute to board diversity. Those attributes may include, but are not limited to, gender, physical disability, race, or ethnic origin.
In addition to the information subdivision (b) requires, each woman or minority who participates in the registry may indicate characteristics of corporations for which he or she would consider, or is especially interested in, serving as a director. These characteristics may include, but are not limited to, company size, industry, geographic location, board meeting frequency, director time commitments, director compensation, director insurance or indemnification, or social policy concerns.
Any woman or minority may nominate himself or herself to the registry by filing with the Secretary of State the information required by subdivision (b) on a form the secretary prescribes. Any registrant may attach a copy of his or her resume and up to two letters of recommendation to his or her registration form. Each registrant’s registration form, together with any attached resume or letters of recommendation, shall constitute his or her registry transcript.
The Secretary of State shall make appropriate rules requiring registrants to renew or update their filings with the registry, as necessary to ensure continued accuracy of registry information.
The Secretary of State shall assign each registrant a file number, then enter the information described in subdivisions (b), (c), and (d) into a data base, using the registrant’s file number to identify him or her. The registry data base shall not disclose any registrant’s name or street address, but may list the city, county, or ZIP Code of his or her business or residence address. The secretary shall make data base information available to those persons described in subdivisions (i) and (j). The secretary may provide that access either by permitting direct data base searches or by performing data base searches on written request.
The Secretary of State may also make information contained in the registry data base available to any person or entity qualified to transact business in California that regularly engages in the business of providing data base access or search services; provided, that data base access will not be construed to entitle the user to access to any registrant’s transcript.
The Secretary of State shall make information contained in a reasonable number of registrants’ transcripts available to any corporation or its representative. A “representative,” for purposes of this subdivision, may be an attorney, an accountant, or a retained executive recruiter. A “retained executive recruiter,” for purposes of this subdivision, is an individual or business entity engaged in the executive search business that is regularly retained to locate qualified candidates for appointment or election as corporate directors or executive officers.
The Secretary of State may also grant access to a reasonable number of registrants’ transcripts to any other person who demonstrates to the secretary’s satisfaction that the person does both of the following:
Seeks access to the registry in connection with an actual search for a corporate director.
Intends to use any information obtained from the registry only for the purpose of finding qualified candidates for an open position on a corporate board of directors.
The Secretary of State may employ reasonable means to verify that any party seeking access to registry transcript information is one of those specified in subdivision (i) or (j). To that end, the secretary may require a representative to identify its principal, but may not disclose that principal’s identity to any other person.
Upon written request specifying the registrant’s file number, the Secretary of State shall provide any party entitled to access to registry transcripts with a copy of any registrant’s transcript. The secretary may by rule or regulation specify other reasonable means by which persons entitled thereto may order copies of registrants’ transcripts.
Notwithstanding any other law, a person shall not be entitled to access to information the registry contains, except as this section specifically provides.
The Secretary of State shall charge fees for registering with the registry, obtaining access to the registry data base, and obtaining copies of registrants’ transcripts. The Secretary of State, in consultation with the Senate Commission on Corporate Governance, Shareholder Rights, and Securities Transactions, shall fix those fees by regulation. Fees shall be fixed so that the aggregate amount of all fees collected shall be sufficient to cover the total cost of administering the registry program. Registration fees shall be fixed so as to encourage qualified women and minorities to participate. Fees shall be deposited into the Secretary of State’s Business Fee Fund.
The Secretary of State may make any rule, regulation, guideline, or agreement the secretary deems necessary to carry out the purposes and provisions of this section.
The Secretary of State may cooperate with the Commission on the Status of Women and Girls, the California Council to Promote Business Ownership by Women, the Senate Commission on Corporate Governance, Shareholder Rights, and Securities Transactions, women’s organizations, minority organizations, business and professional organizations, and any other individual or entity the secretary deems appropriate, for any of the following purposes:
Promoting corporate use of the registry.
Locating qualified women and minorities and encouraging them to participate in the registry.
Educating interested parties on the purpose and most effective use of the registry.
The secretary may also prepare and distribute publications designed to promote informed use of the registry.
The Secretary of State may seek registrants’ consent to be listed in a published directory of women and minorities eligible to serve as corporate directors, which will contain a summary of each listed registrant’s qualifications. The secretary may periodically publish, or cause to be published, such a directory. Only those registrants who so consent in writing may be included in the directory. The printed directory shall be provided to any person upon payment of a fee, which the Secretary of State will determine by regulation, in consultation with the Senate Commission on Corporate Governance, Shareholder Rights, and Securities Transactions.
The Secretary of State shall implement this section no later than January 1, 1995.
At least once in each three-year period during which the registry is available for corporate use, the Secretary of State, in consultation with the Senate Commission on Corporate Governance, Shareholder Rights, and Securities Transactions, shall report to the Legislature on the extent to which the registry has helped women and minorities progress toward achieving parity in corporate board appointments or elections.
The Secretary of State shall notify each University of California campus and each California State University campus of the opportunity to maintain the registry created pursuant to this section. If more than one campus of the university or state university expresses interest in maintaining the registry, the Secretary of State shall select a campus based on a competitive selection process. If a campus is selected, the Secretary of State shall transfer the information contained in the registry, free of cost, to that campus. Any University of California or California State University campus selected to maintain the registry shall do so in a manner consistent with this section. Funds deposited in the Secretary of State’s Business Fees Fund pursuant to this section shall be transferred to the university selected to maintain the registry, and shall be used to administer the registry program. The Secretary of State shall maintain the registry until a University of California or California State University campus agrees to do so.
CHAPTER 4. Shares and Share Certificates [400. - 423.]
A corporation may issue one or more classes or series of shares or both, with full, limited or no voting rights and with such other rights, preferences, privileges and restrictions as are stated or authorized in its articles. No denial or limitation of voting rights shall be effective unless at the time one or more classes or series of outstanding shares or debt securities, singly or in the aggregate, are entitled to full voting rights; and no denial or limitation of dividend or liquidation rights shall be effective unless at the time one or more classes or series of outstanding shares, singly or in the aggregate, are entitled to unlimited dividend and liquidation rights.
All shares of any one class shall have the same voting, conversion and redemption rights and other rights, preferences, privileges and restrictions, unless the class is divided into series. If a class is divided into series, all the shares of any one series shall have the same voting, conversion and redemption rights and other rights, preferences, privileges and restrictions.
Before any corporation issues any shares of any class or series of which the rights, preferences, privileges, and restrictions, or any of them, or the number of shares constituting any series or the designation of the series, are not set forth in its articles but are fixed in a resolution adopted by the board pursuant to authority given by its articles, an officers’ certificate shall be executed and filed, setting forth: (1) a copy of the resolution; (2) the number of shares of the class or series; and (3) that none of the shares of the class or series has been issued.
After any certificate of determination has been filed, but before the corporation issues any shares of the class or series covered thereby, the board may alter or revoke any right, preference, privilege, or restriction fixed or determined by the resolution set forth therein by the adoption of another resolution appropriate for that purpose and the execution and filing of an officers’ certificate setting forth a copy of the resolution, and stating that none of the shares of the class or the series affected has been issued.
After any certificate of determination has been filed, the board may, if authorized in the articles pursuant to subdivision (e) of Section 202, increase or decrease the number of shares constituting any series, by the adoption of another resolution appropriate for that purpose and the execution and filing of an officers’ certificate setting forth a copy of the resolution, the number of shares of the series then outstanding and the increase or decrease in the number of shares constituting the series. If any certificate of determination has been incorporated in restated articles filed pursuant to Section 910, the action authorized by this subdivision may, notwithstanding Section 902, be accomplished by an amendment of the articles approved by the board alone.
After shares of a class or series have been issued, the provisions of the resolution set forth in a certificate of determination may be amended only by the adoption and approval of an amendment in accordance with Section 902, 903, or 904 and the filing of a certificate of amendment in accordance with Sections 905 and 908. Notwithstanding the preceding sentence, a certificate to increase or decrease the number of shares of a series also may be filed as permitted by subdivision (c).
A provision in a certificate of determination being amended pursuant to subdivision (b), (c), or (d) shall be identified in the amendment in accordance with subdivision (a) of Section 907.
If a certificate is filed pursuant to subdivision (c) to decrease the number of shares of a series to zero, the certificate of determination whereby the series was established is thereupon no longer in force and the series is no longer an authorized series of the corporation.
If the rights, preferences, privileges, and restrictions of the class or series contain a supermajority vote provision, as defined in subdivision (b) of Section 710, subject to Section 710, the officers’ certificate shall also state that the provision has been approved by the shareholders in accordance with subdivision (c) of Section 710.
A corporation may provide in its articles for one or more classes or series of shares which are redeemable, in whole or in part, (1) at the option of the corporation or (2) to the extent and upon the happening of one or more specified events, and not otherwise except as herein provided. A corporation may provide in its articles for one or more classes or series of preferred shares which are redeemable, in whole or in part, (1) as specified above, (2) at the option of the holder, or (3) upon the vote of at least a majority of the outstanding shares of the class or series to be redeemed. An open-end investment company registered under the United States Investment Company Act of 1940 may, if its articles so provide, issue shares which are redeemable at the option of the holder at a price approximately equal to the shares’ proportionate interest in the net assets of the corporation and a shareholder may compel redemption of such shares in accordance with their terms.
Any such redemption shall be effected at such price or prices, within such time and upon such terms and conditions as are stated in the articles. When the articles permit partial redemption of a class or series of shares, the articles shall prescribe the method of selecting the shares to be redeemed, which may be pro rata, by lot, at the discretion of, or in a manner approved by, the board or upon such other terms as are specified in the articles.
No redeemable common shares, other than (1) shares issued by an open-end investment company registered under the United States Investment Company Act of 1940, (2) shares of a corporation which has a license or franchise from a governmental agency to conduct its business or is a member corporation of a national securities exchange registered under the United States Securities Exchange Act of 1934, which license, franchise or membership is conditioned upon some or all of the holders of its stock possessing prescribed qualifications, to the extent necessary to prevent the loss of such license, franchise or membership or to reinstate it, or (3) shares of a professional corporation, as defined in Part 4 (commencing with Section 13400) of Division 3 of Title 1, shall be issued or redeemed unless the corporation at the time has outstanding a class of common shares that is not subject to redemption.
Any redemption by a corporation of its shares shall be subject to the provisions of Chapter 5 (commencing with Section 500). Nothing in this section shall prevent a corporation from creating a sinking fund or similar provision for, or entering into an agreement for, the redemption or purchase of its shares to the extent permitted by Chapter 5, but unless such purchase or redemption is permitted under Chapter 5, the holder of shares to be so purchased or redeemed shall not become a creditor of the corporation.
The rights, preferences, privileges, and restrictions granted to or imposed upon a class or series of preferred shares (Section 176), the designation of which includes either the word “preferred” or the word “preference,” may:
Notwithstanding paragraph (9) of subdivision (a) of Section 204, include a provision requiring a vote of a specified percentage or proportion of the outstanding shares of the class or series that is less than a majority of the class or series to approve any corporate action, except where the vote of a majority or greater proportion of the class or series is required by this division, regardless of restrictions or limitations on the voting rights thereof.
Notwithstanding paragraph (5) of subdivision (a) of Section 204, provide that in addition to the requirement of subdivision (a) of Section 1900 the corporation may voluntarily wind up and dissolve only upon the vote of a specified percentage (which shall not exceed 6623 percent) of such class or series.
Notwithstanding subdivision (a) of Section 500, provide that a distribution may be made without regard to the preferential dividends arrears amount, or any preferential rights amount, or both, as described in paragraphs (1) and (2) of subdivision (a) of Section 500.
When so provided in the articles, a corporation may issue shares convertible within the time or upon the happening of one or more specified events and upon the terms and conditions that are stated in the articles if any of the following conditions apply:
At the option of the holder or automatically upon either the vote of at least a majority of the outstanding shares of the class or series to be converted or upon the happening of one or more specified events, into shares of any class or series.
If it is a corporation which has a license or franchise from a governmental agency to conduct its business or a member corporation of a national securities exchange registered under the United States Securities Exchange Act of 1934, the license, franchise or membership of which is conditioned upon some or all of the holders of its stock possessing prescribed qualifications, to the extent necessary to prevent the loss of such license, franchise or membership or to reinstate it, at the option of the corporation, into shares of any class or series or into any other security of the corporation.
If the corporation is a “listed corporation” as defined in subdivision (d) of Section 301.5, both at the time of the original issuance of the convertible shares and at the time of the conversion, at the option of the corporation into shares of any class or series or into any other security of the corporation, provided that any such securities received upon conversion are listed or qualified for trading on a stock exchange or market system defined in subdivision (d) of Section 301.5.
Unless otherwise provided in the articles, a corporation may issue its debt securities convertible into other debt securities or into shares of the corporation within such time or upon the happening of one or more specified events and upon such terms and conditions as are fixed by the board.
Either in connection with the issue, subscription or sale of any of its shares, bonds, debentures, notes or other securities or independently thereof, a corporation may grant options to purchase or subscribe for shares of any class or series upon such terms and conditions as may be deemed expedient. Option rights may be transferable or nontransferable and separable or inseparable from other securities of the corporation.
If at the time of granting option or conversion rights or at any later time the corporation is not authorized by its articles to issue all the shares required for the satisfaction of the rights, if and when exercised, the additional number of shares required to be issued upon the exercise of such option or conversion rights shall be authorized by an amendment to the articles.
If a corporation has obtained approval of the outstanding shares (Section 152) for the issue of options to purchase shares or of securities convertible into shares of the corporation, the board may, without further approval of the outstanding shares (Section 152), amend the articles to increase the authorized shares of any class or series to such number as will be sufficient from time to time, when added to the previously authorized but unissued shares of such class or series, to satisfy any such option or conversion rights.
Unless the articles provide otherwise, the board may issue shares, options or securities having conversion or option rights without first offering them to shareholders of any class.
A corporation may, but is not required to, issue fractions of a share originally or upon transfer. If it does not issue fractions of a share, it shall in connection with any original issuance of shares (a) arrange for the disposition of fractional interests by those entitled thereto, (b) pay in cash the fair value of fractions of a share as of the time when those entitled to receive those fractions are determined or (c) issue scrip or warrants in registered form, as certificated securities or uncertificated securities, or bearer form as certificated securities, which shall entitle the holder to receive a certificate for a full share upon the surrender of the scrip or warrants aggregating a full share; provided, however, that if the fraction of a share that any person would otherwise be entitled to receive in a merger, conversion, or reorganization is less than one-half of 1 percent of the total shares that person is entitled to receive, a merger, conversion, or reorganization agreement may provide that fractions of a share will be disregarded or that shares issuable in the merger or conversion will be rounded off to the nearest whole share; and provided, further, that a corporation may not pay cash for fractional shares if that action would result in the cancellation of more than 10 percent of the outstanding shares of any class. A determination by the board of the fair value of fractions of a share shall be conclusive in the absence of fraud. A certificate for a fractional share shall, but scrip or warrants shall not unless otherwise provided therein, entitle the holder to exercise voting rights, to receive dividends thereon and to participate in any of the assets of the corporation in the event of liquidation. The board may cause scrip or warrants to be issued subject to the condition that they shall become void if not exchanged for full shares before a specified date or that the shares for which scrip or warrants are exchangeable may be sold by the corporation and the proceeds thereof distributed to the holder of the scrip or warrants or any other condition that the board may impose.
A corporation may adopt and carry out a stock purchase plan or agreement or stock option plan or agreement providing for the issue and sale for such consideration as may be fixed of its unissued shares, or of issued shares acquired or to be acquired, to one or more of the employees or directors of the corporation or of a subsidiary or parent thereof or to a trustee on their behalf and for the payment for such shares in installments or at one time, and may provide for aiding any such persons in paying for such shares by compensation for services rendered, promissory notes or otherwise.
A stock purchase plan or agreement or stock option plan or agreement may include, among other features, the fixing of eligibility for participation therein, the class and price of shares to be issued or sold under the plan or agreement, the number of shares which may be subscribed for, the method of payment therefor, the reservation of title until full payment therefor, the effect of the termination of employment, an option or obligation on the part of the corporation to repurchase the shares upon termination of employment, subject to the provisions of Chapter 5, restrictions upon transfer of the shares and the time limits of and termination of the plan.
Any employee of the corporation or of any parent or subsidiary thereof, pursuant to a stock purchase plan or agreement or stock option plan or agreement provided for in subdivision (a).
In any transaction in connection with securing employment, to a person who is or is about to become an officer of the corporation or of any parent or subsidiary thereof.
Shares may be issued:
For such consideration as is determined from time to time by the board, or by the shareholders if the articles so provide, consisting of any or all of the following: money paid; labor done; services actually rendered to the corporation or for its benefit or in its formation or reorganization; debts or securities canceled; and tangible or intangible property actually received either by the issuing corporation or by a wholly owned subsidiary; but neither promissory notes of the purchaser (unless adequately secured by collateral other than the shares acquired or unless permitted by Section 408) nor future services shall constitute payment or part payment for shares of the corporation; or
As a share dividend or upon a stock split, reverse stock split, reclassification of outstanding shares into shares of another class, conversion of outstanding shares into shares of another class, exchange of outstanding shares for shares of another class or other change affecting outstanding shares.
Except as provided in subdivision (d), shares issued as provided in this section or Section 408 shall be declared and taken to be fully paid stock and not liable to any further call nor shall the holder thereof be liable for any further payments under the provisions of this division. In the absence of fraud in the transaction, the judgment of the directors as to the value of the consideration for shares shall be conclusive.
If the articles reserve to the shareholders the right to determine the consideration for the issue of any shares, such determination shall be made by approval of the outstanding shares (Section 152).
A corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. On the certificate issued to represent any such partly paid shares or, for uncertificated securities, on the initial transaction statement for such partly paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully paid shares, the corporation shall declare a dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon.
The board shall state by resolution its determination of the fair value to the corporation in monetary terms of any consideration other than money for which shares are issued. This subdivision does not affect the accounting treatment of any transaction, which shall be in conformity with generally accepted accounting principles.
Every subscriber to shares and every person to whom shares are originally issued is liable to the corporation for the full consideration agreed to be paid for the shares.
The full agreed consideration for shares shall be paid prior to or concurrently with the issuance thereof, unless the shares are issued as partly paid pursuant to subdivision (d) of Section 409, in which case the consideration shall be paid in accordance with the agreement of subscription or purchase.
A transferee of shares for which the full agreed consideration has not been paid to the issuing corporation, who acquired them in good faith, without knowledge that they were not paid in full or to the extent stated on the certificate representing them or, in the case of uncertificated securities, on the applicable initial transaction statement, is liable only for the amount shown by the certificate or statement to be unpaid on the shares represented thereby, until the transferee transfers the shares to one who becomes liable therefor; provided that the transferor shall remain personally liable if so provided on the certificate or statement or agreed upon in writing. The liability of any holder of such shares who derives title through such a transferee and who is not a party to any fraud affecting the issue of the shares is the same as that of the transferee through whom title is derived.
Every transferee of partly paid shares who acquired them under a certificate or initial transaction statement showing the fact of part payment, and every transferee of such shares (other than a transferee who derives title through a holder in good faith without knowledge and who is not a party to any fraud affecting the issue of such shares) who acquired them with actual knowledge that the full agreed consideration had not been paid to the extent stated on the certificate or initial transaction statement, is personally liable to the corporation for installments of the amount unpaid becoming due until the shares are transferred to one who becomes liable therefor; provided that the transferor shall remain personally liable if so provided on the certificate, initial transaction statement, or written statement, or agreed upon in writing.
A person holding shares as pledgee, executor, administrator, guardian, conservator, trustee, receiver or in any representative or fiduciary capacity is not personally liable for any unpaid balance of the subscription price of the shares because the shares are so held but the estate and funds in the hands of such fiduciary or representative are liable and the shares are subject to sale therefor.
No action shall be brought by or on behalf of any creditor to reach and apply the liability, if any, of a shareholder to the corporation to pay the amount due on such shareholder’s shares unless final judgment has been rendered in favor of the creditor against the corporation and execution has been returned unsatisfied in whole or in part or unless such proceedings would be useless.
All creditors of the corporation, with or without reducing their claims to judgment, may intervene in any such creditor’s action to reach and apply unpaid subscriptions and any or all shareholders who hold partly paid shares may be joined in such action. Several judgments may be rendered for and against the parties to the action or in favor of a receiver for the benefit of the respective parties thereto.
All amounts paid by any shareholder in any such action shall be credited on the unpaid balance due the corporation upon such shareholder’s shares.
Nothing in this division shall be construed as a derogation of any rights or remedies which any creditor or shareholder may have against any promoter, shareholder, director, officer or the corporation because of participation in any fraud or illegality practiced upon such creditor or shareholder by any such person or by the corporation in connection with the issue or sale of shares or other securities or in derogation of any rights which the corporation may have by rescission, cancellation or otherwise because of any fraud or illegality practiced on it by any such person in connection with the issue or sale of shares or other securities.
Every holder of shares in a corporation shall be entitled to have a certificate signed in the name of the corporation by the chairperson or vice chairperson of the board or the president or a vice president and by the chief financial officer or an assistant treasurer or the secretary or any assistant secretary, certifying the number of shares and the class or series of shares owned by the shareholder. Any or all of the signatures on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if such person were an officer, transfer agent or registrar at the date of issue.
Notwithstanding subdivision (a), a corporation may adopt a system of issuance, recordation and transfer of its shares by electronic or other means not involving any issuance of certificates, including provisions for notice to purchasers in substitution for the required statements on certificates under Sections 417, 418, and 1302, and as may be required by the commissioner in administering the Corporate Securities Law of 1968, which system (1) has been approved by the United States Securities and Exchange Commission, (2) is authorized in any statute of the United States, or (3) is in accordance with Division 8 (commencing with Section 8101) of the Commercial Code. Any system so adopted shall not become effective as to issued and outstanding certificated securities until the certificates therefor have been surrendered to the corporation.
If the shares of the corporation are classified or if any class of shares has two or more series, there shall appear on the certificate or, in the case of uncertificated securities, the initial transaction statement and written statements, one of the following:
A statement of the rights, preferences, privileges and restrictions granted to or imposed upon each class or series of shares authorized to be issued and upon the holders thereof.
A summary of such rights, preferences, privileges and restrictions with reference to the provisions of the articles and any certificates of determination establishing the same.
A statement setting forth the office or agency of the corporation from which shareholders may obtain, upon request and without charge, a copy of the statement referred to in subdivision (a).
There shall also appear on the certificate, the initial transaction statement, and written statements (unless stated or summarized under subdivision (a) or (b) of Section 417) the statements required by all of the following clauses to the extent applicable:
The fact that the shares are subject to restrictions upon transfer.
If the shares are assessable or are not fully paid, a statement that they are assessable or the statements required by subdivision (d) of Section 409 if they are not fully paid.
The fact that the shares are redeemable.
The fact that the shares are convertible and the period for conversion.
Any such statement or reference thereto (Section 174) on the face of the certificate, the initial transaction statement, and written statements required by paragraph (1) or (2) shall be conspicuous.
Unless stated on the certificate, the initial transaction statement, and written statements as required by subdivision (a), no restriction upon transfer, no right of redemption and no voting agreement under subdivision (a) of Section 706, no irrevocable proxy under subdivision (e) of Section 705, and no voting restriction imposed by the corporation shall be enforceable against a transferee of the shares without actual knowledge of such restriction, right, agreement or proxy. With regard only to liability to assessment or for the unpaid portion of the subscription price, unless stated on the certificate as required by subdivision (a), that liability shall not be enforceable against a transferee of the shares. For the purpose of this subdivision, “transferee” includes a purchaser from the corporation.
All certificates representing shares of a close corporation shall contain in addition to any other statements required by this section, the following conspicuous legend on the face thereof: “This corporation is a close corporation. The number of holders of record of its shares of all classes cannot exceed ____ [a number not in excess of 35]. Any attempted voluntary inter vivos transfer which would violate this requirement is void. Refer to the articles, bylaws and any agreements on file with the secretary of the corporation for further restrictions.”
Any attempted voluntary inter vivos transfer of the shares of a close corporation which would result in the number of holders of record of its shares exceeding the maximum number specified in its articles is void if the certificate contains the legend required by subdivision (c).
A domestic or foreign corporation may issue a new share certificate or a new certificate for any other security in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the corporation may require the owner of the lost, stolen or destroyed certificate or the owner’s legal representative to give the corporation a bond (or other adequate security) sufficient to indemnify it against any claim that may be made against it (including any expense or liability) on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate.
If a corporation refuses to issue a new share certificate or other certificate in place of one theretofore issued by it, or by any corporation of which it is the lawful successor, alleged to have been lost, stolen or destroyed, the owner of the lost, stolen or destroyed certificate or the owner’s legal representative may bring an action in the superior court of the proper county for an order requiring the corporation to issue a new certificate in place of the one lost, stolen or destroyed.
If the court is satisfied that the plaintiff is the lawful owner of the number of shares or other securities, or any part thereof, described in the complaint and that the certificate therefor has been lost, stolen or destroyed, and no sufficient cause has been shown why a new certificate should not be issued in place thereof, it shall make an order requiring the corporation to issue and deliver to the plaintiff a new certificate for such shares or other securities. In its order the court shall direct that, prior to the issuance and delivery to the plaintiff of such new certificate, the plaintiff give the corporation a bond (or other adequate security) as to the court appears sufficient to indemnify the corporation against any claim that may be made against it (including any expense or liability) on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate.
Neither a domestic nor foreign corporation nor its transfer agent or registrar is liable:
For transferring or causing to be transferred on the books of the corporation to the surviving joint tenant or tenants any share or shares or other securities issued to two or more persons in joint tenancy, whether or not the transfer is made with actual or constructive knowledge of the existence of any understanding, agreement, condition or evidence that the shares or securities were held other than in joint tenancy or of a breach of trust by any joint tenant.
To a minor or incompetent person in whose name shares or other securities are of record on its books or to any transferee of or transferor to either for transferring the shares or other securities on its books at the instance of or to the minor or incompetent or for the recognition of or dealing with the minor or incompetent as a shareholder or security holder, whether or not the corporation, transfer agent or registrar had notice, actual or constructive, of the nonage or incompetency, unless a guardian or conservator of the property of the minor or incompetent has been appointed and the corporation, transfer agent or registrar has received written notice thereof.
To any married person or to any transferee of such person for transferring shares or other securities on its books at the instance of the person in whose name they are registered, without the signature of such person’s spouse and regardless of whether the registration indicates that the shares or other securities are community property, in the same manner as if such person were unmarried.
For transferring or causing to be transferred on the books of the corporation shares or other securities pursuant to a judgment or order of a court which has been set aside, modified or reversed unless, prior to the registration of the transfer on the books of the corporation, written notice is served upon the corporation or its transfer agent in the manner provided by law for the service of a summons in a civil action, stating that an appeal or other further court proceeding has been or is to be taken from or with regard to such judgment or order. After the service of such notice neither the corporation nor its transfer agent has any duty to register the requested transfer until the corporation or its transfer agent has received a certificate of the clerk of the court in which the judgment or order was entered or made, showing that the judgment or order has become final.
The Commercial Code shall not affect the limitations of liability set forth in this section. Section 1100 of the Family Code shall be subject to the provisions of this section and shall not be construed to prevent transfers, or result in liability to the corporation, transfer agent or registrar permitting or effecting transfers, which comply with this section.
Each holder of shares of a close corporation, whether original or subsequent, by accepting the certificates for the shares which contain the legend required by subdivision (c) of Section 418 agrees and consents that such holder cannot make any transfer of shares which would violate the provisions of subdivision (d) of Section 418 and waives any right which such holder might otherwise have under any other law to sell such shares to a greater number of purchasers or to demand any registration thereof under the Securities Act of 1933, as now or hereafter amended, or as provided in any statute adopted in substitution therefor, or otherwise, so long as the corporation is a close corporation.
When the articles are amended in any way affecting the statements contained in the certificates for outstanding shares, or it becomes desirable for any reason, in the discretion of the board, to cancel any outstanding certificate for shares and issue a new certificate therefor conforming to the rights of the holder, the board may order any holders of outstanding certificates for shares to surrender and exchange them for new certificates within a reasonable time to be fixed by the board.
The order may provide that a holder of any certificates so ordered to be surrendered is not entitled to vote or to receive dividends or exercise any of the other rights of shareholders until the holder has complied with the order, but such order operates to suspend such rights only after notice and until compliance. The duty of surrender of any outstanding certificates may also be enforced by civil action.
When the articles are amended in any way affecting the statements contained in the initial transaction statement or other written statements for outstanding uncertificated securities, or it becomes desirable for any reason, in the discretion of the board, to amend, revise, or supersede outstanding initial transaction statements or written statements, the board may order the issuance and delivery to holders of record of amended, revised, or superseding initial transaction statements or written statements.
Shares are not assessable except as provided in this section or as otherwise provided by a statute other than this division. If the articles expressly confer such authority upon the corporation or the board, and subject to any limitations therein contained, the board may in its discretion levy and collect assessments upon all shares of any or all classes made subject to assessment by the articles. This authority is in addition to the right of the corporation to recover the unpaid subscription price of shares or the remainder of the consideration to be paid therefor.
Every levy of an assessment shall: specify the amount thereof and to whom and where it is payable; fix, or if proceedings or filings with any governmental or other agency for any qualification, permit, registration or exemption therefrom are required as a condition precedent to the levy or payment of an assessment provide for the establishment of, a date on which the assessment is payable; fix a date, not less than 30 nor more than 60 days from the date on which the assessment is payable, on which such assessment becomes delinquent if not paid; and fix a date, not less than 15 nor more than 60 days from the date on which the unpaid assessment becomes delinquent, for the sale of delinquent shares. The levy also shall fix the hour and place of sale, which place shall be in the county where the corporation is required to keep a copy of its bylaws pursuant to Section 213, or if there is no such county, in Sacramento.
On or before the date an assessment is payable, the secretary of the corporation shall give notice thereof in substantially the following form:
(Name of corporation in full. Location of principal office.)
Notice is hereby given that the board of directors on (date) has levied an assessment of (amount) per share upon the (name or designation of class or series of shares) of the corporation payable (to whom and where). Any shares upon which this assessment remains unpaid on (date fixed) will be delinquent. Unless payment is made before delinquency, the said shares, or as many of them as may be necessary, will be sold at (particular place) on (date) at (hour) of such date, to pay the delinquent assessment, together with a penalty of 5 percent of the amount of the assessment on such shares, or be forfeited to the corporation. (Name of secretary with location of office.)
The notice shall be served personally upon each holder of record of shares assessed; provided, however, that in lieu of personal service the notice may be mailed to each such shareholder addressed to the last address of the shareholder appearing on the books of the corporation or given by the shareholder to the corporation for the purpose of notice, or if no such address appears or is given, at the place where the principal office of the corporation is located, and published once in some newspaper of general circulation in the county in which the principal office of the corporation is located. If there is no such newspaper in such county, the publication shall be made in some newspaper of general circulation in an adjoining county.
The assessment is a lien upon the shares assessed from the time of personal service or the publication of the notice of assessment, unless the articles provide for such lien from the time of the levy. Unless otherwise provided by law, a transfer of the shares on the books of the corporation after the lien of an assessment has attached is a waiver of the lien unless a conspicuous legend is placed on the face of any certificate issued upon such transfer or, in the case of uncertificated securities, on the initial transaction statement, setting forth the information contained in the notice required by subdivision (c). Such legend shall be removed if the assessment on the shares evidenced by the certificate is paid or if the shares are sold to pay the assessment or forfeited for nonpayment.
The date of sale of delinquent shares fixed in any levy of an assessment may be extended from time to time for not more than 30 days at a time by order of the board entered on the records of the corporation, or when the sale is restrained by order of a court. Notice of such extension shall be given by announcement by the secretary, or other person authorized to conduct the sale, made at the time and place of sale last theretofore fixed.
If a date of sale of delinquent shares is extended for more than five days the corporation shall cause a notice to be mailed to the shareholder or shareholders whose shares are to be the subject of such sale setting forth the date and time to which the date of sale has been extended.
If payment is made after delinquency and before the sale, the shareholder shall pay a penalty of 5 percent of the amount of the assessment on the shares in addition to the assessment.
At the place and time appointed in the notice of levy any officer or an agent of the corporation, shall, unless otherwise ordered by the board, sell or cause to be sold to the highest bidder for cash as many shares of each delinquent holder of the assessed shares as may be necessary to pay the assessment and charges thereon according to the notice.
The person offering at the sale to pay the assessment and penalty for the smallest number of shares is the highest bidder. The shares purchased shall be transferred to the highest bidder on the share register of the corporation on the payment of the assessment and penalty and a new certificate or initial transaction statement therefor issued to such highest bidder.
A corporation is not required to accept an offer for a fraction of a share.
If no bidder offers to pay the amount due on the shares, together with the penalty of 5 percent thereof, the shares shall be forfeited to the corporation in satisfaction of the assessment and penalty thereon.
After a sale or forfeiture of shares for nonpayment of an assessment, the holder or owner of delinquent shares shall, if they are certificated securities, surrender the certificate for such shares to the corporation for cancellation or, if they are uncertificated securities, have no further rights with respect to such shares. This duty may be enforced by order or decree of court and such holder or owner shall be liable for damages to the corporation for failure to surrender the certificate for cancellation upon demand without good cause or excuse.
Any certificate not so surrendered forthwith becomes null and void and ceases to be evidence of the right or title of the holder or any transferee to the shares purporting to be represented thereby, and neither the corporation nor the purchaser of such shares incurs any liability thereon to any such transferee.
The purchaser of any shares, at a sale for delinquent assessments thereon, whenever made, is entitled to the issue of a new certificate representing the shares so purchased.
The certificate of the secretary or assistant secretary of the corporation is prima facie evidence of the time and place of sale and any postponement thereof, of the quantity and particular description of the shares sold, to whom, for what price, and of the fact of payment of the purchase money. The certificate shall be filed in the office of the corporation, and copies of the certificate, certified by the secretary or an assistant secretary of the corporation, are prima facie evidence of the facts therein stated.
An assessment is not invalidated by a failure to publish the notice of assessment, nor by the nonperformance of any act required in order to enforce the payment of the assessment; but in case of any substantial error or omission in the course of proceedings for collection of an assessment on any shares, all previous proceedings, except the levy of the assessment, are void as to such shares, and shall be taken anew.
No action shall be maintained to recover shares sold for delinquent assessments, upon the ground of irregularity in the assessment, irregularity or defect of the notice of sale, or defect or irregularity in the sale, unless the party seeking to maintain the action first pays or tenders to the corporation, or the party holding the shares sold, the sum for which the shares were sold, together with all subsequent assessments which may have been paid thereon and interest on such sums from the time they were paid. No such action shall be maintained unless it is commenced by the filing of a complaint and the issuing of a summons thereon within six months after the sale was made.
The only remedy for the collection of an assessment on fully paid shares is sale or forfeiture of the shares unless (1) remedy by action is expressly authorized in the original articles or by an amendment of the articles adopted before August 21, 1933, or by an amendment adopted on or after August 21, 1933, by unanimous consent of the shareholders, and (2) unless a statement of such remedy appears on the face of any share certificate issued on or after August 21, 1933.
CHAPTER 5. Dividends and Reacquisitions of Shares [500. - 511.]
Neither a corporation nor any of its subsidiaries shall make any distribution to the corporation’s shareholders (Section 166) unless the board of directors has determined in good faith either of the following:
The amount of retained earnings of the corporation immediately prior to the distribution equals or exceeds the sum of (A) the amount of the proposed distribution plus (B) the preferential dividends arrears amount.
Immediately after the distribution, the value of the corporation’s assets would equal or exceed the sum of its total liabilities plus the preferential rights amount.
For the purpose of applying paragraph (1) of subdivision (a) to a distribution by a corporation, “preferential dividends arrears amount” means the amount, if any, of cumulative dividends in arrears on all shares having a preference with respect to payment of dividends over the class or series to which the applicable distribution is being made, provided that if the articles of incorporation provide that a distribution can be made without regard to preferential dividends arrears amount, then the preferential dividends arrears amount shall be zero. For the purpose of applying paragraph (2) of subdivision (a) to a distribution by a corporation, “preferential rights amount” means the amount that would be needed if the corporation were to be dissolved at the time of the distribution to satisfy the preferential rights, including accrued but unpaid dividends, of other shareholders upon dissolution that are superior to the rights of the shareholders receiving the distribution, provided that if the articles of incorporation provide that a distribution can be made without regard to any preferential rights, then the preferential rights amount shall be zero. In the case of a distribution of cash or property in payment by the corporation in connection with the purchase of its shares, (1) there shall be added to retained earnings all amounts that had been previously deducted therefrom with respect to obligations incurred in connection with the corporation’s repurchase of its shares and reflected on the corporation’s balance sheet, but not in excess of the principal of the obligations that remain unpaid immediately prior to the distribution and (2) there shall be deducted from liabilities all amounts that had been previously added thereto with respect to the obligations incurred in connection with the corporation’s repurchase of its shares and reflected on the corporation’s balance sheet, but not in excess of the principal of the obligations that will remain unpaid after the distribution, provided that no addition to retained earnings or deduction from liabilities under this subdivision shall occur on account of any obligation that is a distribution to the corporation’s shareholders (Section 166) at the time the obligation is incurred.
The board of directors may base a determination that a distribution is not prohibited under subdivision (a) or under Section 501 on any of the following:
Financial statements prepared on the basis of accounting practices and principles that are reasonable under the circumstances.
A fair valuation.
Any other method that is reasonable under the circumstances.
The effect of a distribution under paragraph (1) or (2) of subdivision (a) is measured as of the date the distribution is authorized if the payment occurs within 120 days after the date of authorization.
If terms of indebtedness provide that payment of principal and interest is to be made only if, and to the extent that, payment of a distribution to shareholders could then be made under this section, indebtedness of a corporation, including indebtedness issued as a distribution, is not a liability for purposes of determinations made under paragraph (2) of subdivision (a).
If indebtedness is issued as a distribution, each payment of principal or interest on the indebtedness shall be treated as a distribution, the effect of which is measured on the date the payment of the indebtedness is actually made.
This section does not apply to a corporation licensed as a broker-dealer under Chapter 2 (commencing with Section 25210) of Part 3 of Division 1 of Title 4, if immediately after giving effect to any distribution the corporation is in compliance with the net capital rules of the Commissioner of Financial Protection and Innovation and the Securities and Exchange Commission.
Neither a corporation nor any of its subsidiaries shall make any distribution to the corporation’s shareholders (Section 166) if the corporation or the subsidiary making the distribution is, or as a result thereof would be, likely to be unable to meet its liabilities (except those whose payment is otherwise adequately provided for) as they mature.
The provisions of Sections 500 and 501 shall not apply to a purchase or redemption of shares of a deceased shareholder from the proceeds of insurance on the life of that shareholder in excess of the total amount of all premiums paid by the corporation for that insurance, in order to carry out the provisions of an agreement between the corporation and that shareholder to purchase or redeem those shares upon the death of the shareholder.
The provisions of Sections 500 and 501 shall not apply to the purchase or redemption of shares of a disabled shareholder from the proceeds of disability insurance applicable to the disabled shareholder in excess of the total amount of all premiums paid by the corporation for the insurance, in order to carry out the provisions of an agreement between the corporation and the shareholder to purchase or redeem shares upon the disability of the shareholder as defined within that policy. For the purposes of this subdivision, “disability insurance” means an agreement of indemnification against the insured’s loss of the ability to work due to accident or illness.
The provisions of Section 500 do not apply to a dividend declared by either of the following:
A regulated investment company, as defined in the federal Internal Revenue Code, as amended, to the extent that the dividend is necessary to maintain the status of the corporation as a regulated investment company under the provisions of that code.
A real estate investment trust, as defined in Part II of Subchapter M of Chapter 1 of Subtitle A of the federal Internal Revenue Code, as amended, to the extent that the dividend is necessary to maintain the status of the corporation as a real estate investment trust under the provisions of that code.
The provisions of this chapter do not apply to any purchase or redemption of shares redeemable at the option of the holder by a registered open-end investment company under the United States Investment Company Act of 1940, so long as the right of redemption remains unsuspended under the provisions of that statute and the articles and bylaws of the corporation.
Nothing in this chapter prohibits additional restrictions upon the declaration of dividends or the purchase or redemption of a corporation’s own shares by provision in the articles or bylaws or in any indenture or other agreement entered into by the corporation.
Any shareholder who receives any distribution prohibited by this chapter with knowledge of facts indicating the impropriety thereof is liable to the corporation for the benefit of all of the creditors or shareholders entitled to institute an action under subdivision (b) for the amount so received by the shareholder with interest thereon at the legal rate on judgments until paid, but not exceeding the liabilities of the corporation owed to nonconsenting creditors at the time of the violation and the injury suffered by nonconsenting shareholders, as the case may be. For purposes of determining the value of any noncash property received in a distribution described in the preceding sentence, the shareholder receiving that illegal distribution shall be liable to the corporation for an amount equal to the fair market value of the property at the time of the illegal distribution plus interest thereon from the date of the distribution at the legal rate on judgments until paid, together with all reasonably incurred costs of appraisal or other valuation, if any, of that property, but not exceeding the liabilities of the corporation owed to nonconsenting creditors at the time of the violation and the injury suffered by nonconsenting shareholders, as the case may be.
Suit may be brought in the name of the corporation to enforce the liability (1) to creditors arising under subdivision (a) for a violation of Section 500 or 501 against any or all shareholders liable by any one or more creditors of the corporation whose debts or claims arose prior to the time of the distribution to shareholders and who have not consented thereto, whether or not they have reduced their claims to judgment, or (2) to shareholders arising under subdivision (a) for a violation of Section 500 against any or all shareholders liable by one or more holders of shares having preferential rights with respect to cumulative dividends in arrears, in the case of a violation of paragraph (1) of subdivision (a) of Section 500, or upon dissolution, in the case of a violation of paragraph (2) of subdivision (a) of Section 500, in each case who have not consented to the applicable distribution, without regard to the provisions in Section 800, and in each case to the extent the applicable shares with preferential rights were outstanding at the time of the distribution; provided that holders of shares of preferential rights shall not have the right to bring suit in the name of the corporation under this subdivision unless the preferential dividends arrears amount, in the case of a violation of paragraph (1) of subdivision (a) of Section 500, or the preferential rights amount, in the case of a violation of paragraph (2) of subdivision (a) of Section 500, was greater than zero. A cause of action with respect to an obligation to return a distribution pursuant to this section shall be extinguished unless the action is brought within four years after the date the distribution is made.
Any shareholder sued under this section may implead all other shareholders liable under this section and may compel contribution, either in that action or in an independent action against shareholders not joined in that action.
Nothing contained in this section affects any liability which any shareholder may have under Chapter 1 (commencing with Section 3439) of Title 2 of Part 2 of Division 4 of the Civil Code.
This chapter does not apply in connection with any proceeding for winding up and dissolution under Chapter 18 or 19.
A corporation may redeem any or all shares which are redeemable at its option by (1) giving notice of redemption as provided in subdivisions (b) and (c) or as otherwise provided in its articles of incorporation, and (2) payment or deposit of the redemption price of the shares as provided in its articles or deposit of the redemption price pursuant to subdivision (d).
Subject to any provisions in the articles with respect to the notice required for redemption of shares, the corporation may give notice of the redemption of any or all shares subject to redemption by causing a notice of redemption to be published in a newspaper of general circulation in the county in which the principal office of the corporation is located at least once a week for two successive weeks, in each instance on any day of the week, commencing not earlier than 60 nor later than 20 days before the date fixed for redemption. The notice of redemption shall set forth all of the following:
The class or series of shares or part of any class or series of shares to be redeemed.
The date fixed for redemption.
The redemption price.
If the shares are certificated securities, the place at which the shareholders may obtain payment of the redemption price upon surrender of their share certificates.
If the corporation gives notice of redemption pursuant to subdivision (b), it shall also mail a copy of the notice of redemption to each holder of record of shares to be redeemed as of the date of mailing or record date fixed in accordance with Section 701, addressed to the holder at the address of such holder appearing on the books of the corporation or given by the holder to the corporation for the purpose of notice, or if no such address appears or is given at the place where the principal office of the corporation is located, not earlier than 60 nor later than 20 days before the date fixed for redemption. Failure to comply with this subdivision does not invalidate the redemption of the shares.
If, on or before any date fixed for redemption of redeemable shares, the corporation deposits with any bank or trust company in this state as a trust fund, (1) a sum sufficient to redeem, on the date fixed for redemption thereof, the shares called for redemption, (2) in the case of the redemption of any uncertificated securities, an officer’s certificate setting forth the holders thereof registered on the books of the corporation and the number of shares held by each, and (3) irrevocable instructions and authority to the bank or trust company to publish the notice of redemption thereof (or to complete publication if theretofore commenced) and to pay, on and after the date fixed for redemption or prior thereto, the redemption price of the shares to their respective holders upon the surrender of their share certificates, in the case of certificated securities, or the delivery of the officer’s certificate in the case of uncertificated securities, then from and after the date of the deposit (although before the date fixed for redemption) the shares called shall be redeemed and the dividends on those shares shall cease to accrue after the date fixed for redemption. The deposit shall constitute full payment of the shares to their holders and from and after the date of the deposit the shares shall no longer be outstanding and the holders thereof shall cease to be shareholders with respect to the shares and shall have no rights with respect thereto except the right to receive from the bank or trust company payment of the redemption price of the shares without interest, upon surrender of their certificates therefor, in the case of certificated securities, and any right to convert the shares which may exist and then continue for any period fixed by its terms.
In determining the holders of uncertificated securities, the bank or trust company shall be entitled to rely on any officer’s certificate deposited with it in accordance with this subdivision.
When a corporation reacquires its own shares, those shares are restored to the status of authorized but unissued shares, unless the articles prohibit the reissuance thereof.
When a corporation reacquires authorized shares of a class or series and the articles prohibit the reissuance of those shares:
If all of the authorized shares of that class or series, as the case may be, are reacquired, then (A) that class or series is automatically eliminated, (B) in the case of reacquisition of all of the authorized shares of a series, the authorized number of shares of the class to which the shares belonged is reduced by the number of shares so reacquired, and (C) the articles shall be amended to eliminate any statement of rights, preferences, privileges, and restrictions relating solely to that class or series.
If less than all of the authorized shares but all of the issued and outstanding shares of that class or series, as the case may be, are reacquired, the authorized number of shares of the class or series is automatically reduced by the number of shares so reacquired, and the board shall determine either (A) to eliminate that class or series, whereupon the articles shall be amended to eliminate any statement of rights, preferences, privileges, and restrictions relating solely to that class or series, or (B) not to eliminate that class or series, whereupon the articles shall be amended to reflect that reduction of the number of authorized shares of that class or series by the shares so reacquired.
If less than all of the authorized shares and less than all of the issued and outstanding shares of a class or series, as the case may be, are reacquired, the authorized number of shares of that class or series shall be automatically reduced by the number of shares reacquired, and the articles shall be amended to reflect that reduction.
When a corporation reacquires authorized shares of a series of shares and the articles only prohibit the reissuance of those shares as shares of the same series:
“Reacquires” as used in this section means that a corporation purchases, redeems, acquires by way of conversion to another class or series, or otherwise acquires its own shares or that issued and outstanding shares cease to be outstanding.
The provisions of this section are subject to any contrary or inconsistent provision in the articles.
A certificate of amendment shall be filed in accordance with the requirements of Chapter 9 (commencing with Section 900) reflecting any elimination or reduction of authorized shares set forth in subdivisions (b) and (c), and any related elimination from the articles of the designation and the rights, preferences, privileges, and restrictions of any series or class of stock that is eliminated, except that approval by the outstanding shares (Section 152) shall not be required to adopt any such amendment. Nothing contained in this section is intended to alter or otherwise affect the powers of the board to amend the articles as contemplated in Sections 202 and 401.
Notwithstanding the provisions of this chapter, a negotiable instrument issued by a corporation for the purchase or redemption of shares shall be enforceable by a holder in due course (Section 3302 of the Commercial Code) without notice that it was issued for that purpose or by a person who acquired the instrument through such a holder.
CHAPTER 6. Shareholders’ Meetings and Consents [600. - 605.]
Meetings of shareholders may be held at any place within or without this state as may be stated in or fixed in accordance with the bylaws. If no other place is stated or so fixed, shareholder meetings shall be held at the principal office of the corporation. Subject to any limitations in the articles or bylaws of the corporation, if authorized by the board of directors in its sole discretion, and subject to those guidelines and procedures as the board of directors may adopt, shareholders not physically present in person or by proxy at a meeting of shareholders may, by electronic transmission by and to the corporation (Sections 20 and 21), electronic video screen communication, conference telephone, or other means of remote communication, participate in a meeting of shareholders, be deemed present in person or by proxy, and vote at a meeting of shareholders, subject to subdivision (e).
An annual meeting of shareholders shall be held for the election of directors on a date and at a time stated in or fixed in accordance with the bylaws. However, if the corporation is a regulated management company, a meeting of shareholders shall be held as required by the Federal Investment Company Act of 1940 (15 U.S.C. Sec. 80a-1, et seq.). Any other proper business may be transacted at the annual meeting. For purposes of this subdivision, “regulated management company” means a regulated investment company as defined in Section 851 of the federal Internal Revenue Code.
If there is a failure to hold the annual meeting for a period of 60 days after the date designated therefor or, if no date has been designated, for a period of 15 months after the organization of the corporation or after its last annual meeting, the superior court of the proper county may summarily order a meeting to be held upon the application of any shareholder after notice to the corporation giving it an opportunity to be heard. The shares represented at the meeting, either in person or by proxy, and entitled to vote thereat shall constitute a quorum for the purpose of the meeting, notwithstanding any provision of the articles or bylaws or in this division to the contrary. The court may issue any orders as may be appropriate, including, without limitation, orders designating the time and place of the meeting, the record date for determination of shareholders entitled to vote, and the form of notice of the meeting.
Special meetings of the shareholders may be called by the board, the chairperson of the board, the president, the holders of shares entitled to cast not less than 10 percent of the votes at the meeting, or any additional persons as may be provided in the articles or bylaws.
A meeting of the shareholders may be conducted, in whole or in part, by electronic transmission by and to the corporation, electronic video screen communication, conference telephone, or other means of remote communication if the corporation implements reasonable measures: (1) to provide shareholders and proxyholders a reasonable opportunity to participate in the meeting and to vote on matters submitted to the shareholders, including an opportunity to read or hear the proceedings of the meeting concurrently with those proceedings, (2) if any shareholder or proxyholder votes or takes other action at the meeting by means of electronic transmission to the corporation, electronic video screen communication, conference telephone, or other means of remote communication, to maintain a record of that vote or action in its books and records, and (3) to verify that each person who has voted remotely is a shareholder or proxyholder. A corporation shall not conduct a meeting of shareholders solely by electronic transmission by and to the corporation, electronic video screen communication, conference telephone, or other means of remote communication unless one or more of the following conditions apply: (A) all of the shareholders consent; (B) the board determines it is necessary or appropriate because of an emergency, as defined in paragraph (5) of subdivision (i) of Section 207; or (C) notwithstanding the absence of consent from all shareholders pursuant to (A) or subdivision (b) of Section 20, the meeting includes a live audiovisual feed for the duration of the meeting. A corporation holding a meeting pursuant to (C) may offer, in addition to remote audiovisual feed, an audio-only means by which a shareholder or proxyholder may participate provided that the choice between participating via audiovisual or via audio-only means is made by the shareholder or proxyholder and the corporation does not impose any barriers to either mode of participation. A de minimis disruption of an audio or audiovisual feed does not require a corporation to end a shareholder meeting under, or render the corporation out of compliance with, this subdivision.
Whenever shareholders are required or permitted to take any action at a meeting a written notice of the meeting shall be given not less than 10 (or, if sent by third-class mail, 30) nor more than 60 days before the date of the meeting to each shareholder entitled to vote thereat. That notice shall state the place, date and hour of the meeting, the means of electronic transmission by and to the corporation (Sections 20 and 21), electronic video screen communication, conference telephone, or other means of remote communication, if any, by which shareholders may participate in that meeting, and (1) in the case of a special meeting, the general nature of the business to be transacted, and no other business may be transacted, or (2) in the case of the annual meeting, those matters that the board, at the time of the mailing of the notice, intends to present for action by the shareholders, but subject to the provisions of subdivision (f) any proper matter may be presented at the meeting for that action. The notice of any meeting at which directors are to be elected shall include the names of nominees intended at the time of the notice to be presented by the board for election.
Notice of a shareholders’ meeting or any report shall be given personally, by electronic transmission by the corporation, or by first-class mail, or, in the case of a corporation with outstanding shares held of record by 500 or more persons (determined as provided in Section 605) on the record date for the shareholders’ meeting, notice may also be sent third-class mail, or other means of written communication, addressed to the shareholder at the address of that shareholder appearing on the books of the corporation or given by the shareholder to the corporation for the purpose of notice, or if no address appears or is given, at the place where the principal office of the corporation is located or by publication at least once in a newspaper of general circulation in the county in which the principal office is located. The notice or report shall be deemed to have been given at the time when delivered personally, sent by electronic transmission by the corporation, deposited in the mail, or sent by other means of written communication. Notwithstanding the foregoing, the notice of a shareholder’s meeting or any report may be sent by electronic communication or other means of remote communication if the board determines it is necessary or appropriate because of an emergency, as defined in paragraph (5) of subdivision (i) of Section 207. An affidavit of mailing or electronic transmission by the corporation, or electronic communication or other means of remote communication as permitted because of an emergency, of any notice or report in accordance with the provisions of this division, executed by the secretary, assistant secretary, or any transfer agent, shall be prima facie evidence of the giving of the notice or report.
If any notice or report addressed to the shareholder at the address of that shareholder appearing on the books of the corporation is returned to the corporation by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice or report to the shareholder at that address, all future notices or reports shall be deemed to have been duly given without further mailing if the same shall be available for the shareholder upon written demand of the shareholder at the principal office of the corporation for a period of one year from the date of the giving of the notice or report to all other shareholders.
Notice given by electronic transmission by the corporation under this subdivision shall be valid only if it complies with Section 20. Notwithstanding the foregoing, notice shall not be given by electronic transmission by the corporation under this subdivision after either of the following:
The corporation is unable to deliver two consecutive notices to the shareholder by that means.
The inability to so deliver the notices to the shareholder becomes known to the secretary, any assistant secretary, the transfer agent, or other person responsible for the giving of the notice.
This paragraph shall not apply if notices are provided by electronic communication or other means of remote communication as permitted because of an emergency.
Upon request in writing to the corporation addressed to the attention of the chairperson of the board, president, vice president or secretary by any person (other than the board) entitled to call a special meeting of shareholders, the officer forthwith shall cause notice to be given to the shareholders entitled to vote that a meeting will be held at a time requested by the person or persons calling the meeting, not less than 35 nor more than 60 days after the receipt of the request. If the notice is not given within 20 days after receipt of the request, the persons entitled to call the meeting may give the notice or the superior court of the proper county shall summarily order the giving of the notice, after notice to the corporation giving it an opportunity to be heard. The procedure provided in subdivision (c) of Section 305 shall apply to that application. The court may issue orders as may be appropriate, including, without limitation, orders designating the time and place of the meeting, the record date for determination of shareholders entitled to vote, and the form of notice.
When a shareholders’ meeting is adjourned to another time or place, unless the bylaws otherwise require and except as provided in this subdivision, notice need not be given of the adjourned meeting if the time and place thereof (or the means of electronic transmission by and to the corporation or, electronic video screen communication, conference telephone, or other means of remote communication, if any, by which the shareholders may participate) are announced at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any business that might have been transacted at the original meeting. If the adjournment is for more than 45 days or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the meeting.
The transactions of any meeting of shareholders, however called and noticed, and wherever held, are as valid as though had at a meeting duly held after regular call and notice, if a quorum is present either in person or by proxy, and if, either before or after the meeting, each of the persons entitled to vote, not present in person or by proxy, provides a waiver of notice or consent to the holding of the meeting or an approval of the minutes thereof in writing. All those waivers, consents, and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance of a person at a meeting shall constitute a waiver of notice of and presence at the meeting, except when the person objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened and except that attendance at a meeting is not a waiver of any right to object to the consideration of matters required by this division to be included in the notice but not so included, if the objection is expressly made at the meeting. Neither the business to be transacted at nor the purpose of any regular or special meeting of shareholders need be specified in any written waiver of notice, consent to the holding of the meeting or approval of the minutes thereof, unless otherwise provided in the articles or bylaws, except as provided in subdivision (f).
Unless otherwise provided in the articles, a majority of the shares entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of the shareholders, but in no event shall a quorum consist of less than one-third (or, in the case of a mutual water company, 20 percent) of the shares entitled to vote at the meeting or, except in the case of a close corporation, of more than a majority of the shares entitled to vote at the meeting. Except as provided in subdivision (b), the affirmative vote of a majority of the shares represented and voting at a duly held meeting at which a quorum is present (which shares voting affirmatively also constitute at least a majority of the required quorum) shall be the act of the shareholders, unless the vote of a greater number or voting by classes is required by this division or the articles.
The shareholders present at a duly called or held meeting at which a quorum is present may continue to transact business until adjournment notwithstanding the withdrawal of enough shareholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum or, if required by this division or the articles, the vote of a greater number or voting by classes.
In the absence of a quorum, any meeting of shareholders may be adjourned from time to time by the vote of a majority of the shares represented either in person or by proxy, but no other business may be transacted, except as provided in subdivision (b).
Unless otherwise provided in the articles, any action that may be taken at any annual or special meeting of shareholders may be taken without a meeting and without prior notice, if a consent in writing, as specified in Section 195, setting forth the action so taken, shall be provided by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take that action at a meeting at which all shares entitled to vote thereon were present and voted.
Unless the consents of all shareholders entitled to vote have been solicited in writing, both of the following shall apply:
Notice of any shareholder approval pursuant to Section 310, 317, 1152, 1201 (except for a reorganization as to which shareholders have the right, pursuant to Chapter 13 (commencing with Section 1300) to demand payment of cash for their shares), or 2007 without a meeting by less than unanimous written consent shall be given at least 10 days before the consummation of the action authorized by that approval. Notice shall be given as provided in subdivision (b) of Section 601.
Prompt notice shall be given of the taking of any other corporate action approved by shareholders without a meeting by less than unanimous written consent, to those shareholders entitled to vote who have not consented in writing. Notice shall be given as provided in subdivision (b) of Section 601.
Any shareholder giving a written consent, or the shareholder’s proxyholders, or a transferee of the shares or a personal representative of the shareholder or their respective proxyholders, may revoke the consent personally or by proxy by a writing received by the corporation prior to the time that written consents of the number of shares required to authorize the proposed action have been filed with the secretary of the corporation, but may not do so thereafter. The revocation is effective upon its receipt by the secretary of the corporation.
Notwithstanding subdivision (a), directors may not be elected by written consent except by unanimous written consent of all shares entitled to vote for the election of directors; provided that the shareholders may elect a director to fill a vacancy, other than a vacancy created by removal, by the written consent of a majority of the outstanding shares entitled to vote.
Any form of proxy or written consent distributed to 10 or more shareholders of a corporation with outstanding shares held of record by 100 or more persons shall afford an opportunity on the proxy or form of written consent to specify a choice between approval and disapproval of each matter or group of related matters intended to be acted upon at the meeting for which the proxy is solicited or by such written consent, other than elections to office, and shall provide, subject to reasonable specified conditions, that where the person solicited specifies a choice with respect to any such matter the shares will be voted in accordance therewith.
In any election of directors, any form of proxy in which the directors to be voted upon are named therein as candidates and which is marked by a shareholder “withhold” or otherwise marked in a manner indicating that the authority to vote for the election of directors is withheld shall not be voted for the election of a director.
Failure to comply with this section shall not invalidate any corporate action taken, but may be the basis for challenging any proxy at a meeting and the superior court may compel compliance therewith at the suit of any shareholder.
This section does not apply to any corporation with an outstanding class of securities registered under Section 12 of the Securities Exchange Act of 1934 or whose securities are exempted from such registration by Section 12(g)(2) of that act.
For the purpose of determining whether a corporation has outstanding shares held of record by 100 or more persons, shares shall be deemed to be “held of record” by each person who is identified as the owner of such shares on the record of shareholders maintained by or on behalf of the corporation, subject to the following:
In any case where the record of shareholders has not been maintained in accordance with accepted practice, any additional person who would be identified as such an owner on such record if it had been maintained in accordance with accepted practice shall be included as a holder of record.
Shares identified as held of record by a corporation, a partnership, a limited liability company, a trust, whether or not the trustees are named, or other organization shall be included as so held by one person.
Shares identified as held of record by one or more persons as trustees, executors, guardians, conservators, custodians or in other fiduciary capacities with respect to a single trust, estate or account shall be included as held of record by one person.
Shares held by two or more persons as coowners shall be included as held by one person.
Shares registered in substantially similar names, where the corporation (or other person soliciting proxies) has reason to believe because of the address or other indications that such names represent the same person, may be included as held of record by one person.
Notwithstanding subdivision (a):
Shares held, to the knowledge of the corporation (or other person soliciting proxies), subject to a voting trust, deposit agreement or similar arrangement shall be included as held of record by the recordholders of the voting trust certificates, certificates of deposit, receipts or similar evidences of interest in such securities; provided, however, that the corporation (or other person soliciting proxies) may rely in good faith on such information as is received in response to its request from a nonaffiliated issuer of the certificates or evidences of interest.
If the corporation (or other person soliciting proxies) knows or has reason to know that the form of holding shares of record is used primarily to circumvent the provisions of this section, the beneficial owners of such shares shall be deemed to be the record owners thereof.
CHAPTER 7. Voting of Shares [700. - 711.]
Except as provided in Section 708 and except as may be otherwise provided in the articles, each outstanding share, regardless of class, shall be entitled to one vote on each matter submitted to a vote of shareholders.
Any holder of shares entitled to vote on any matter may vote part of the shares in favor of the proposal and refrain from voting the remaining shares or vote them against the proposal, other than elections to office, but, if the shareholder fails to specify the number of shares such shareholder is voting affirmatively, it will be conclusively presumed that the shareholder’s approving vote is with respect to all shares such shareholder is entitled to vote.
In order that the corporation may determine the shareholders entitled to notice of any meeting or to vote or entitled to receive payment of any dividend or other distribution or allotment of any rights or entitled to exercise any rights in respect of any other lawful action, the board may fix, in advance, a record date, which shall not be more than 60 nor less than 10 days prior to the date of such meeting nor more than 60 days prior to any other action.
If no record date is fixed:
The record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held.
The record date for determining shareholders entitled to give consent to corporate action in writing without a meeting, when no prior action by the board has been taken, shall be the day on which the first written consent is given.
The record date for determining shareholders for any other purpose shall be at the close of business on the day on which the board adopts the resolution relating thereto, or the 60th day prior to the date of such other action, whichever is later.
A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting unless the board fixes a new record date for the adjourned meeting, but the board shall fix a new record date if the meeting is adjourned for more than 45 days from the date set for the original meeting.
Shareholders at the close of business on the record date are entitled to notice and to vote or to receive the dividend, distribution or allotment of rights or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date, except as otherwise provided in the articles or by agreement or in this division.
Subject to subdivision (c) of Section 703, shares held by an administrator, executor, guardian, conservator or custodian may be voted by such holder either in person or by proxy, without a transfer of such shares into the holder’s name; and shares standing in the name of a trustee may be voted by the trustee, either in person or by proxy, but no trustee shall be entitled to vote shares held by such trustee without a transfer of such shares into the trustee’s name.
Shares standing in the name of a receiver may be voted by such receiver; and shares held by or under the control of a receiver may be voted by such receiver without the transfer thereof into the receiver’s name if authority to do so is contained in the order of the court by which such receiver was appointed.
Subject to the provisions of Section 705 and except where otherwise agreed in writing between the parties, a shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the shares so transferred.
Shares standing in the name of a minor may be voted and the corporation may treat all rights incident thereto as exercisable by the minor, in person or by proxy, whether or not the corporation has notice, actual or constructive, of the nonage, unless a guardian of the minor’s property has been appointed and written notice of such appointment given to the corporation.
If authorized to vote the shares by the power of attorney by which the attorney in fact was appointed, shares held by or under the control of an attorney in fact may be voted and the corporation may treat all rights incident thereto as exercisable by the attorney in fact, in person or by proxy, without the transfer of the shares into the name of the attorney in fact.
Shares standing in the name of another corporation, domestic or foreign, may be voted by an officer, agent, or proxyholder as the bylaws of the other corporation may prescribe or, in the absence of such provision, as the board of the other corporation may determine or, in the absence of that determination, by the chairperson of the board, president or any vice president of the other corporation, or by any other person authorized to do so by the chairperson of the board, president, or any vice president of the other corporation. Shares which are purported to be voted or any proxy purported to be executed in the name of a corporation (whether or not any title of the person signing is indicated) shall be presumed to be voted or the proxy executed in accordance with the provisions of this subdivision, unless the contrary is shown.
Shares of a corporation owned by its subsidiary shall not be entitled to vote on any matter.
Shares held by the issuing corporation in a fiduciary capacity, and shares of an issuing corporation held in a fiduciary capacity by its subsidiary, shall not be entitled to vote on any matter, except as follows:
To the extent that the settlor or beneficial owner possesses and exercises a right to vote or to give the corporation binding instructions as to how to vote such shares.
Where there are one or more cotrustees who are not affected by the prohibition of this subdivision, in which case the shares may be voted by the cotrustees as if it or they are the sole trustee.
If shares stand of record in the names of two or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, spouses as community property, tenants by the entirety, voting trustees, persons entitled to vote under a shareholder voting agreement or otherwise, or if two or more persons (including proxyholders) have the same fiduciary relationship respecting the same shares, unless the secretary of the corporation is given written notice to the contrary and is furnished with a copy of the instrument or order appointing them or creating the relationship wherein it is so provided, their acts with respect to voting shall have the following effect:
If only one votes, such act binds all.
If more than one vote, the act of the majority so voting binds all.
If more than one vote, but the vote is evenly split on any particular matter, each faction may vote the securities in question proportionately.
If the instrument so filed or the registration of the shares shows that any such tenancy is held in unequal interests, a majority or even split for the purpose of this section shall be a majority or even split in interest.
Every person entitled to vote shares may authorize another person or persons to act by proxy with respect to such shares. Any proxy purporting to be executed in accordance with the provisions of this division shall be presumptively valid.
No proxy shall be valid after the expiration of 11 months from the date thereof unless otherwise provided in the proxy. Every proxy continues in full force and effect until revoked by the person executing it prior to the vote pursuant thereto, except as otherwise provided in this section. Such revocation may be effected by a writing delivered to the corporation stating that the proxy is revoked or by a subsequent proxy executed by the person executing the prior proxy and presented to the meeting, or as to any meeting by attendance at such meeting and voting in person by the person executing the proxy. The dates contained on the forms of proxy presumptively determine the order of execution, regardless of the postmark dates on the envelopes in which they are mailed.
A proxy is not revoked by the death or incapacity of the maker unless, before the vote is counted, written notice of such death or incapacity is received by the corporation.
Except when other provision shall have been made by written agreement between the parties, the recordholder of shares which such person holds as pledgee or otherwise as security or which belong to another shall issue to the pledgor or to the owner of such shares, upon demand therefor and payment of necessary expenses thereof, a proxy to vote or take other action thereon.
A proxy which states that it is irrevocable is irrevocable for the period specified therein (notwithstanding subdivision (c)) when it is held by any of the following or a nominee of any of the following:
A pledgee.
A person who has purchased or agreed to purchase or holds an option to purchase the shares or a person who has sold a portion of such person’s shares in the corporation to the maker of the proxy.
A creditor or creditors of the corporation or the shareholder who extended or continued credit to the corporation or the shareholder in consideration of the proxy if the proxy states that it was given in consideration of such extension or continuation of credit and the name of the person extending or continuing credit.
A person who has contracted to perform services as an employee of the corporation, if a proxy is required by the contract of employment and if the proxy states that it was given in consideration of such contract of employment, the name of the employee and the period of employment contracted for.
A person designated by or under an agreement under Section 706.
A beneficiary of a trust with respect to shares held by the trust.
Notwithstanding the period of irrevocability specified, the proxy becomes revocable when the pledge is redeemed, the option or agreement to purchase is terminated or the seller no longer owns any shares of the corporation or dies, the debt of the corporation or the shareholder is paid, the period of employment provided for in the contract of employment has terminated, the agreement under Section 706 has terminated, or the person ceases to be a beneficiary of the trust. In addition to the foregoing clauses (1) through (5), a proxy may be made irrevocable (notwithstanding subdivision (c)) if it is given to secure the performance of a duty or to protect a title, either legal or equitable, until the happening of events which, by its terms, discharge the obligations secured by it.
A proxy may be revoked, notwithstanding a provision making it irrevocable, by a transferee of shares without knowledge of the existence of the provision unless the existence of the proxy and its irrevocability appears, in the case of certificated securities, on the certificate representing such shares, or in the case of uncertificated securities, on the initial transaction statement and written statements.
Notwithstanding any other provision of this division, an agreement between two or more shareholders of a corporation, if in writing and signed by the parties thereto, may provide that in exercising any voting rights the shares held by them shall be voted as provided by the agreement, or as the parties may agree or as determined in accordance with a procedure agreed upon by them, and the parties may but need not transfer the shares covered by such an agreement to a third party or parties with authority to vote them in accordance with the terms of the agreement. Such an agreement shall not be denied specific performance by a court on the ground that the remedy at law is adequate or on other grounds relating to the jurisdiction of a court of equity.
Shares in any corporation may be transferred by written agreement to trustees in order to confer upon them the right to vote and otherwise represent the shares for such period of time, not exceeding 10 years, as may be specified in the agreement. The validity of a voting trust agreement, otherwise lawful, shall not be affected during a period of 10 years from the date when it was created or last extended as hereinafter provided by the fact that under its terms it will or may last beyond such 10-year period. At any time within two years prior to the time of expiration of any voting trust agreement as originally fixed or as last extended as provided in this subdivision, one or more beneficiaries under the voting trust agreement may, by written agreement and with the written consent of the voting trustee or trustees, extend the duration of the voting trust agreement with respect to their shares for an additional period not exceeding 10 years from the expiration date of the trust as originally fixed or as last extended as provided in this subdivision. A duplicate of the voting trust agreement and any extension thereof shall be filed with the secretary of the corporation and shall be open to inspection by a shareholder, a holder of a voting trust certificate or the agent of either, upon the same terms as the record of shareholders of the corporation is open to inspection.
No agreement made pursuant to subdivision (a) shall be held to be invalid or unenforceable on the ground that it is a voting trust that does not comply with subdivision (b) or that it is a proxy that does not comply with Section 705.
This section shall not invalidate any voting or other agreement among shareholders or any irrevocable proxy complying with subdivision (e) of Section 705, which agreement or proxy is not otherwise illegal.
In advance of any meeting of shareholders the board may appoint inspectors of election to act at the meeting and any adjournment thereof. If inspectors of election are not so appointed, or if any persons so appointed fail to appear or refuse to act, the chairperson of any meeting of shareholders may, and on the request of any shareholder or a shareholder’s proxy shall, appoint inspectors of election (or persons to replace those who so fail or refuse) at the meeting. The number of inspectors shall be either one or three. If appointed at a meeting on the request of one or more shareholders or proxies, the majority of shares represented in person or by proxy shall determine whether one or three inspectors are to be appointed.
The inspectors of election shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum and the authenticity, validity and effect of proxies, receive votes, ballots or consents, hear and determine all challenges and questions in any way arising in connection with the right to vote, count and tabulate all votes or consents, determine when the polls shall close, determine the result and do such acts as may be proper to conduct the election or vote with fairness to all shareholders.
The inspectors of election shall perform their duties impartially, in good faith, to the best of their ability and as expeditiously as is practical. If there are three inspectors of election, the decision, act or certificate of a majority is effective in all respects as the decision, act or certificate of all. Any report or certificate made by the inspectors of election is prima facie evidence of the facts stated therein.
Except as provided in Sections 301.5 and 708.5, every shareholder complying with subdivision (b) and entitled to vote at any election of directors may cumulate such shareholder’s votes and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which the shareholder’s shares are normally entitled, or distribute the shareholder’s votes on the same principle among as many candidates as the shareholder thinks fit.
No shareholder shall be entitled to cumulate votes (i.e., cast for any candidate a number of votes greater than the number of votes that the shareholder normally is entitled to cast) unless the candidate or candidates’ names have been placed in nomination prior to the voting and the shareholder has given notice at the meeting prior to the voting of the shareholder’s intention to cumulate the shareholder’s votes. If any one shareholder has given that notice, all shareholders may cumulate their votes for candidates in nomination.
Except as provided in Section 708.5, in any election of directors, the candidates receiving the highest number of affirmative votes of the shares entitled to be voted for them up to the number of directors to be elected by those shares are elected; votes against the director and votes withheld shall have no legal effect.
Subdivision (a) applies to the shareholders of any mutual water company organized or existing for the purpose of delivering water to its shareholders at cost on lands located within the boundaries of one or more reclamation districts now or hereafter legally existing in this state and created by or formed under the provisions of any statute of this state, but does not otherwise apply to the shareholders of mutual water companies unless their articles or bylaws so provide.
Elections for directors need not be by ballot unless a shareholder demands election by ballot at the meeting and before the voting begins or unless the bylaws so require.
For purposes of this section,the following definitions shall apply:
“Uncontested election” means an election of directors in which, at the expiration of the time fixed under the articles of incorporation or bylaws requiring advance notification of director candidates or, absent such a provision in the articles of incorporation or bylaws, at a time fixed by the board of directors that is not more than 14 days before notice is given of the meeting at which the election is to occur, the number of candidates for election does not exceed the number of directors to be elected by the shareholders at that election.
“Listed corporation” means a domestic corporation that qualifies as a listed corporation under subdivision (d) of Section 301.5.
Notwithstanding paragraph (5) of subdivision (a) of Section 204, a listed corporation that has eliminated cumulative voting pursuant to subdivision (a) of Section 301.5 may amend its articles of incorporation or bylaws to provide that, in an uncontested election, approval of the shareholders, as specified in Section 153, shall be required to elect a director.
Notwithstanding subdivision (b) of Section 301, if an incumbent director fails to be elected by approval of the shareholders (Section 153) in an uncontested election of a listed corporation that has amended its articles of incorporation or bylaws pursuant to subdivision (b), then, unless the incumbent director has earlier resigned, the term of the incumbent director shall end on the date that is the earlier of 90 days after the date on which the voting results are determined pursuant to Section 707 or the date on which the board of directors selects a person to fill the office held by that director pursuant to subdivision (d).
Any vacancy on the board of directors resulting from any failure of a candidate to be elected by approval of the shareholders (Section 153) in an uncontested election of a listed corporation that has amended its articles of incorporation or bylaws pursuant to subdivision (b) shall be filled in accordance with the procedures set forth in Section 305.
Upon the filing of an action therefor by any shareholder or by any person who claims to have been denied the right to vote, the superior court of the proper county shall try and determine the validity of any election or appointment of any director of any domestic corporation, or of any foreign corporation if the election was held or the appointment was made in this state. In the case of a foreign corporation the action may be brought at the option of the plaintiff in the county in which the corporation has its principal office in California or in the county in which the election was held or the appointment was made.
Upon the filing of the complaint, and before any further proceedings are had, the court shall enter an order fixing a date for the hearing, which shall be within five days unless for good cause shown a later date is fixed, and requiring notice of the date for the hearing and a copy of the complaint to be served upon the corporation and upon the person whose purported election or appointment is questioned and upon any person (other than the plaintiff) whom the plaintiff alleges to have been elected or appointed, in the manner in which a summons is required to be served, or, if the court so directs, by registered mail; and the court may make such further requirements as to notice as appear to be proper under the circumstances.
The court may determine the person entitled to the office of director or may order a new election to be held or appointment to be made, may determine the validity, effectiveness and construction of voting agreements and voting trusts, the validity of the issuance of shares and the right of persons to vote and may direct such other relief as may be just and proper.
This section applies to a corporation with outstanding shares held of record by 100 or more persons (determined as provided in Section 605) that files an amendment of articles or certificate of determination containing a “supermajority vote” provision on or after January 1, 1989. This section shall not apply to a corporation that files an amendment of articles or certificate of determination on or after January 1, 1994, if, at the time of filing, the corporation has (1) outstanding shares of more than one class or series of stock, (2) no class of equity securities registered under Section 12(b) or 12(g) of the Securities Exchange Act of 1934, and (3) outstanding shares held of record by fewer than 300 persons determined as provided by Section 605.
A “supermajority vote” is a requirement set forth in the articles or in a certificate of determination authorized under any provision of this division that specified corporate action or actions be approved by a larger proportion of the outstanding shares than a majority, or by a larger proportion of the outstanding shares of a class or series than a majority, but no supermajority vote that is subject to this section shall require a vote in excess of 6623 percent of the outstanding shares or 6623 percent of the outstanding shares of any class or series of those shares.
An amendment of the articles or a certificate of determination that includes a supermajority vote requirement shall be approved by at least as large a proportion of the outstanding shares (Section 152) as is required pursuant to that amendment or certificate of determination for the approval of the specified corporate action or actions.
The amendments made to this section by the act amending this section in the 2001–02 Regular Session shall not affect the rights of minority shareholders existing under law.
The Legislature finds and declares that:
Many of the residents of this state are the legal and beneficial owners or otherwise the ultimate beneficiaries of shares of stock of domestic and foreign corporations, title to which may be held by a variety of intermediate owners as defined in subdivision (b). The informed and active involvement of such beneficial owners and beneficiaries in holding legal owners and, through them, management, accountable in their exercise of corporate power is essential to the interest of those beneficiaries and beneficial owners and to the economy and well-being of this state.
The purpose of this section is to serve the public interest by ensuring that voting records are maintained and disclosed as provided in this section. In the event that by statute or regulation pursuant to the federal Employee Retirement Income Security Act of 1974 (29 U.S.C. Sec. 1001 et seq.), there are imposed upon investment managers as defined in Sec. 2(38) thereof, duties substantially the same as those set forth in this section, compliance with those statutory or regulatory requirements by persons subject to this section shall be deemed to fulfill the obligations contained in this section.
This section shall be construed liberally to achieve that purpose.
For purposes of this section, a person on whose behalf shares are voted includes, but is not limited to:
A participant or beneficiary of an employee benefit plan with regard to shares held for the benefit of the participant or beneficiary.
A shareholder, beneficiary, or contract owner of any entity (or of any portfolio of any entity) as defined in Section 3(a) of the federal Investment Company Act of 1940 (15 U.S.C. Sec. 80a-1 et seq.), as amended, to the extent the entity (or portfolio) holds the shares for which the record is requested.
For the purposes of this section, a person on whose behalf shares are voted does not include:
A beneficiary, participant, contract owner, or shareholder whose interest is funded through the general assets of a life insurance company authorized to conduct business in this state.
Every person possessing the power to vote shares of stock on behalf of another shall maintain a record of the manner in which the shares were voted. The record shall be maintained for a period of 12 consecutive months from the effective date of the vote.
Upon a reasonable written request, the person possessing the power to vote shares of stock on behalf of another, or a designated agent, shall disclose the voting record with respect to any matter involving a specific security or securities in accordance with the following procedures:
Except as set forth in paragraph (2), disclosure shall be made to the person making the request. The person making the disclosure may require identification sufficient to identify the person making the request as a person on whose behalf the shares were voted. A request for identification, if made, shall be reasonable, shall be made promptly, and may include a request for the person’s social security number.
If the person possessing the power to vote shares on behalf of another holds that power pursuant to an agreement entered into with a party other than the person making the request for disclosure, the person maintaining and disclosing the record pursuant to this section may, instead, make the requested disclosure to that party. Disclosure to that party shall be deemed compliance with the disclosure requirement of this section. If disclosure is made to that party and not to the person making the request, subdivision (i) shall not apply. However, nothing herein shall prohibit that party and the person possessing the power to vote on shares from entering into an agreement between themselves for the payment or assessment of a reasonable charge to defray expenses of disclosing the record.
Where the entity subject to the requirements of this section is organized as a unit investment trust as defined in Section 4(2) of the federal Investment Company Act of 1940 (15 U.S.C. Sec. 80a-1 et seq.), the open-ended investment companies underlying the unit investment trust shall promptly make available their proxy voting records to the unit investment trust upon evidence of a bona fide request for voting record information pursuant to subdivision (e).
Signing a proxy on another’s behalf and forwarding it for disposition or receiving voting instructions does not constitute the power to vote. A person forwarding proxies or receiving voting instructions shall disclose the identity of the person having the power to vote shares upon reasonable written request by a person entitled to request a voting record under subdivision (c).
For purposes of this section, if one or more persons has the power to vote shares on behalf of another, unless a governing instrument provides otherwise, the person or persons may designate an agent who shall maintain and disclose the record in accordance with subdivisions (b) and (c).
Except as provided in paragraph (2) of subdivision (e), or as otherwise provided by law or a governing instrument, a person maintaining and disclosing a record pursuant to this section may assess a reasonable charge to the requesting person in order to defray expenses of disclosing the record in accordance with subdivision (e). Disclosure shall be made within a reasonable period after payment is received.
Upon the petition of any person who successfully brings an action pursuant to or to enforce this section, the court may award costs and reasonable attorney’s fees if the court finds that the defendant willfully violated this section.
The obligation to maintain and disclose a voting record in accordance with subdivisions (b) and (c) shall commence January 1, 1990.
CHAPTER 8. Shareholder Derivative Actions [800. - 800.]
As used in this section, “corporation” includes an unincorporated association; “board” includes the managing body of an unincorporated association; “shareholder” includes a member of an unincorporated association; and “shares” includes memberships in an unincorporated association.
No action may be instituted or maintained in right of any domestic or foreign corporation by any holder of shares or of voting trust certificates of the corporation unless both of the following conditions exist:
The plaintiff alleges in the complaint that plaintiff was a shareholder, of record or beneficially, or the holder of voting trust certificates at the time of the transaction or any part thereof of which plaintiff complains or that plaintiff’s shares or voting trust certificates thereafter devolved upon plaintiff by operation of law from a holder who was a holder at the time of the transaction or any part thereof complained of; provided, that any shareholder who does not meet these requirements may nevertheless be allowed in the discretion of the court to maintain the action on a preliminary showing to and determination by the court, by motion and after a hearing, at which the court shall consider such evidence, by affidavit or testimony, as it deems material, that (i) there is a strong prima facie case in favor of the claim asserted on behalf of the corporation, (ii) no other similar action has been or is likely to be instituted, (iii) the plaintiff acquired the shares before there was disclosure to the public or to the plaintiff of the wrongdoing of which plaintiff complains, (iv) unless the action can be maintained the defendant may retain a gain derived from defendant’s willful breach of a fiduciary duty, and (v) the requested relief will not result in unjust enrichment of the corporation or any shareholder of the corporation; and
The plaintiff alleges in the complaint with particularity plaintiff’s efforts to secure from the board such action as plaintiff desires, or the reasons for not making such effort, and alleges further that plaintiff has either informed the corporation or the board in writing of the ultimate facts of each cause of action against each defendant or delivered to the corporation or the board a true copy of the complaint which plaintiff proposes to file.
In any action referred to in subdivision (b), at any time within 30 days after service of summons upon the corporation or upon any defendant who is an officer or director of the corporation, or held such office at the time of the acts complained of, the corporation or the defendant may move the court for an order, upon notice and hearing, requiring the plaintiff to furnish a bond as hereinafter provided. The motion shall be based upon one or both of the following grounds:
At the hearing upon any motion pursuant to subdivision (c), the court shall consider such evidence, written or oral, by witnesses or affidavit, as may be material (1) to the ground or grounds upon which the motion is based, or (2) to a determination of the probable reasonable expenses, including attorneys’ fees, of the corporation and the moving party which will be incurred in the defense of the action. If the court determines, after hearing the evidence adduced by the parties, that the moving party has established a probability in support of any of the grounds upon which the motion is based, the court shall fix the amount of the bond, not to exceed fifty thousand dollars ($50,000), to be furnished by the plaintiff for reasonable expenses, including attorneys’ fees, which may be incurred by the moving party and the corporation in connection with the action, including expenses for which the corporation may become liable pursuant to Section 317. A ruling by the court on the motion shall not be a determination of any issue in the action or of the merits thereof. If the court, upon the motion, makes a determination that a bond shall be furnished by the plaintiff as to any one or more defendants, the action shall be dismissed as to the defendant or defendants, unless the bond required by the court has been furnished within such reasonable time as may be fixed by the court.
If the plaintiff shall, either before or after a motion is made pursuant to subdivision (c), or any order or determination pursuant to the motion, furnish a bond in the aggregate amount of fifty thousand dollars ($50,000) to secure the reasonable expenses of the parties entitled to make the motion, the plaintiff has complied with the requirements of this section and with any order for a bond theretofore made, and any such motion then pending shall be dismissed and no further or additional bond shall be required.
If a motion is filed pursuant to subdivision (c), no pleadings need be filed by the corporation or any other defendant and the prosecution of the action shall be stayed until 10 days after the motion has been disposed of.
CHAPTER 9. Amendment of Articles [900. - 911.]
By complying with the provisions of this chapter, a corporation may amend its articles from time to time, in any and as many respects as may be desired, so long as its articles as amended contain only such provisions as it would be lawful to insert in original articles filed at the time of the filing of the amendment and, if a change in shares or the rights of shareholders or an exchange, reclassification or cancellation of shares or rights of shareholders is to be made, such provisions as may be necessary to effect such change, exchange, reclassification or cancellation. It is the intent of the Legislature in adopting this section to exercise to the fullest extent the reserve power of the state over corporations and to authorize any amendment of the articles covered by the preceding sentence regardless of whether any provision contained in the amendment was permissible at the time of the original incorporation of the corporation.
A corporation shall not amend its articles to add any statement or to alter any statement that may appear in the original articles of the initial street address and initial mailing address of the corporation, the names and addresses of the first directors, or the name and address of the initial agent, except to correct an error in the statement or to delete the information after the corporation has filed a statement under Section 1502.
Before any shares have been issued, any amendment of the articles may be adopted by a writing signed by a majority of the incorporators, if directors were not named in the original articles and have not been elected, or, if directors were named in the original articles or have been elected, by a majority of the directors.
After any shares have been issued, amendments may be adopted if approved by the board and approved by the outstanding shares (Section 152), either before or after the approval by the board.
Notwithstanding subdivision (a), an amendment extending the corporate existence or making the corporate existence perpetual may be adopted by a corporation organized prior to August 14, 1929, with approval by the board alone.
Notwithstanding subdivision (a), unless the corporation has more than one class of shares outstanding, an amendment effecting only a stock split (including an increase in the authorized number of shares in proportion thereto) may be adopted with approval by the board alone.
Notwithstanding subdivision (a), an amendment deleting the initial street address and initial mailing address of the corporation, the names and addresses of the first directors, or the name and address of the initial agent may be adopted with approval by the board alone.
Whenever the articles require for corporate action the vote of a larger proportion or of all of the shares of any class or series, or of a larger proportion or of all of the directors, than is otherwise required by this division, the provision in the articles requiring such greater vote shall not be altered, amended or repealed except by such greater vote unless otherwise provided in the articles.
Notwithstanding subdivision (a), any amendment reducing the vote required for an amendment pursuant to subdivision (c) of Section 158 may not be adopted unless approved by the affirmative vote of at least two-thirds of each class of outstanding shares or such other vote as may then be specified by the articles of the corporation.
A proposed amendment must be approved by the outstanding shares (Section 152) of a class, whether or not such class is entitled to vote thereon by the provisions of the articles, if the amendment would:
Effect an exchange, reclassification, or cancellation of all or part of the shares of such class, including a reverse stock split but excluding a stock split.
Effect an exchange, or create a right of exchange, of all or part of the shares of another class into the shares of such class.
Change the rights, preferences, privileges or restrictions of the shares of such class.
Create a new class of shares having rights, preferences or privileges prior to the shares of such class, or increase the rights, preferences or privileges or the number of authorized shares of any class having rights, preferences or privileges prior to the shares of such class.
In the case of preferred shares, divide the shares of any class into series having different rights, preferences, privileges or restrictions or authorize the board to do so.
Cancel or otherwise affect dividends on the shares of such class which have accrued but have not been paid.
Different series of the same class shall not constitute different classes for the purpose of voting by classes except when a series is adversely affected by an amendment in a different manner than other shares of the same class.
In addition to approval by a class as provided in subdivision (a), a proposed amendment must also be approved by the outstanding voting shares (Section 152).
Except as provided in subdivision (b), if any amendment of the articles would make shares assessable or would authorize remedy by action for the collection of an assessment on fully paid shares, it shall be approved by all of the outstanding shares affected regardless of limitations or restrictions on the voting rights thereof.
If a corporation is a mutual water company within the meaning of Section 2705 of the Public Utilities Code, an amendment of the articles to make the shares assessable or to amend prior article provisions authorizing assessment of shares shall be approved by the holders of at least two-thirds of the outstanding shares of any class affected by the amendment regardless of limitations or restrictions on the voting rights thereof. However, if the amendment would authorize remedy by action for the collection of an assessment on fully paid shares, the amendment shall be approved pursuant to subdivision (a).
In the case of amendments adopted after the corporation has issued any shares, the corporation shall file a certificate of amendment, which shall consist of an officers’ certificate stating:
The wording of the amendment or amended articles in accordance with Section 907;
That the amendment has been approved by the board;
If the amendment is one for which the approval of the outstanding shares (Section 152) is required, that the amendment was approved by the required vote of shareholders in accordance with Section 902, 903 or 904; the total number of outstanding shares of each class entitled to vote with respect to the amendment; and that the number of shares of each class voting in favor of the amendment equaled or exceeded the vote required, specifying the percentage vote required of each class entitled to vote; and
If the amendment is one which may be adopted with approval by the board alone, a statement of the facts entitling the board alone to adopt the amendment.
In the event of an amendment of the articles pursuant to a merger, the filing of the officers’ certificate and agreement pursuant to Section 1103 or a certificate of ownership pursuant to subdivision (d) of Section 1110 shall be in lieu of any filing required under this chapter.
In the case of amendments adopted by the incorporators or the board under Section 901, the corporation shall file a certificate of amendment signed and verified by a majority of the incorporators or of the board, as the case may be, which shall state that the signers thereof constitute at least a majority of the incorporators or of the board, that the corporation has issued no shares and that they adopt the amendment or amendments therein set forth. In the case of amendments adopted by the incorporators, the certificate shall also state that directors were not named in the original articles and have not been elected.
In the case of amendments adopted by the board under Section 901, the corporation may file a certificate of amendment pursuant to Section 905 in lieu of a certificate of amendment pursuant to this section.
The certificate of amendment shall establish the wording of the amendment or amended articles by one or more of the following means:
By stating that the articles shall be amended to read as therein set forth in full.
By stating that any provision of the articles, which shall be identified by the numerical or other designation given it in the articles or by stating the wording thereof, shall be stricken from the articles or shall be amended to read as set forth in the certificate.
By stating that the provisions set forth therein shall be added to the articles.
If the purpose of the amendment is to effect a stock split or reverse stock split or to reclassify, cancel, exchange, or otherwise change outstanding shares, the amended articles shall state the effect thereof on outstanding shares.
In the event of an amendment to change the statement of authorized shares from a single class of shares to two classes, the shares outstanding immediately prior to the amendment are automatically considered to be the same number of shares of the common stock class. If the designation of only one of the two classes includes “common,” that class is the common stock class. If the designation of both classes or of neither class includes “common” but one of the two classes has limited or no voting rights, the class whose voting rights are not limited is the common stock class for the purpose of this subdivision. This subdivision has no application if the amendment of articles includes a statement of the effect of the amendment on outstanding shares pursuant to subdivision (b).
An amendment which adds or eliminates a stated par value or changes the stated par value and which does not also state the effect of the amendment on outstanding shares is not thereby subject to subdivision (b).
Upon the filing of the certificate of amendment, the articles shall be amended in accordance with the certificate and any stock split, reverse stock split, reclassification, cancellation, exchange or other change in shares shall be effected, and a copy of the certificate, certified by the Secretary of State, is prima facie evidence of the performance of the conditions necessary to the adoption of the amendment.
A corporation formed for a limited period may at any time subsequent to the expiration of the term of its corporate existence, if it has continuously acted as a corporation and done business as such, extend the term of its existence by an amendment to its articles removing any provision limiting the term of its existence and providing for perpetual existence. If the filing of the certificate of amendment providing for perpetual existence would be prohibited if it were original articles by the provisions of Section 201, the Secretary of State shall not file such certificate unless by the same or a concurrently filed certificate of amendment the articles of such corporation are amended to adopt a new available name. For the purpose of the adoption of any such amendment, persons who have been functioning as directors of such corporation shall be considered to have been validly elected even though their election may have occurred after the expiration of the original term of the corporate existence. The certificate of amendment shall set forth that the corporation continuously acted as a corporation and did business as such from the expiration of its term of corporate existence to the date of the amendment.
A corporation may restate in a single certificate the entire text of its articles as amended by filing an officers’ certificate or, in circumstances where incorporators or the board may amend a corporation’s articles pursuant to Sections 901 and 906, a certificate signed and verified by a majority of the incorporators or the board, as applicable, entitled Restated Articles of Incorporation, which shall set forth the articles as amended to the date of the filing of the certificate, except that the signatures and acknowledgments of the articles by the incorporators and any statements regarding the effect of any prior amendment upon outstanding shares and any provisions of agreements of merger (other than amendments to the articles of the surviving corporation) and the initial street address and initial mailing address of the corporation and the names and addresses of the first directors and of the initial agent for service of process shall be omitted (except that the initial street address and initial mailing address of the corporation, the names and addresses of the initial agent for service of process and, if previously set forth in the articles, the initial directors, shall not be omitted before the time that the corporation has filed a statement under Section 1502). Such omissions are not alterations or amendments of the articles. The certificate may also itself alter or amend the articles in any respect, in which case the certificate must comply with Section 905 or 906, as the case may be, and Section 907.
If the certificate does not itself alter or amend the articles in any respect, it shall be approved by the board or, before the issuance of any shares and the naming and election of directors, by a majority of the incorporators, and shall be subject to the provisions of this chapter relating to an amendment of the articles not requiring any approval of the outstanding shares (Section 152). If the certificate does itself alter or amend the articles, it shall be subject to the provisions of this chapter relating to the amendment or amendments so made and, except for certificates approved by a majority of the incorporators, the certificate shall also state that the board has approved the restated articles.
Certificates of determination are a part of the articles within the meaning of this section. The provisions of such a certificate shall be given an article designation in the restated articles.
Restated articles of incorporation filed pursuant to this section shall supersede for all purposes the original articles and all amendments and certificates of determination filed prior thereto.
A corporation may, by amendment of its articles pursuant to this section, change its status to that of a social purpose corporation, nonprofit public benefit corporation, nonprofit mutual benefit corporation, nonprofit religious corporation, or cooperative corporation.
The amendment of the articles to change status to a nonprofit corporation shall revise the statement of purpose, delete the authorization for shares and any other provisions relating to authorized or issued shares, make such other changes as may be necessary or desired, and, if any shares have been issued, provide either for the cancellation of those shares or for the conversion of those shares to memberships of the nonprofit corporation. The amendment of the articles to change status to a cooperative corporation shall revise the statement of purpose, make such other changes as may be necessary or desired, and, if any shares have been issued, provide for the cancellation of those shares or for the conversion of those shares to memberships of the cooperative corporation, if necessary.
If shares have been issued, an amendment to change status to a nonprofit corporation shall be approved by all of the outstanding shares of all classes regardless of limitations or restrictions on the voting rights thereof and an amendment to change status to a cooperative corporation shall be approved by the outstanding shares (Section 152) of each class regardless of limitations or restrictions on the voting rights thereof.
In the case of a change of status to a social purpose corporation:
The corporation shall modify the name of the corporation, revise the statement of purpose, include the statement required by subparagraph (B) of paragraph (3) of subdivision (b) of Section 2602, and make such other conforming changes as may be necessary or desired.
The amendment shall be approved by the affirmative vote of at least two-thirds of each class, or a greater vote if required in the articles, of outstanding shares (Section 152) of that changing corporation.
If an amendment pursuant to this section is included in a merger agreement, the provisions of this section apply, except that any provision for cancellation or conversion of shares shall be in the merger agreement rather than in the amendment of the articles.
Notwithstanding subdivision (c), if a corporation is a mutual water company within the meaning of Section 2705 of the Public Utilities Code and under the terms of the status change each outstanding share is converted to a membership of a nonprofit mutual benefit corporation, an amendment to change status to a nonprofit mutual benefit corporation shall be approved by the outstanding shares (Section 152) of each class regardless of limitations or restrictions on the voting rights thereof.
CHAPTER 10. Sales of Assets [1000. - 1002.]
Any mortgage, deed of trust, pledge or other hypothecation of all or any part of the corporation’s property, real or personal, for the purpose of securing the payment or performance of any contract or obligation may be approved by the board. Unless the articles otherwise provide, no approval of shareholders (Section 153) or of the outstanding shares (Section 152) shall be necessary for such action.
A corporation may sell, lease, convey, exchange, transfer, or otherwise dispose of all or substantially all of its assets when the principal terms are approved by the board, and, unless the transaction is in the usual and regular course of its business, approved by the outstanding shares (Section 152), either before or after approval by the board and before or after the transaction. A transaction constituting a reorganization (Section 181) is subject to the provisions of Chapter 12 (commencing with Section 1200) and not this section (other than subdivision (d)). A transaction constituting a conversion (Section 161.9) is subject to the provisions of Chapter 11.5 (commencing with Section 1150) and not this section.
Notwithstanding approval of the outstanding shares (Section 152), the board may abandon the proposed transaction without further action by the shareholders, subject to the contractual rights, if any, of third parties.
The sale, lease, conveyance, exchange, transfer, or other disposition may be made upon those terms and conditions and for that consideration as the board may deem in the best interests of the corporation. The consideration may be money, securities, or other property.
If the acquiring party in a transaction pursuant to subdivision (a) of this section or subdivision (g) of Section 2001 is in control of or under common control with the disposing corporation, the principal terms of the sale must be approved by at least 90 percent of the voting power of the disposing corporation unless the disposition is to a domestic or foreign corporation or other business entity in consideration of the nonredeemable common shares or nonredeemable equity securities of the acquiring party or its parent.
Subdivision (d) does not apply to any transaction if the Commissioner of Financial Protection and Innovation, the Insurance Commissioner, or the Public Utilities Commission has approved the terms and conditions of the transaction and the fairness of those terms and conditions pursuant to Section 25142 of this code, or Section 1209, 5750, or 5802 of the Financial Code, Section 838.5 of the Insurance Code, or Section 822 of the Public Utilities Code.
Any deed or instrument conveying or otherwise transferring any assets of a corporation may have annexed to it the certificate of the secretary or an assistant secretary of the corporation, setting forth that the transaction has been validly approved by the board and (a) stating that the property described in said deed or instrument is less than substantially all of the assets of the corporation or that the transfer is in the usual and regular course of the business of the corporation, if such be the case, or (b) if such property constitutes all or substantially all of the assets of the corporation and the transfer is not in the usual and regular course of the business of the corporation, stating the fact of approval thereof by the outstanding shares (Section 152) pursuant to this chapter or Chapter 12, as the case may be, or that such approval is not required by Chapter 12. Such certificate is prima facie evidence of the existence of the facts authorizing such conveyance or other transfer of the assets and conclusive evidence in favor of any innocent purchaser or encumbrancer for value.
CHAPTER 11. Merger [1100. - 1113.]
Any two or more corporations may be merged into one of those corporations. A corporation may merge with one or more domestic corporations (Section 167), social purpose corporations (Section 171.08), foreign corporations (Section 171), or other business entities (Section 174.5) pursuant to this chapter. Mergers in which a foreign corporation but no other business entity is a constituent party are governed by Section 1108, mergers in which a social purpose corporation but no other business entity is a constituent party are governed by Section 1112.5, and mergers in which an other business entity is a constituent party are governed by Section 1113.
The board of each corporation that desires to merge shall approve an agreement of merger. The constituent corporations shall be parties to the agreement of merger and other persons, including a parent party (Section 1200), may be parties to the agreement of merger. The agreement shall state all of the following:
The terms and conditions of the merger.
The amendments, subject to Sections 900 and 907, to the articles of the surviving corporation to be effected by the merger, if any. If any amendment changes the name of the surviving corporation the new name may be the same as or similar to the name of a disappearing domestic or foreign corporation, subject to subdivision (b) of Section 201.
The name and place of incorporation of each constituent corporation and which of the constituent corporations is the surviving corporation.
The manner of converting the shares of each of the constituent corporations into shares or other securities of the surviving corporation and, if any shares of any of the constituent corporations are not to be converted solely into shares or other securities of the surviving corporation, the cash, rights, securities, or other property which the holders of those shares are to receive in exchange for the shares, which cash, rights, securities, or other property may be in addition to or in lieu of shares or other securities of the surviving corporation, or that the shares are canceled without consideration.
Other details or provisions as are desired, if any, including, without limitation, a provision for the payment of cash in lieu of fractional shares or for any other arrangement with respect thereto consistent with the provisions of Section 407.
Each share of the same class or series of any constituent corporation (other than the cancellation of shares held by a constituent corporation or its parent or a wholly owned subsidiary of either in another constituent corporation) shall, unless all shareholders of the class or series consent and except as provided in Section 407, be treated equally with respect to any distribution of cash, rights, securities, or other property. Notwithstanding paragraph (4) of subdivision (a), except in a short-form merger, and in the merger of a corporation into its subsidiary in which it owns at least 90 percent of the outstanding shares of each class, the nonredeemable common shares or nonredeemable equity securities of a constituent corporation may be converted only into nonredeemable common shares of the surviving party or a parent party if a constituent corporation or its parent owns, directly or indirectly, before the merger shares of another constituent corporation representing more than 50 percent of the voting power of the other constituent corporation before the merger, unless all of the shareholders of the class consent and except as provided in Section 407.
Subdivision (c) of Section 1113 and subdivision (b) of Section 1101 do not apply to any transaction if the Commissioner of Financial Protection and Innovation, the Insurance Commissioner, or the Public Utilities Commission has approved the terms and conditions of the transaction and the fairness of those terms and conditions pursuant to Section 25142 or Section 1209, 5750, or 5802 of the Financial Code, Section 838.5 of the Insurance Code, or Section 822 of the Public Utilities Code.
Each corporation shall sign the agreement by its chairperson of the board, president or a vice president and secretary or an assistant secretary acting on behalf of their respective corporations.
After approval of a merger by the board and any approval of the outstanding shares (Section 152) required by Chapter 12 (commencing with Section 1200), the surviving corporation shall file a copy of the agreement of merger with an officers’ certificate of each constituent corporation attached stating the total number of outstanding shares of each class entitled to vote on the merger, that the principal terms of the agreement in the form attached were approved by that corporation by a vote of a number of shares of each class which equaled or exceeded the vote required, specifying each class entitled to vote and the percentage vote required of each class, or that the merger agreement was entitled to be and was approved by the board alone under the provisions of Section 1201. If equity securities of a parent of a constituent corporation are to be issued in the merger, the officers’ certificate of that constituent corporation shall state either that no vote of the shareholders of the parent was required or that the required vote was obtained. The merger and any amendment of the articles of the surviving corporation contained in the merger agreement shall thereupon be effective (subject to subdivision (c) of Section 110 and subject to the provisions of Section 1108) and the several parties thereto shall be one corporation. The Secretary of State may certify a copy of the merger agreement separate from the officers’ certificates attached thereto.
Any amendment to the agreement may be adopted and the agreement so amended may be approved by the board and, if it changes any of the principal terms of the agreement, by the outstanding shares (Section 152) (if required by Chapter 12) of any constituent corporation in the same manner as the original agreement. If the agreement so amended is approved by the board and the outstanding shares (if required) of each of the corporations, the agreement so amended shall then constitute the agreement of merger.
The board may, in its discretion, abandon a merger, subject to the contractual rights, if any, of third parties, including other constituent corporations, without further approval by the outstanding shares (Section 152), at any time before the merger is effective.
A copy of an agreement of merger certified on or after the effective date by an official having custody thereof has the same force in evidence as the original and, except as against the state, is conclusive evidence of the performance of all conditions precedent to the merger, the existence on the effective date of the surviving corporation and the performance of the conditions necessary to the adoption of any amendment to the articles contained in the agreement of merger.
Upon merger pursuant to this chapter the separate existence of the disappearing corporations ceases and the surviving corporation shall succeed, without other transfer, to all the rights and property of each of the disappearing corporations and shall be subject to all the debts and liabilities of each in the same manner as if the surviving corporation had itself incurred them.
For purposes of subdivision (a), a surviving corporation may succeed without the payment of any local agency transfer fee to all licenses, permits, registrations, and other privileges granted by any local agency provided the merger does not result in a change of ownership. Examples of mergers that do not result in a change of ownership are mergers between any of the following: (1) a corporation and its wholly owned subsidiary; (2) a corporation and the wholly owned subsidiary of that corporation’s wholly owned subsidiary; or (3) two wholly owned subsidiaries of the same parent corporation. The surviving corporation shall be subject to the same duties and obligations in connection with the license, permit, registration, or other privileges acquired from the disappearing corporations.
All rights of creditors and all liens upon the property of each of the constituent corporations shall be preserved unimpaired, provided that any liens upon property of a disappearing corporation shall be limited to the property affected thereby immediately prior to the time the merger is effective.
Any action or proceeding pending by or against any disappearing corporation may be prosecuted to judgment, which shall bind the surviving corporation, or the surviving corporation may be proceeded against or substituted in its place.
Nothing in subdivision (b) shall limit or restrict a tax assessor from reassessing real property upon transfer of title. Privileges granted by any local agency do not include property tax assessments.
Nothing in subdivision (b) shall limit or restrict a local agency from reevaluating privileges received by a successor corporation from disappearing corporations if the local agency determines in its sole discretion that the reevaluation is necessary for public health, safety, or welfare purposes.
For purposes of this section, “local agency” means a county, city, city and county, political subdivision, district, or municipal corporation.
Upon merger pursuant to this chapter, a surviving domestic or foreign corporation or other business entity shall be deemed to have assumed the liability of each disappearing domestic or foreign corporation or other business entity that is taxed under Part 10 (commencing with Section 17001) of, or under Part 11 (commencing with Section 23001) of, Division 2 of the Revenue and Taxation Code for the following:
To prepare and file, or to cause to be prepared and filed, tax and information returns otherwise required of that disappearing entity as specified in Chapter 2 (commencing with Section 18501) of Part 10.2 of Division 2 of the Revenue and Taxation Code.
To pay any tax liability determined to be due.
If the surviving entity is a domestic limited liability company, domestic corporation, or registered limited liability partnership or a foreign limited liability company, foreign limited liability partnership, or foreign corporation that is registered or qualified to do business in California, the Secretary of State shall notify the Franchise Tax Board of the merger.
The merger of any number of domestic corporations with any number of foreign corporations may be effected if the foreign corporations are authorized by the laws under which they are formed to effect the merger. The surviving corporation may be any one of the constituent corporations and shall continue to exist under the laws of the state or place of its incorporation.
If the surviving corporation is a domestic corporation, the merger proceedings with respect to that corporation and any domestic disappearing corporation shall conform to the provisions of this chapter governing the merger of domestic corporations, but if the surviving corporation is a foreign corporation, then, subject to the requirements of subdivision (d) and of Section 407 and Chapters 12 (commencing with Section 1200) and 13 (commencing with Section 1300) (with respect to any domestic constituent corporations), the merger proceedings may be in accordance with the laws of the state or place of incorporation of the surviving corporation.
If the surviving corporation is a domestic corporation, the agreement and the officers’ certificate of each domestic or foreign constituent corporation shall be filed as provided in Section 1103, or the certificate of ownership shall be filed as provided in Section 1110, and thereupon, subject to subdivision (c) of Section 110, the merger shall be effective as to each domestic constituent corporation; and each foreign disappearing corporation that is qualified for the transaction of intrastate business shall by virtue of the filing, subject to subdivision (c) of Section 110, automatically surrender its right to transact intrastate business.
If the surviving corporation is a foreign corporation, the merger shall become effective in accordance with the law of the jurisdiction in which it is organized, but, except as provided in subdivision (e), the merger shall be effective as to any domestic disappearing corporation as of the time of effectiveness in the foreign jurisdiction upon the filing in this state as required by this subdivision. There shall be filed as to the domestic disappearing corporation or corporations the documents described in any one of the following paragraphs:
A copy of the agreement, certificate or other document filed by the surviving foreign corporation in the state or place of its incorporation for the purpose of effecting the merger, which copy shall be certified by the public officer having official custody of the original.
An executed counterpart of the agreement, certificate or other document filed by the surviving foreign corporation in the state or place of its incorporation for the purpose of effecting the merger.
A copy of the agreement of merger with an officers’ certificate of the surviving foreign corporation and of each constituent domestic corporation attached, which officers’ certificates shall conform to the requirements of Section 1103.
A certificate of ownership pursuant to Section 1110.
If the date of the filing in this state pursuant to subdivision (d) is more than six months after the time of the effectiveness in the foreign jurisdiction, or if the powers of the domestic corporation are suspended at the time of effectiveness in the foreign jurisdiction, the merger shall be effective as to the domestic disappearing corporation or corporations as of the date of filing in this state. Each foreign disappearing corporation that is qualified for the transaction of intrastate business shall, by virtue of the filing pursuant to subdivision (d), automatically surrender its right to transact intrastate business as of the date of filing in this state regardless of the time of effectiveness as to a domestic disappearing corporation.
The provisions of the last two sentences of Section 1101 and Chapter 12 (commencing with Section 1200) and Chapter 13 (commencing with Section 1300) apply to the rights of the shareholders of any of the constituent corporations that are domestic corporations and of any domestic corporation that is a parent party of any foreign constituent corporation.
Whenever a domestic or foreign corporation or domestic or foreign other business entity having any real property in this state merges or consolidates with another domestic or foreign corporation or other business entity pursuant to the laws of this state or of the state or place in which any constituent party to the merger was incorporated or organized, and the laws of the state or place of incorporation or organization (including this state) of any disappearing party to the merger provide substantially that the making and filing of the agreement of merger or consolidation or certificate of ownership or certificate of merger vests in the surviving or consolidated party to the merger all the real property of any disappearing party to the merger, the filing for record in the office of the county recorder of any county in this state in which any of the real property of that disappearing party to the merger is located of a copy of the agreement of merger or consolidation or certificate of ownership or certificate of merger, certified by the Secretary of State or an authorized public official of the state or place pursuant to the laws of which the merger or consolidation is effected, shall evidence record ownership in the surviving or consolidated party to the merger, of all interest of the disappearing party to the merger in and to the real property located in that county.
If a domestic corporation owns all the outstanding shares, or owns less than all the outstanding shares but at least 90 percent of the outstanding shares of each class, of a corporation or corporations, domestic or foreign, the merger of the subsidiary corporation or corporations into the parent corporation or the merger into the subsidiary corporation of the parent corporation and any other subsidiary corporation or corporations, may be effected by a resolution or plan of merger adopted and approved by the board of the parent corporation and the filing of a certificate of ownership as provided in subdivision (e). The resolution or plan of merger shall provide for the merger and shall provide that the surviving corporation assumes all the liabilities of each disappearing corporation and shall include any other provisions required by this section.
If the parent corporation owns less than all the outstanding shares but at least 90 percent of the outstanding shares of each class of the subsidiary corporation that is a party to the merger, the resolution or plan of merger also shall set forth the securities, cash, property, or rights to be issued, paid, delivered, or granted upon surrender of each outstanding share of the subsidiary corporation not owned by the parent corporation and the entire resolution or plan of merger as well as the consideration to be received for each share of the subsidiary corporation not owned by the parent corporation, shall be approved by the board of that subsidiary corporation.
If the parent corporation is to be merged into one of its subsidiary corporations, the resolution or plan of merger also shall provide for the pro rata conversion of the outstanding shares of the parent corporation into shares of the surviving subsidiary corporation. In this case, the entire resolution or plan of merger shall be approved by the board of the surviving subsidiary corporation and, if the merger, but for the operation of this section, would be a merger reorganization (Section 181) the principal terms of which would be required to be approved by the outstanding shares (Section 152) of any class of the parent corporation pursuant to subdivision (d) of Section 1201, the principal terms of the resolution or plan of merger shall be approved by the outstanding shares (Section 152) of that same class of the parent corporation.
In any merger pursuant to this section, the resolution or plan of merger may provide for the amendment of the articles of the surviving corporation to change its name, subject to Section 201, regardless of whether the name so adopted is the same as or similar to that of one of the disappearing corporations. The provision shall establish the wording of the amendment pursuant to paragraph (2) of subdivision (a) of Section 907 and the resolution or plan of merger shall not provide for the amendment of the articles of the surviving corporation other than to change its name.
After the required approval or approvals of the resolution or plan of merger, a certificate of ownership consisting of an officers’ certificate of the parent corporation shall be filed, and a copy thereof for each domestic subsidiary corporation and qualified foreign disappearing subsidiary corporation which is a party to the merger shall also be filed. The certificate of ownership shall:
Identify the parent and subsidiary corporation or corporations.
Set forth the share ownership by the parent corporation of each subsidiary corporation as 100 percent of the outstanding shares or as at least 90 percent of the outstanding shares of each class, as the case may be.
Set forth the resolution or plan of merger.
Set forth approval of the resolution or plan of merger by the board of the parent corporation.
Set forth other approvals of the resolution or plan of merger as required under subdivision (b) or (c), if applicable.
Upon the filing of the certificate of ownership, the merger shall be effective and any amendment of the articles of the surviving corporation set forth in the certificate shall be effective.
A merger pursuant to this section may be effected if the parent corporation is a foreign corporation and if at least one subsidiary corporation is a domestic corporation but in such a case the certificate of ownership prepared as in subdivision (e) or the document required by subdivision (d) of Section 1108 shall be filed as to each domestic and qualified foreign subsidiary corporation, but no filing shall be made as to the foreign parent corporation. No merger into or with a foreign corporation may be effected as provided by this section unless the laws of the state or place of its incorporation permit that action.
In the event all of the outstanding shares of a subsidiary domestic corporation party to a merger effected under this section are not owned by the parent corporation immediately prior to the merger, the parent corporation shall, at least 20 days before the effective date of the merger, give notice to each shareholder of such subsidiary corporation that the merger will become effective on or after a specified date. The notice shall contain a copy of the resolution or plan of merger and the information required by subdivision (a) of Section 1301. The notice shall be sent by mail addressed to the shareholder at the address of the shareholder as it appears on the records of the corporation. The shareholder shall have the right to demand payment of cash for the shares of the shareholder pursuant to Chapter 13 (commencing with Section 1300).
If an agreement of merger is entered into between a parent corporation and one or more of its subsidiary corporations and the share ownership requirements of subdivision (a) are met, the agreement of merger may be filed as a plan of merger with a certificate of ownership in accordance with the requirements of this section, in which case Sections 1101, 1102, 1103, 1200, 1201, and 1202 shall not apply; or the agreement of merger may be filed pursuant to Section 1103, in which case this section shall not apply.
If any disappearing corporation in a merger is a close corporation and the surviving corporation is not a close corporation, the merger shall be approved by the affirmative vote of at least two-thirds of each class of the outstanding shares of such disappearing corporation; provided, however, that the articles may provide for a lesser vote, but not less than a majority of the outstanding shares of each class.
If a disappearing corporation in a merger is a corporation governed by this division and the surviving corporation is a nonprofit public benefit corporation, a nonprofit mutual benefit corporation, or a nonprofit religious corporation, the merger shall be approved by all of the outstanding shares of all classes of the disappearing corporation, regardless of limitations or restrictions on the voting rights thereof, notwithstanding any provision of Chapter 12 (commencing with Section 1200).
If a disappearing corporation in a merger is a corporation governed by this division and the surviving corporation is a social purpose corporation, both of the following shall apply:
The shareholders of the disappearing corporation shall have all of the rights under Chapter 13 (commencing with Section 1300) of the shareholders of a corporation involved in a reorganization requiring the approval of its outstanding shares (Section 152), and the disappearing corporation shall have all of the obligations under Chapter 13 (commencing with Section 1300) of a corporation involved in the reorganization.
Any one or more corporations may merge with one or more other business entities (Section 174.5). One or more domestic corporations (Section 167) not organized under this division and one or more foreign corporations (Section 171) may be parties to the merger. Notwithstanding the provisions of this section, the merger of any number of corporations with any number of other business entities may be effected only if:
In a merger in which a domestic corporation not organized under this division or a domestic other business entity is a party, it is authorized by the laws under which it is organized to effect the merger.
In a merger in which a foreign corporation is a party, it is authorized by the laws under which it is organized to effect the merger.
In a merger in which a foreign other business entity is a party, it is authorized by the laws under which it is organized to effect the merger.
Each corporation and each other party that desires to merge shall approve, and shall be a party to, an agreement of merger. Other persons, including a parent party (Section 1200), may be parties to the agreement of merger. The board of each corporation that desires to merge and, if required, the shareholders shall approve the agreement of merger. The agreement of merger shall be approved on behalf of each party by those persons required to approve the merger by the laws under which it is organized. The agreement of merger shall state:
The terms and conditions of the merger.
The name and place of incorporation or organization of each party to the merger and the identity of the surviving party.
The amendments, if any, subject to Sections 900 and 907, to the articles of the surviving corporation, if applicable, to be effected by the merger. If any amendment changes the name of the surviving corporation, if applicable, the new name may be, subject to subdivision (b) of Section 201, the same as or similar to the name of a disappearing party to the merger.
The manner of converting the shares of each constituent corporation into shares, interests, or other securities of the surviving party. If any shares of any constituent corporation are not to be converted solely into shares, interests, or other securities of the surviving party, the agreement of merger shall state (A) the cash, rights, securities, or other property which the holders of those shares are to receive in exchange for the shares, which cash, rights, securities, or other property may be in addition to or in lieu of shares, interests, or other securities of the surviving party, or (B) that the shares are canceled without consideration.
Any other details or provisions required by the laws under which any party to the merger is organized, including, if a public benefit corporation or a religious corporation is a party to the merger, Section 6019.1, or, if a mutual benefit corporation is a party to the merger, Section 8019.1, or, if a consumer cooperative corporation is a party to the merger, Section 12540.1, or if an unincorporated association is a party to the merger, Section 18370, or, if a domestic limited partnership is a party to the merger, Section 15911.12, or, if a domestic partnership is a party to the merger, Section 16911, or, if a domestic limited liability company is a party to the merger, Section 17710.12.
Any other details or provisions as are desired, including, without limitation, a provision for the payment of cash in lieu of fractional shares or for any other arrangement with respect thereto consistent with the provisions of Section 407.
Each share of the same class or series of any constituent corporation (other than the cancellation of shares held by a party to the merger or its parent, or a wholly owned subsidiary of either, in another constituent corporation) shall, unless all shareholders of the class or series consent and except as provided in Section 407, be treated equally with respect to any distribution of cash, rights, securities, or other property. Notwithstanding paragraph (4) of subdivision (b), the unredeemable common shares of a constituent corporation may be converted only into unredeemable common shares of a surviving corporation or a parent party (Section 1200) or unredeemable equity securities of a surviving party other than a corporation if another party to the merger or its parent owns, directly or indirectly, prior to the merger shares of that corporation representing more than 50 percent of the voting power of that corporation, unless all of the shareholders of the class consent and except as provided in Section 407.
Notwithstanding its prior approval, an agreement of merger may be amended prior to the filing of the agreement of merger or the certificate of merger, as is applicable, if the amendment is approved by the board of each constituent corporation and, if the amendment changes any of the principal terms of the agreement, by the outstanding shares (Section 152), if required by Chapter 12 (commencing with Section 1200), in the same manner as the original agreement of merger. If the agreement of merger as so amended and approved is also approved by each of the other parties to the agreement of merger, the agreement of merger as so amended shall then constitute the agreement of merger.
The board of a constituent corporation may, in its discretion, abandon a merger, subject to the contractual rights, if any, of third parties, including other parties to the agreement of merger, without further approval by the outstanding shares (Section 152), at any time before the merger is effective.
Each constituent corporation shall sign the agreement of merger by its chairperson of the board, president or a vice president, and also by its secretary or an assistant secretary acting on behalf of their respective corporations.
If the surviving party is a corporation or a foreign corporation, or if a social purpose corporation (Section 171.08), a public benefit corporation (Section 5060), a mutual benefit corporation (Section 5059), a religious corporation (Section 5061), or a corporation organized under the Consumer Cooperative Corporation Law (Section 12200) is a party to the merger, after required approvals of the merger by each constituent corporation through approval of the board (Section 151) and any approval of the outstanding shares (Section 152) required by Chapter 12 (commencing with Section 1200) and by the other parties to the merger, the surviving party shall file a copy of the agreement of merger with an officers’ certificate of each constituent domestic and foreign corporation attached stating the total number of outstanding shares or membership interests of each class entitled to vote on the merger (and identifying any other person or persons whose approval is required), that the agreement of merger in the form attached or its principal terms, as required, were approved by that corporation by a vote of a number of shares or membership interests of each class that equaled or exceeded the vote required, specifying each class entitled to vote and the percentage vote required of each class and, if applicable, by that other person or persons whose approval is required, or that the merger agreement was entitled to be and was approved by the board alone (as provided in Section 1201, in the case of corporations subject to that section). If equity securities of a parent party (Section 1200) are to be issued in the merger, the officers’ certificate of that controlled party shall state either that no vote of the shareholders of the parent party was required or that the required vote was obtained. In lieu of an officers’ certificate, a certificate of merger, on a form prescribed by the Secretary of State, shall be filed for each constituent other business entity. The certificate of merger shall be executed and acknowledged by each domestic constituent limited liability company by all managers of the limited liability company (unless a lesser number is specified in its articles of organization or operating agreement) and by each domestic constituent limited partnership by all general partners (unless a lesser number is provided in its certificate of limited partnership or partnership agreement) and by each domestic constituent general partnership by two partners (unless a lesser number is provided in its partnership agreement) and by each foreign constituent limited liability company by one or more managers and by each foreign constituent general partnership or foreign constituent limited partnership by one or more general partners, and by each constituent reciprocal insurer by the chairperson of the board, president, or vice president, and by the secretary or assistant secretary, or, if a constituent reciprocal insurer has not appointed those officers, by the chairperson of the board, president, or vice president, and by the secretary or assistant secretary of the constituent reciprocal insurer’s attorney-in-fact, and by each other party to the merger by those persons required or authorized to execute the certificate of merger by the laws under which that party is organized, specifying for that party the provision of law or other basis for the authority of the signing persons. The certificate of merger shall set forth, if a vote of the shareholders, members, partners, or other holders of interests of the constituent other business entity was required, a statement setting forth the total number of outstanding interests of each class entitled to vote on the merger and that the agreement of merger in the form attached or its principal terms, as required, were approved by a vote of the number of interests of each class that equaled or exceeded the vote required, specifying each class entitled to vote and the percentage vote required of each class, and any other information required to be set forth under the laws under which the constituent other business entity is organized, including, if a domestic limited partnership is a party to the merger, subdivision (a) of Section 15911.14, if a domestic partnership is a party to the merger, subdivision (b) of Section 16915, and, if a domestic limited liability company is a party to the merger, subdivision (a) of Section 17710.04. The certificate of merger for each constituent foreign other business entity, if any, shall also set forth the statutory or other basis under which that foreign other business entity is authorized by the laws under which it is organized to effect the merger. The merger and any amendment of the articles of the surviving corporation, if applicable, contained in the agreement of merger shall be effective upon filing of the agreement of merger with an officer’s certificate of each constituent domestic and foreign corporation and a certificate of merger for each constituent other business entity, subject to subdivision (c) of Section 110 and subject to the provisions of subdivision (j), and the several parties thereto shall be one entity. If a domestic reciprocal insurer organized after 1974 to provide medical malpractice insurance is a party to the merger, the agreement of merger or certificate of merger shall not be filed until there has been filed the certificate issued by the Insurance Commissioner approving the merger pursuant to Section 1555 of the Insurance Code. The Secretary of State may certify a copy of the agreement of merger separate from the officers’ certificates and certificates of merger attached thereto.
If the surviving entity is an other business entity, and no public benefit corporation (Section 5060), mutual benefit corporation (Section 5059), religious corporation (Section 5061), or corporation organized under the Consumer Cooperative Corporation Law (Section 12200) is a party to the merger, after required approvals of the merger by each constituent corporation through approval of the board (Section 151) and any approval of the outstanding shares (Section 152) required by Chapter 12 (commencing with Section 1200) and by the other parties to the merger, the parties to the merger shall file a certificate of merger in the office of, and on a form prescribed by, the Secretary of State. The certificate of merger shall be executed and acknowledged by each constituent domestic and foreign corporation by its chairperson of the board, president or a vice president, and also by its secretary or an assistant secretary and by each domestic constituent limited liability company by all managers of the limited liability company (unless a lesser number is specified in its articles of organization or operating agreement) and by each domestic constituent limited partnership by all general partners (unless a lesser number is provided in its certificate of limited partnership or partnership agreement) and by each domestic constituent general partnership by two partners (unless a lesser number is provided in its partnership agreement) and by each foreign constituent limited liability company by one or more managers and by each foreign constituent general partnership or foreign constituent limited partnership by one or more general partners, and by each constituent reciprocal insurer by the chairperson of the board, president, or vice president, and by the secretary or assistant secretary, or, if a constituent reciprocal insurer has not appointed those officers, by the chairperson of the board, president, or vice president, and by the secretary or assistant secretary of the constituent reciprocal insurer’s attorney-in-fact. The certificate of merger shall be signed by each other party to the merger by those persons required or authorized to execute the certificate of merger by the laws under which that party is organized, specifying for that party the provision of law or other basis for the authority of the signing persons. The certificate of merger shall set forth all of the following:
The name, place of incorporation or organization, and the Secretary of State’s file number, if any, of each party to the merger, separately identifying the disappearing parties and the surviving party.
If the approval of the outstanding shares of a constituent corporation was required by Chapter 12 (commencing with Section 1200), a statement setting forth the total number of outstanding shares of each class entitled to vote on the merger and that the principal terms of the agreement of merger were approved by a vote of the number of shares of each class entitled to vote and the percentage vote required of each class.
The future effective date or time, not more than 90 days subsequent to the date of filing of the merger, if the merger is not to be effective upon the filing of the certificate of merger with the office of the Secretary of State.
A statement, by each party to the merger which is a domestic corporation not organized under this division, a foreign corporation, or an other business entity, of the statutory or other basis under which that party is authorized by the laws under which it is organized to effect the merger.
Any other information required to be stated in the certificate of merger by the laws under which each party to the merger is organized, including, if a domestic limited liability company is a party to the merger, subdivision (a) of Section 17710.14, if a domestic partnership is a party to the merger, subdivision (b) of Section 16915, and, if a domestic limited partnership is a party to the merger, subdivision (a) of Section 15911.14.
Any other details or provisions that may be desired.
Unless a future effective date or time is provided in a certificate of merger, in which event the merger shall be effective at that future effective date or time, a merger shall be effective upon the filing of the certificate of merger in the office of the Secretary of State and the several parties thereto shall be one entity. The surviving other business entity shall keep a copy of the agreement of merger at its principal place of business which, for purposes of this subdivision, shall be the office referred to in Section 17710.13 if a domestic limited liability company, at the business address specified in paragraph (5) of subdivision (a) of Section 17710.14 if a foreign limited liability company, at the office referred to in subdivision (a) of Section 16403 if a domestic general partnership, at the business address specified in subdivision (f) of Section 16911 if a foreign partnership, at the office referred to in subdivision (a) of Section 15901.14 if a domestic limited partnership, or at the business address specified in paragraph (3) of subdivision (a) of Section 15909.02 if a foreign limited partnership. Upon the request of a holder of equity securities of a party to the merger, a person with authority to do so on behalf of the surviving other business entity shall promptly deliver to that holder, a copy of the agreement of merger. A waiver by that holder of the rights provided in the foregoing sentence shall be unenforceable. If a domestic reciprocal insurer organized after 1974 to provide medical malpractice insurance is a party to the merger the agreement of merger or certificate of merger shall not be filed until there has been filed the certificate issued by the Insurance Commissioner approving the merger in accordance with Section 1555 of the Insurance Code.
A copy of an agreement of merger certified on or after the effective date by an official having custody thereof has the same force in evidence as the original and, except as against the state, is conclusive evidence of the performance of all conditions precedent to the merger, the existence on the effective date of the surviving party to the merger, and the performance of the conditions necessary to the adoption of any amendment to the articles, if applicable, contained in the agreement of merger.
For all purposes for a merger in which the surviving entity is a domestic other business entity and the filing of a certificate of merger is required by paragraph (2) of subdivision (g), a copy of the certificate of merger duly certified by the Secretary of State is conclusive evidence of the merger of the constituent corporations, either by themselves or together with the other parties to the merger, into the surviving other business entity.
Any action or proceeding pending by or against any disappearing corporation or disappearing party to the merger may be prosecuted to judgment, which shall bind the surviving party, or the surviving party may be proceeded against or substituted in its place.
If a limited partnership or a general partnership is a party to the merger, nothing in this section is intended to affect the liability a general partner of a disappearing limited partnership or general partnership may have in connection with the debts and liabilities of the disappearing limited partnership or general partnership existing prior to the time the merger is effective.
The merger of domestic corporations with foreign corporations or foreign other business entities in a merger in which one or more other business entities is a party shall comply with subdivision (a) and this subdivision.
If the surviving party is a domestic corporation or domestic other business entity, the merger proceedings with respect to that party and any domestic disappearing corporation shall conform to the provisions of this section. If the surviving party is a foreign corporation or foreign other business entity, then, subject to the requirements of subdivision (c), and of Section 407 and Chapter 12 (commencing with Section 1200) and Chapter 13 (commencing with Section 1300), and, if applicable, corresponding provisions of the Nonprofit Corporation Law or the Consumer Cooperative Corporation Law, with respect to any domestic constituent corporations, Article 11 (commencing with Section 17711.01) of Title 2.6 with respect to any domestic constituent limited liability companies, Article 6 (commencing with Section 16601) of Chapter 5 of Title 2 with respect to any domestic constituent general partnerships, and Article 11.5 (commencing with Section 15911.20) of Chapter 5.5 of Title 2 with respect to any domestic constituent limited partnerships, the merger proceedings may be in accordance with the laws of the state or place of incorporation or organization of the surviving party.
If the surviving party is a domestic corporation or domestic other business entity, the certificate of merger or the agreement of merger with attachments shall be filed as provided in subdivision (g) and thereupon, subject to subdivision (c) of Section 110 or paragraph (2) of subdivision (g), as is applicable, the merger shall be effective as to each domestic constituent corporation and domestic constituent other business entity.
If the surviving party is a foreign corporation or foreign other business entity, the merger shall become effective in accordance with the law of the jurisdiction in which the surviving party is organized, but, except as provided in paragraph (5), the merger shall be effective as to any domestic disappearing corporation as of the time of effectiveness in the foreign jurisdiction upon the filing in this state of a copy of the agreement of merger with an officers’ certificate of each constituent foreign and domestic corporation and a certificate of merger of each constituent other business entity attached, which officers’ certificates and certificates of merger shall conform to the requirements of paragraph (1) of subdivision (g). If one or more domestic other business entities is a disappearing party in a merger pursuant to this subdivision in which a foreign other business entity is the surviving entity, a certificate of merger required by the laws under which that domestic other business entity is organized, including subdivision (a) of Section 15911.14, subdivision (b) of Section 16915, or subdivision (a) of Section 17710.14, as is applicable, shall also be filed at the same time as the filing of the agreement of merger.
If the date of the filing in this state pursuant to this subdivision is more than six months after the time of the effectiveness in the foreign jurisdiction, or if the powers of a domestic disappearing corporation are suspended at the time of effectiveness in the foreign jurisdiction, the merger shall be effective as to the domestic disappearing corporation as of the date of filing in this state.
In a merger described in paragraph (3) or (4), each foreign disappearing corporation that is qualified for the transaction of intrastate business shall by virtue of the filing pursuant to this subdivision, subject to subdivision (c) of Section 110, automatically surrender its right to transact intrastate business in this state. The filing of the agreement of merger or certificate of merger, as is applicable, pursuant to this subdivision, by a disappearing foreign other business entity registered for the transaction of intrastate business in this state shall, by virtue of that filing, subject to subdivision (c) of Section 110, automatically cancels the registration for that foreign other business entity, without the necessity of the filing of a certificate of cancellation.
CHAPTER 11.5. Conversions [1150. - 1159.]
For purposes of this chapter, the following definitions shall apply:
“Converted corporation” means a corporation that results from a conversion of a domestic other business entity, foreign other business entity, or foreign corporation pursuant to Section 1157.
“Converted entity” means a domestic other business entity, foreign other business entity, or foreign corporation that results from a conversion of a corporation under this chapter.
“Converting corporation” means a corporation that converts into a domestic other business entity, foreign other business entity, or foreign corporation pursuant to this chapter.
“Converting entity” means a domestic other business entity, foreign other business entity, or foreign corporation that converts into a corporation pursuant to Section 1157.
“Domestic other business entity” has the meaning provided in Section 167.7.
“Foreign corporation” has the meaning provided in Section 171.
“Foreign other business entity” has the meaning provided in Section 171.07.
“Other business entity” has the meaning provided in Section 174.5.
A corporation may be converted into a domestic other business entity, foreign other business entity, or foreign corporation pursuant to this chapter if, pursuant to the proposed conversion, (1) each share of the same class or series of the converting corporation shall, unless all the shareholders of the class or series consent, be treated equally with respect to any cash, rights, securities, or other property to be received by, or any obligations or restrictions to be imposed on, the holder of that share, and (2) nonredeemable common shares of the converting corporation shall be converted only into nonredeemable equity securities of the converted entity unless all of the shareholders of the class consent; provided, however, that clause (1) shall not restrict the ability of the shareholders of a converting corporation to appoint one or more managers, if the converted entity is a limited liability company, or one or more general partners, if the converted entity is a limited partnership, in the plan of conversion or in the converted entity’s governing documents.
Notwithstanding this section, the conversion of a corporation into a domestic other business entity, foreign other business entity, or foreign corporation may be effected only if both of the following conditions are met:
The law under which the converted entity will exist expressly permits the formation of that entity pursuant to a conversion.
The corporation complies with any and all other requirements of any other law that applies to conversion to the converted entity.
A corporation that desires to convert to a domestic other business entity, foreign other business entity, or foreign corporation shall approve a plan of conversion. The plan of conversion shall state all of the following:
The terms and conditions of the conversion.
The name, form, and jurisdiction of organization of the converted entity after conversion.
The manner of converting the shares of each of the shareholders of the converting corporation into securities of, or interests in, the converted entity.
The provisions of the governing documents for the converted entity, including the partnership agreement if the converted entity is a partnership, the articles of organization or certificate of formation and operating agreement if the converted entity is a limited liability company, or the articles or certificate of incorporation if the converted entity is a corporation, to which the holders of interests in the converted entity are to be bound.
Any other details or provisions that are required by the laws under which the converted entity is organized, or that are desired by the converting corporation.
The plan of conversion shall be approved by the board of the converting corporation (Section 151), and the principal terms of the plan of the conversion shall be approved by the outstanding shares (Section 152) of each class of the converting corporation. The approval of the outstanding shares may be given before or after approval by the board. Notwithstanding the foregoing, if a converting corporation is a close corporation, the conversion shall be approved by the affirmative vote of at least two-thirds of each class, or a greater vote if required in the articles, of outstanding shares (Section 152) of that converting corporation; provided, however, that the articles may provide for a lesser vote, but not less than a majority of the outstanding shares of each class.
If the corporation is converting into a general or limited partnership or a foreign general or limited partnership or into a limited liability company or a foreign limited liability company, then in addition to the approval of the shareholders set forth in subdivision (b), the plan of conversion shall be approved by each shareholder who will become a general partner or manager, as applicable, of the converted entity pursuant to the plan of conversion unless the shareholders have dissenters’ rights pursuant to Section 1159 and Chapter 13 (commencing with Section 1300).
Upon the effectiveness of the conversion, all shareholders of the converting corporation, except those that exercise dissenters’ rights as provided in Section 1159 and Chapter 13 (commencing with Section 1300), shall be deemed parties to any agreement or agreements constituting the governing documents for the converted entity adopted as part of the plan of conversion, irrespective of whether a shareholder has executed the plan of conversion or those governing documents for the converted entity. Any adoption of governing documents made pursuant thereto shall be effective at the effective time or date of the conversion.
Notwithstanding its prior approval by the board and the outstanding shares or either of them, a plan of conversion may be amended before the conversion takes effect if the amendment is approved by the board and, if it changes any of the principal terms of the plan of conversion, by the shareholders of the converting corporation in the same manner and to the same extent as was required for approval of the original plan of conversion.
A plan of conversion may be abandoned by the board of a converting corporation, or by the shareholders of a converting corporation if the abandonment is approved by the outstanding shares, in each case in the same manner as required for approval of the plan of conversion, subject to the contractual rights of third parties, at any time before the conversion is effective.
The converted entity shall keep the plan of conversion at (1) the principal place of business of the converted entity if the converted entity is a domestic partnership, (2) the office at which records are to be kept under Section 15901.11 if the converted entity is a domestic limited partnership, (3) the office at which records are to be kept under Section 17701.13 if the converted entity is a domestic limited liability company, or (4) the office at which records are to be kept under the laws of the jurisdiction applicable to the converted entity if the converted entity is a foreign other business entity or foreign corporation. Upon the request of a shareholder of a converting corporation, the authorized person on behalf of the converted entity shall promptly deliver to the shareholder, at the expense of the converted entity, a copy of the plan of conversion. A waiver by a shareholder of the rights provided in this subdivision shall be unenforceable.
After the approval, as provided in Section 1152, of a plan of conversion by the board and the outstanding shares of a corporation, the converting corporation shall cause the filing of all documents required by law, including, in the case of a corporation converting into a foreign corporation or foreign other business entity, the laws of the state or place of organization of the foreign corporation or foreign other business entity, to effect the conversion and create the converted entity, which documents shall include a certificate of conversion or a statement of conversion as required by Section 1155, and the conversion shall thereupon be effective, or, in the case of a corporation converting into a foreign corporation or foreign other business entity, shall be effective in accordance with the laws of the state or place of organization of the foreign corporation or foreign other business entity.
A copy of the statement of partnership authority, certificate of limited partnership, or articles of organization, or certificate of conversion complying with Section 1155, duly certified by the Secretary of State on or after the effective date, is conclusive evidence of the conversion of the corporation.
To enforce an obligation of a corporation that has converted to a foreign corporation or foreign other business entity, the Secretary of State shall only be the agent for service of process in an action or proceeding against that converted foreign entity, if the agent designated for the service of process for that entity is a natural person and cannot be found with due diligence or if the agent is a corporation and no person, to whom delivery may be made, may be located with due diligence, or if no agent has been designated and if none of the officers, members, managers, or agents of that entity may be located after diligent search, and it is shown by affidavit to the satisfaction of the court. The court then may make an order that service be made by personal delivery to the Secretary of State or to an assistant or Deputy Secretary of State of two copies of the process together with two copies of the order, and the order shall set forth an address to which the process shall be sent by the Secretary of State. Service in this manner is deemed complete on the 10th day after delivery of the process to the Secretary of State.
Upon receipt of the process and order and the fee set forth in Section 12197 of the Government Code, the Secretary of State shall provide notice to that entity of the service of the process by forwarding by certified mail, return receipt requested, a copy of the process and order to the address specified in the order.
The Secretary of State shall keep a record of all process served upon the Secretary of State and shall record the time of service and the Secretary of State’s action with respect to the process served. The certificate of the Secretary of State, under the Secretary of State’s official seal, certifying to the receipt of process, the providing of notice of process to that entity, and the forwarding of the process shall be competent and prima facie evidence of the matters stated therein.
To convert a corporation:
If the corporation is converting into a domestic limited partnership, a statement of conversion shall be completed on the certificate of limited partnership for the converted entity.
If the corporation is converting into a domestic partnership, a statement of conversion shall be completed on the statement of partnership authority for the converted entity, or if no statement of partnership authority is filed then a certificate of conversion shall be filed separately.
If the corporation is converting into a domestic limited liability company, a statement of conversion shall be completed on the articles of organization for the converted entity.
If the corporation is converting into a foreign other business entity or a foreign corporation, a certificate of conversion shall be filed with the Secretary of State.
Any statement or certificate of conversion of a converting corporation shall be executed and acknowledged by those officers of the converting corporation as would be required to sign an officers’ certificate (Section 173), and shall set forth all of the following:
The name of the converting corporation and the Secretary of State’s file number of the converting corporation.
A statement of the total number of outstanding shares of each class entitled to vote on the conversion, that the principal terms of the plan of conversion were approved by a vote of the number of shares of each class which equaled or exceeded the vote required under Section 1152, specifying each class entitled to vote and the percentage vote required of each class.
The name, form, and jurisdiction of organization of the converted entity.
The name, mailing address, and street address of the converted entity’s agent for service of process. If a corporation qualified under Section 1505 is designated as the agent, no address for it shall be set forth.
For the purposes of this chapter, the certificate of conversion shall be on a form prescribed by the Secretary of State.
The filing with the Secretary of State of a statement of conversion on an organizational document or a certificate of conversion as set forth in subdivision (a) shall have the effect of the filing of a certificate of dissolution by the converting corporation and no converting corporation that has made the filing is required to file a certificate of election under Section 1901 or a certificate of dissolution under Section 1905 as a result of that conversion.
Upon the effectiveness of a conversion pursuant to this chapter, a converted entity shall be deemed to have assumed the liability of the converting corporation (1) to prepare and file or cause to be prepared and filed all tax and information returns otherwise required of the converting corporation under the Corporation Tax Law (Part 11 (commencing with Section 23001) of Division 2 of the Revenue and Taxation Code) and (2) to pay any tax liability determined to be due pursuant to that law.
Whenever a corporation or other business entity having any real property in this state converts into a corporation or an other business entity pursuant to the laws of this state or of the state or place in which the corporation or other business entity was organized, and the laws of the state or place of organization, including this state, of the converting corporation or other converting entity provide substantially that the conversion vests in the converted corporation or other converted entity all the real property of the converting corporation or other converting entity, the filing for record in the office of the county recorder of any county in this state in which any of the real property of the converting corporation or other converting entity is located of either (1) a certificate of conversion or a statement of partnership authority, certificate of limited partnership or articles of organization containing a statement of conversion complying with Section 1155 and certified on or after the effective date of the conversion by the Secretary of State or (2) a copy of a certificate of conversion or a statement of partnership authority, certificate of limited partnership, articles of organization, articles of incorporation, or other comparable organizing document evidencing the creation of a foreign other business entity or foreign corporation, containing a statement of conversion, meeting the requirements of subdivision (b) and certified on or after the effective date of the conversion by the Secretary of State or any other authorized public official of the state or place pursuant to the laws of which the converted entity is organized, shall evidence record ownership in the converted corporation or other converted entity of all interest of the converting corporation or other converting entity in and to the real property located in that county.
A filed and, if appropriate, recorded certificate of conversion or a statement of partnership authority, certificate of limited partnership, articles of organization, articles of incorporation, or other comparable organizing document evidencing the formation of a foreign other business entity or a foreign corporation referred to in clause (2) of subdivision (a) above which contains a statement of conversion, stating the name of the converting corporation or other converting entity in whose name property was held before the conversion and the name of the converted entity or converted corporation, but not containing all of the other information required by Section 1155, operates with respect to the converted entity named to the extent provided in subdivision (a).
Recording of a certificate of conversion or a statement of partnership authority, certificate of limited partnership, articles of organization, articles of incorporation, or other comparable organizing document evidencing the creation of an other business entity or a corporation, containing a statement of conversion, in accordance with subdivision (a), shall create, in favor of bona fide purchasers or encumbrances for value, a conclusive presumption that the conversion was validly completed.
A domestic other business entity, foreign other business entity, or foreign corporation may be converted into a corporation pursuant to this chapter only if the converting entity is authorized by the laws under which it is organized to effect the conversion.
A domestic other business entity, foreign other business entity, or foreign corporation that desires to convert into a corporation shall approve a plan of conversion or other instrument as is required to be approved to effect the conversion pursuant to the laws under which that entity is organized.
The conversion of a domestic other business entity, foreign other business entity, or foreign corporation shall be approved by the number or percentage of the partners, members, shareholders, or other holders of interest of the converting entity that is required by the laws under which that entity is organized, or a greater or lesser percentage as may be set forth in the converting entity’s partnership agreement, articles of organization, operating agreement, articles of incorporation, or other governing document in accordance with applicable laws.
The conversion by a domestic other business entity, foreign other business entity, or foreign corporation shall be effective under this chapter upon the filing with the Secretary of State of the articles of incorporation of the converted corporation, containing a statement of conversion that complies with subdivision (e).
A statement of conversion of an entity converting into a corporation pursuant to this chapter shall set forth all of the following:
The name, form, and jurisdiction of organization of the converting entity.
The Secretary of State’s file number, if any, of the converting entity.
If the converting entity is a foreign other business entity or a foreign corporation, the statement of conversion shall contain the following:
A statement that the converting entity is authorized to effect the conversion by the laws under which it is organized.
A statement that the converting entity has approved a plan of conversion or other instrument as is required to be approved to effect the conversion pursuant to the laws under which the converting entity is organized.
A statement that the conversion has been approved by the number or percentage of the partners, members, shareholders, or other holders of interest of the converting entity that is required by the laws under which that entity is organized, or a greater or lesser percentage as may be set forth in the converting entity’s partnership agreement, articles of organization, operating agreement, articles of incorporation, or other governing document in accordance with applicable laws.
The filing with the Secretary of State of articles of incorporation containing a statement pursuant to subdivision (e) shall have the effect of the filing of a certificate of cancellation by a converting foreign limited liability company or foreign limited partnership, and no converting foreign limited liability company or foreign limited partnership that has made the filing is required to file a certificate of cancellation under Section 15909.07 or 17708.06 as a result of that conversion. If a converting entity is a foreign corporation qualified to transact business in this state, the foreign corporation shall, by virtue of the filing, automatically surrender its right to transact intrastate business.
An entity that converts into another entity pursuant to this chapter is for all purposes other than for the purposes of Part 10 (commencing with Section 17001) of, Part 10.20 (commencing with Section 18401) of, and Part 11 (commencing with Section 23001) of, Division 2 of the Revenue and Taxation Code, the same entity that existed before the conversion.
Upon a conversion taking effect, all of the following apply:
All the rights and property, whether real, personal, or mixed, of the converting entity or converting corporation are vested in the converted entity or converted corporation.
All debts, liabilities, and obligations of the converting entity or converting corporation continue as debts, liabilities, and obligations of the converted entity or converted corporation.
All rights of creditors and liens upon the property of the converting entity or converting corporation shall be preserved unimpaired and remain enforceable against the converted entity or converted corporation to the same extent as against the converting entity or converting corporation as if the conversion had not occurred.
Any action or proceeding pending by or against the converting entity or converting corporation may be continued against the converted entity or converted corporation as if the conversion had not occurred.
A shareholder of a converting corporation is liable for:
A shareholder of a converted corporation remains liable for any and all obligations of the converting entity for which the shareholder was personally liable before the conversion, but only to the extent that the shareholder was personally liable for the obligations of the converting entity prior to the conversion.
If a party to a transaction with a converted corporation that converted from a partnership reasonably believes when entering into the transaction that a shareholder of the converted corporation continues to be a general partner of the converting entity after the conversion is effective, and the shareholder was a general partner of the partnership that converted into the converted corporation, the shareholder is liable for an obligation incurred by the converted corporation within 90 days after the conversion takes effect. The shareholder’s liability for all other obligations of the converted corporation incurred after the conversion takes effect is that of a shareholder of a corporation.
The converted entity shall cause written notice of the conversion to be given by mail within 90 days after the effective date of the conversion to all known creditors and claimants whose addresses appear on the records of the converting entity. Failure to comply with this subdivision shall not affect the validity of the conversion, extend the 90-day period set forth in subdivision (e), or otherwise affect the rights of a creditor or claimant under this section.
The shareholders of a converting corporation shall have all of the rights under Chapter 13 (commencing with Section 1300) of the shareholders of a corporation involved in a reorganization requiring the approval of its outstanding shares (Section 152), and the converting corporation shall have all of the obligations under Chapter 13 (commencing with Section 1300) of a corporation involved in the reorganization. Solely for purposes of applying the provisions of Chapter 13 (and not for purposes of Chapter 12), a conversion pursuant to Section 1151 or 1157 shall be deemed to constitute a reorganization.
CHAPTER 12. Reorganizations [1200. - 1203.]
Each constituent corporation in a merger reorganization;
The acquiring corporation in an exchange reorganization;
The acquiring corporation and the corporation whose property and assets are acquired in a sale-of-assets reorganization;
The acquiring corporation in a share exchange tender offer (Section 183.5); and
The corporation in control of any constituent or acquiring domestic or foreign corporation or other business entity under subdivision (a), (b) or (c) and whose equity securities are issued, transferred, or exchanged in the reorganization (a “parent party”).
The principal terms of a reorganization shall be approved by the outstanding shares (Section 152) of each class of each corporation the approval of whose board is required under Section 1200, except as provided in subdivision (b) and except that (unless otherwise provided in the articles) no approval of any class of outstanding preferred shares of the surviving or acquiring corporation or parent party shall be required if the rights, preferences, privileges, and restrictions granted to or imposed upon that class of shares remain unchanged (subject to the provisions of subdivision (c)). For the purpose of this subdivision, two classes of common shares differing only as to voting rights shall be considered as a single class of shares.
No approval of the outstanding shares (Section 152) is required by subdivision (a) in the case of any corporation if that corporation, or its shareholders immediately before the reorganization, or both, shall own (immediately after the reorganization) equity securities, other than any warrant or right to subscribe to or purchase those equity securities, of the surviving or acquiring corporation or a parent party (subdivision (e) of Section 1200) possessing more than five-sixths of the voting power of the surviving or acquiring corporation or parent party. In making the determination of ownership by the shareholders of a corporation, immediately after the reorganization, of equity securities pursuant to the preceding sentence, equity securities which they owned immediately before the reorganization as shareholders of another party to the transaction shall be disregarded. For the purpose of this section only, the voting power of a corporation shall be calculated by assuming the conversion of all equity securities convertible (immediately or at some future time) into shares entitled to vote but not assuming the exercise of any warrant or right to subscribe to or purchase those shares.
Notwithstanding subdivision (b), the principal terms of a reorganization shall be approved by the outstanding shares (Section 152) of the surviving corporation in a merger reorganization if any amendment is made to its articles that would otherwise require that approval.
Notwithstanding subdivision (b), the principal terms of a reorganization shall be approved by the outstanding shares (Section 152) of any class of a corporation that is a party to a merger or sale-of-assets reorganization if holders of shares of that class receive shares of the surviving or acquiring corporation or parent party having different rights, preferences, privileges, or restrictions than those surrendered. Shares in a foreign corporation received in exchange for shares in a domestic corporation have different rights, preferences, privileges, and restrictions within the meaning of the preceding sentence.
Notwithstanding subdivisions (a) and (b), the principal terms of a reorganization shall be approved by the affirmative vote of at least two-thirds of each class, or a greater vote if required in the articles, of the outstanding shares (Section 152) of any close corporation if the reorganization would result in their receiving shares of a corporation that is not a close corporation. However, the articles may provide for a lesser vote, but not less than a majority of the outstanding shares of each class.
Notwithstanding subdivisions (a) and (b), the principal terms of a reorganization shall be approved by at least two-thirds of each class, or a greater vote if required in the articles, of the outstanding shares (Section 152) of a corporation that is a party to a merger reorganization if holders of shares receive shares of a surviving social purpose corporation in the merger.
Notwithstanding subdivisions (a) and (b), the principal terms of a reorganization shall be approved by the outstanding shares (Section 152) of any class of a corporation that is a party to a merger reorganization if holders of shares of that class receive interests of a surviving other business entity in the merger.
Notwithstanding subdivisions (a) and (b), the principal terms of a reorganization shall be approved by all shareholders of any class or series if, as a result of the reorganization, the holders of that class or series become personally liable for any obligations of a party to the reorganization, unless all holders of that class or series have the dissenters’ rights provided in Chapter 13 (commencing with Section 1300).
Any approval required by this section may be given before or after the approval by the board. Notwithstanding approval required by this section, the board may abandon the proposed reorganization without further action by the shareholders, subject to the contractual rights, if any, of third parties.
The principal terms of a share exchange tender offer (Section 183. 5) shall be approved by the outstanding shares (Section 152) of each class of the corporation making the tender offer or whose shares are to be used in the tender offer, except as provided in subdivision (b) and except that (unless otherwise provided in the articles) no approval of any class of outstanding preferred shares of either corporation shall be required, if the rights, preferences, privileges, and restrictions granted to or imposed upon that class of shares remain unchanged. For the purpose of this subdivision, two classes of common shares differing only as to voting rights shall be considered as a single class of shares.
No approval of the outstanding shares (Section 152) is required by subdivision (a) in the case of any corporation if the corporation, or its shareholders immediately before the tender offer, or both, shall own (immediately after the completion of the share exchange proposed in the tender offer) equity securities, (other than any warrant or right to subscribe to or purchase the equity securities), of the corporation making the tender offer or of the corporation whose shares were used in the tender offer, possessing more than five-sixths of the voting power of either corporation. In making the determination of ownership by the shareholders of a corporation, immediately after the tender offer, of equity securities pursuant to the preceding sentence, equity securities which they owned immediately before the tender offer as shareholders of another party to the transaction shall be disregarded. For the purpose of this section only, the voting power of a corporation shall be calculated by assuming the conversion of all equity securities convertible (immediately or at some future time) into shares entitled to vote but not assuming the exercise of any warrant or right to subscribe to, or purchase, shares.
In addition to the requirements of Section 1201, the principal terms of a merger reorganization shall be approved by all the outstanding shares of a corporation if the agreement of merger provides that all the outstanding shares of that corporation are canceled without consideration in the merger.
In addition to the requirements of Section 1201, if the terms of a merger reorganization or sale-of-assets reorganization provide that a class or series of preferred shares is to have distributed to it a lesser amount than would be required by applicable article provisions, the principal terms of the reorganization shall be approved by the same percentage of outstanding shares of that class or series which would be required to approve an amendment of the article provisions to provide for the distribution of that lesser amount.
If a parent party within the meaning of Section 1200 is a foreign corporation (other than a foreign corporation to which subdivision (a) of Section 2115 is applicable), any requirement or lack of a requirement for approval by the outstanding shares of the foreign corporation shall be based, not on the application of Sections 1200 and 1201, but on the application of the laws of the state or place of incorporation of the foreign corporation.
If a tender offer, including a share exchange tender offer (Section 183.5), or a written proposal for approval of a reorganization subject to Section 1200 or for a sale of assets subject to subdivision (a) of Section 1001 is made to some or all of a corporation’s shareholders by an interested party (herein referred to as an “Interested Party Proposal”), an affirmative opinion in writing as to the fairness of the consideration to the shareholders of that corporation shall be delivered as follows:
If no shareholder approval or acceptance is required for the consummation of the transaction, the opinion shall be delivered to the corporation’s board of directors not later than the time that consummation of the transaction is authorized and approved by the board of directors.
If a tender offer is made to the corporation’s shareholders, the opinion shall be delivered to the shareholders at the time that the tender offer is first made in writing to the shareholders. However, if the tender offer is commenced by publication and tender offer materials are subsequently mailed or otherwise distributed to the shareholders, the opinion may be omitted in that publication if the opinion is included in the materials distributed to the shareholders.
If a shareholders’ meeting is to be held to vote on approval of the transaction, the opinion shall be delivered to the shareholders with the notice of the meeting (Section 601).
If consents of all shareholders entitled to vote are solicited in writing (Section 603), the opinion shall be delivered at the same time as that solicitation.
If the consents of all shareholders are not solicited in writing, the opinion shall be delivered to each shareholder whose consent is solicited prior to that shareholder’s consent being given, and to all other shareholders at the time they are given the notice required by subdivision (b) of Section 603.
For purposes of this section, the term “interested party” means a person who is a party to the transaction and (A) directly or indirectly controls the corporation that is the subject of the tender offer or proposal, (B) is, or is directly or indirectly controlled by, an officer or director of the subject corporation, or (C) is an entity in which a material financial interest (subdivision (a) of Section 310) is held by any director or executive officer of the subject corporation. For purposes of the preceding sentence, “any executive officer” means the president, any vice president in charge of a principal business unit, division, or function such as sales, administration, research, development, or finance, and any other officer or other person who performs a policymaking function or has the same duties as those of a president or vice president. The opinion required by this subdivision shall be provided by a person who is not affiliated with the offeror and who, for compensation, engages in the business of advising others as to the value of properties, businesses, or securities. The fact that the opining person previously has provided services to the offeror or a related entity or is simultaneously engaged in providing advice or assistance with respect to the proposed transaction in a manner which makes its compensation contingent on the success of the proposed transaction shall not, for those reasons, be deemed to affiliate the opining person with the offeror. Nothing in this subdivision shall limit the applicability of the standards of review of the transaction in the event of a challenge thereto under Section 310 or subdivision (c) of Section 1312.
This subdivision shall not apply to an Interested Party Proposal if the corporation that is the subject thereof does not have shares held of record by 100 or more persons (determined as provided in Section 605), or if the transaction has been qualified under Section 25113 or 25121 and no order under Section 25140 or subdivision (a) of Section 25143 is in effect with respect to that qualification.
If a tender of shares or a vote or written consent is being sought pursuant to an Interested Party Proposal and a later tender offer or written proposal for a reorganization subject to Section 1200 or sale of assets subject to subdivision (a) of Section 1001 that would require a vote or written consent of shareholders is made to the corporation or its shareholders (herein referred to as a “Later Proposal”) by any other person at least 10 days prior to the date for acceptance of the tendered shares or the vote or notice of shareholder approval on the Interested Party Proposal, then each of the following shall apply:
The shareholders shall be informed of the Later Proposal and any written material provided for this purpose by the later offeror shall be forwarded to the shareholders at that offeror’s expense.
The shareholders shall be afforded a reasonable opportunity to withdraw any vote, consent, or proxy previously given before the vote or written consent on the Interested Party Proposal becomes effective, or a reasonable time to withdraw any tendered shares before the purchase of the shares pursuant to the Interested Party Proposal. For purposes of this subdivision, a delay of 10 days from the notice or publication of the Later Proposal shall be deemed to provide a reasonable opportunity or time to effect that withdrawal.
CHAPTER 13. Dissenters’ Rights [1300. - 1313.]
If the approval of the outstanding shares (Section 152) of a corporation is required for a reorganization under subdivisions (a) and (b) or subdivision (e) or (f) of Section 1201, each shareholder of the corporation entitled to vote on the transaction and each shareholder of a subsidiary corporation in a short-form merger may, by complying with this chapter, require the corporation in which the shareholder holds shares to purchase for cash at their fair market value the shares owned by the shareholder which are dissenting shares as defined in subdivision (b). The fair market value shall be determined as of the day of, and immediately prior to, the first announcement of the terms of the proposed reorganization or short-form merger, excluding any appreciation or depreciation in consequence of the proposed reorganization or short-form merger, as adjusted for any stock split, reverse stock split, or share dividend that becomes effective thereafter.
As used in this chapter, “dissenting shares” means shares to which all of the following apply:
That were not, immediately prior to the reorganization or short-form merger, listed on any national securities exchange certified by the Commissioner of Financial Protection and Innovation under subdivision (o) of Section 25100, and the notice of meeting of shareholders to act upon the reorganization summarizes this section and Sections 1301, 1302, 1303, and 1304; provided, however, that this provision does not apply to any shares with respect to which there exists any restriction on transfer imposed by the corporation or by any law or regulation; and provided, further, that this provision does not apply to any shares where the holder of those shares is required, by the terms of the reorganization or short-form merger, to accept for the shares anything except: (A) shares of any other corporation, which shares, at the time the reorganization or short-form merger is effective, are listed on any national securities exchange certified by the Commissioner of Financial Protection and Innovation under subdivision (o) of Section 25100; (B) cash in lieu of fractional shares described in the foregoing subparagraph (A); or (C) any combination of the shares and cash in lieu of fractional shares described in the foregoing subparagraphs (A) and (B).
That were outstanding on the date for the determination of shareholders entitled to vote on the reorganization and (A) were not voted in favor of the reorganization or, (B) if described in paragraph (1), were voted against the reorganization, or were held of record on the effective date of a short-form merger; provided, however, that subparagraph (A) rather than subparagraph (B) of this paragraph applies in any case where the approval required by Section 1201 is sought by written consent rather than at a meeting.
That the dissenting shareholder has demanded that the corporation purchase at their fair market value, in accordance with Section 1301.
That the dissenting shareholder has submitted for endorsement, in accordance with Section 1302.
As used in this chapter, “dissenting shareholder” means the recordholder of dissenting shares and includes a transferee of record.
If, in the case of a reorganization, any shareholders of a corporation have a right under Section 1300, subject to compliance with paragraphs (3) and (4) of subdivision (b) thereof, to require the corporation to purchase their shares for cash, that corporation shall mail to each of those shareholders a notice of the approval of the reorganization by its outstanding shares (Section 152) within 10 days after the date of that approval, accompanied by a copy of Sections 1300, 1302, 1303, and 1304 and this section, a statement of the price determined by the corporation to represent the fair market value of the dissenting shares, and a brief description of the procedure to be followed if the shareholder desires to exercise the shareholder’s right under those sections. The statement of price constitutes an offer by the corporation to purchase at the price stated any dissenting shares as defined in subdivision (b) of Section 1300, unless they lose their status as dissenting shares under Section 1309.
Any shareholder who has a right to require the corporation to purchase the shareholder’s shares for cash under Section 1300, subject to compliance with paragraphs (3) and (4) of subdivision (b) thereof, and who desires the corporation to purchase shares shall make written demand upon the corporation for the purchase of those shares and payment to the shareholder in cash of their fair market value. The demand is not effective for any purpose unless it is received by the corporation or any transfer agent thereof (1) in the case of shares described in subdivision (b) of Section 1300, not later than the date of the shareholders’ meeting to vote upon the reorganization, or (2) in any other case, within 30 days after the date on which the notice of the approval by the outstanding shares pursuant to subdivision (a) or the notice pursuant to subdivision (h) of Section 1110 was mailed to the shareholder.
The demand shall state the number and class of the shares held of record by the shareholder which the shareholder demands that the corporation purchase and shall contain a statement of what the shareholder claims to be the fair market value of those shares as determined pursuant to subdivision (a) of Section 1300. The statement of fair market value constitutes an offer by the shareholder to sell the shares at that price.
Within 30 days after the date on which notice of the approval by the outstanding shares or the notice pursuant to subdivision (h) of Section 1110 was mailed to the shareholder, the shareholder shall submit to the corporation at its principal office or at the office of any transfer agent thereof, (a) if the shares are certificated securities, the shareholder’s certificates representing any shares which the shareholder demands that the corporation purchase, to be stamped or endorsed with a statement that the shares are dissenting shares or to be exchanged for certificates of appropriate denomination so stamped or endorsed or (b) if the shares are uncertificated securities, written notice of the number of shares which the shareholder demands that the corporation purchase. Upon subsequent transfers of the dissenting shares on the books of the corporation, the new certificates, initial transaction statement, and other written statements issued therefor shall bear a like statement, together with the name of the original dissenting holder of the shares.
If the corporation and the shareholder agree that the shares are dissenting shares and agree upon the price of the shares, the dissenting shareholder is entitled to the agreed price with interest thereon at the legal rate on judgments from the date of the agreement. Any agreements fixing the fair market value of any dissenting shares as between the corporation and the holders thereof shall be filed with the secretary of the corporation.
Subject to the provisions of Section 1306, payment of the fair market value of dissenting shares shall be made within 30 days after the amount thereof has been agreed or within 30 days after any statutory or contractual conditions to the reorganization are satisfied, whichever is later, and in the case of certificated securities, subject to surrender of the certificates therefor, unless provided otherwise by agreement.
If the corporation denies that the shares are dissenting shares, or the corporation and the shareholder fail to agree upon the fair market value of the shares, then the shareholder demanding purchase of such shares as dissenting shares or any interested corporation, within six months after the date on which notice of the approval by the outstanding shares (Section 152) or notice pursuant to subdivision (h) of Section 1110 was mailed to the shareholder, but not thereafter, may file a complaint in the superior court of the proper county praying the court to determine whether the shares are dissenting shares or the fair market value of the dissenting shares or both or may intervene in any action pending on such a complaint.
Two or more dissenting shareholders may join as plaintiffs or be joined as defendants in any such action and two or more such actions may be consolidated.
On the trial of the action, the court shall determine the issues. If the status of the shares as dissenting shares is in issue, the court shall first determine that issue. If the fair market value of the dissenting shares is in issue, the court shall determine, or shall appoint one or more impartial appraisers to determine, the fair market value of the shares.
If the court appoints an appraiser or appraisers, they shall proceed forthwith to determine the fair market value per share. Within the time fixed by the court, the appraisers, or a majority of them, shall make and file a report in the office of the clerk of the court. Thereupon, on the motion of any party, the report shall be submitted to the court and considered on such evidence as the court considers relevant. If the court finds the report reasonable, the court may confirm it.
If a majority of the appraisers appointed fail to make and file a report within 10 days from the date of their appointment or within such further time as may be allowed by the court or the report is not confirmed by the court, the court shall determine the fair market value of the dissenting shares.
Subject to the provisions of Section 1306, judgment shall be rendered against the corporation for payment of an amount equal to the fair market value of each dissenting share multiplied by the number of dissenting shares which any dissenting shareholder who is a party, or who has intervened, is entitled to require the corporation to purchase, with interest thereon at the legal rate from the date on which judgment was entered.
Any such judgment shall be payable forthwith with respect to uncertificated securities and, with respect to certificated securities, only upon the endorsement and delivery to the corporation of the certificates for the shares described in the judgment. Any party may appeal from the judgment.
The costs of the action, including reasonable compensation to the appraisers to be fixed by the court, shall be assessed or apportioned as the court considers equitable, but, if the appraisal exceeds the price offered by the corporation, the corporation shall pay the costs (including in the discretion of the court attorneys’ fees, fees of expert witnesses and interest at the legal rate on judgments from the date of compliance with Sections 1300, 1301 and 1302 if the value awarded by the court for the shares is more than 125 percent of the price offered by the corporation under subdivision (a) of Section 1301).
To the extent that the provisions of Chapter 5 prevent the payment to any holders of dissenting shares of their fair market value, they shall become creditors of the corporation for the amount thereof together with interest at the legal rate on judgments until the date of payment, but subordinate to all other creditors in any liquidation proceeding, such debt to be payable when permissible under the provisions of Chapter 5.
Cash dividends declared and paid by the corporation upon the dissenting shares after the date of approval of the reorganization by the outstanding shares (Section 152) and prior to payment for the shares by the corporation shall be credited against the total amount to be paid by the corporation therefor.
Except as expressly limited in this chapter, holders of dissenting shares continue to have all the rights and privileges incident to their shares, until the fair market value of their shares is agreed upon or determined. A dissenting shareholder may not withdraw a demand for payment unless the corporation consents thereto.
Dissenting shares lose their status as dissenting shares and the holders thereof cease to be dissenting shareholders and cease to be entitled to require the corporation to purchase their shares upon the happening of any of the following:
The corporation abandons the reorganization. Upon abandonment of the reorganization, the corporation shall pay on demand to any dissenting shareholder who has initiated proceedings in good faith under this chapter all necessary expenses incurred in such proceedings and reasonable attorneys’ fees.
The shares are transferred prior to their submission for endorsement in accordance with Section 1302 or are surrendered for conversion into shares of another class in accordance with the articles.
The dissenting shareholder and the corporation do not agree upon the status of the shares as dissenting shares or upon the purchase price of the shares, and neither files a complaint or intervenes in a pending action as provided in Section 1304, within six months after the date on which notice of the approval by the outstanding shares or notice pursuant to subdivision (h) of Section 1110 was mailed to the shareholder.
The dissenting shareholder, with the consent of the corporation, withdraws the shareholder’s demand for purchase of the dissenting shares.
This chapter, except Section 1312, does not apply to classes of shares whose terms and provisions specifically set forth the amount to be paid in respect to such shares in the event of a reorganization or merger.
No shareholder of a corporation who has a right under this chapter to demand payment of cash for the shares held by the shareholder shall have any right at law or in equity to attack the validity of the reorganization or short-form merger, or to have the reorganization or short-form merger set aside or rescinded, except in an action to test whether the number of shares required to authorize or approve the reorganization have been legally voted in favor thereof; but any holder of shares of a class whose terms and provisions specifically set forth the amount to be paid in respect to them in the event of a reorganization or short-form merger is entitled to payment in accordance with those terms and provisions or, if the principal terms of the reorganization are approved pursuant to subdivision (b) of Section 1202, is entitled to payment in accordance with the terms and provisions of the approved reorganization.
If one of the parties to a reorganization or short-form merger is directly or indirectly controlled by, or under common control with, another party to the reorganization or short-form merger, subdivision (a) shall not apply to any shareholder of such party who has not demanded payment of cash for such shareholder’s shares pursuant to this chapter; but if the shareholder institutes any action to attack the validity of the reorganization or short-form merger or to have the reorganization or short-form merger set aside or rescinded, the shareholder shall not thereafter have any right to demand payment of cash for the shareholder’s shares pursuant to this chapter. The court in any action attacking the validity of the reorganization or short-form merger or to have the reorganization or short-form merger set aside or rescinded shall not restrain or enjoin the consummation of the transaction except upon 10 days’ prior notice to the corporation and upon a determination by the court that clearly no other remedy will adequately protect the complaining shareholder or the class of shareholders of which such shareholder is a member.
If one of the parties to a reorganization or short-form merger is directly or indirectly controlled by, or under common control with, another party to the reorganization or short-form merger, in any action to attack the validity of the reorganization or short-form merger or to have the reorganization or short-form merger set aside or rescinded, (1) a party to a reorganization or short-form merger which controls another party to the reorganization or short-form merger shall have the burden of proving that the transaction is just and reasonable as to the shareholders of the controlled party, and (2) a person who controls two or more parties to a reorganization shall have the burden of proving that the transaction is just and reasonable as to the shareholders of any party so controlled.
CHAPTER 14. Bankruptcy Reorganizations and Arrangements [1400. - 1403.]
Any domestic corporation with respect to which a proceeding has been initiated under any applicable statute of the United States, as now existing or hereafter enacted, relating to reorganizations of corporations, has full power and authority to put into effect and carry out any plan of reorganization and the orders of the court or judge entered in such proceeding and may take any proceeding and do any act provided in the plan or directed by such orders, without further action by its board or shareholders. Such power and authority may be exercised and such proceedings and acts may be taken, as may be directed by such orders, by the trustee or trustees of such corporation appointed in the reorganization proceeding (or a majority thereof), or if none is appointed and acting, by officers of the corporation designated or a master or other representative appointed by the court or judge, with like effect as if exercised and taken by unanimous action of the board and shareholders of the corporation.
Such corporation may, in the manner provided in subdivision (a), but without limiting the generality or effect of subdivision (a), alter, amend or repeal its bylaws; constitute or reconstitute its board and name, constitute or appoint directors and officers in place of or in addition to all or some of the directors or officers then in office; amend its articles; make any change in its capital stock; make any other amendment, change, alteration or provision authorized by this division; be dissolved, transfer all or part of its assets or merge as permitted by this division, in which case, however, no shareholder shall have any statutory dissenter’s rights; change the location of its principal office or remove or appoint an agent to receive service of process; authorize and fix the terms, manner and conditions of the issuance of bonds, debentures or other obligations, whether or not convertible into shares of any class or bearing warrants or rights to purchase or subscribe to shares of any class; or lease its property and franchises to any corporation, if permitted by law.
A certificate of any amendment, change or alteration or of dissolution or any agreement of merger made by a corporation pursuant to Section 1400 and executed as provided in subdivision (b), shall be filed and shall thereupon become effective in accordance with its terms and the provisions of this chapter.
The certificate, agreement of merger, or other instrument shall be signed and verified, as may be directed by the orders of the court or judge, by the trustee or trustees appointed in the reorganization proceeding (or a majority thereof) or, if none is appointed and acting, by officers of the corporation designated or by a master or other representative appointed by the court or judge, and shall state that provision for the making of that certificate, agreement of merger, or instrument is contained in an order, identifying the same, of a court or judge having jurisdiction of a proceeding under a statute of the United States for the reorganization of that corporation.
Notwithstanding subdivision (b), a trustee, liquidating agent, responsible officer, or other representative appointed by the court for a corporation, with respect to which a proceeding has been initiated under any applicable statute of the United States as described in subdivision (a) of Section 1401.5 may execute and file a certificate of dissolution as provided in subdivision (b) of Section 1401.5.
A trustee, liquidating agent, responsible officer, or other representative appointed by the court for a corporation subject to an order for relief entered in a case under Chapter 11 (commencing with Section 1101) of Title 11 of the United States Code may sign and verify a certificate of dissolution when the corporation has been completely wound up.
The certificate of dissolution shall state the following:
The name of the corporation.
That an order for relief was entered in a case under Chapter 11 (commencing with Section 1101) of Title 11 of the United States Code with respect to the corporation.
The identification of the court in which the order for relief was entered and the court’s file number for the matter.
That an order confirming a reorganization plan has been entered in that case.
That the undersigned has been appointed by the court as a trustee, liquidating agent, responsible officer, or other representative of the corporation.
That the shares of the corporation have been canceled pursuant to the terms of that plan.
That the assets of the corporation have been distributed pursuant to the terms of that plan.
That the corporation is dissolved.
The provisions of this chapter shall cease to apply to a corporation upon the entry of a final decree in the reorganization proceeding closing the case and discharging the trustee or trustees, if any, whether or not jurisdiction may be retained thereafter by the court for limited purposes which do not relate to the consummation of the plan.
For filing any certificate, agreement or other paper pursuant to this chapter there shall be paid to the Secretary of State the same fees as are payable by corporations not in reorganization proceedings upon the filing of like certificates, agreements or other papers.
CHAPTER 15. Records and Reports [1500. - 1512.]
Each corporation shall keep adequate and correct books and records of account and shall keep minutes of the proceedings of its shareholders, board and committees of the board and shall keep at its principal office, or at the office of its transfer agent or registrar, a record of its shareholders, giving the names and addresses of all shareholders and the number and class of shares held by each. Those minutes and other books and records shall be kept either in written form or in another form capable of being converted into clearly legible tangible form or in any combination of the foregoing. When minutes and other books and records are kept in a form capable of being converted into clearly legible paper form, the clearly legible paper form into which those minutes and other books and records are converted shall be admissible in evidence, and accepted for all other purposes, to the same extent as an original paper record of the same information would have been, provided that the paper form accurately portrays the record.
The board shall cause an annual report to be sent to the shareholders not later than 120 days after the close of the fiscal year, unless in the case of a corporation with less than 100 holders of record of its shares (determined as provided in Section 605) this requirement is expressly waived in the bylaws. Unless otherwise provided by the articles or bylaws and if approved by the board of directors, that report and any accompanying material sent pursuant to this section may be sent by electronic transmission by the corporation (Section 20). This report shall contain a balance sheet as of the end of that fiscal year and an income statement and a statement of cashflows for that fiscal year, accompanied by any report thereon of independent accountants or, if there is no report, the certificate of an authorized officer of the corporation that the statements were prepared without audit from the books and records of the corporation.
Unless so waived, the report specified in paragraph (1) shall be sent to the shareholders at least 15 (or, if sent by third-class mail, 35) days before the annual meeting of shareholders to be held during the next fiscal year, but this requirement shall not limit the requirement for holding an annual meeting as required by Section 600.
Notwithstanding Section 114, the financial statements of any corporation with fewer than 100 holders of record of its shares (determined as provided in Section 605) required to be furnished by this subdivision and subdivision (c) are not required to be prepared in conformity with generally accepted accounting principles if they reasonably set forth the assets and liabilities and the income and expense of the corporation and disclose the accounting basis used in their preparation.
The requirements described in paragraphs (1) and (2) shall be satisfied if a corporation with an outstanding class of securities registered under Section 12 of the Securities Exchange Act of 1934 complies with Section 240.14a-16 of Title 17 of the Code of Federal Regulations, as it may be amended from time to time, with respect to the obligation of a corporation to furnish an annual report to shareholders pursuant to Section 240.14a-3(b) of Title 17 of the Code of Federal Regulations.
In addition to the financial statements required by subdivision (a), the annual report of any corporation having 100 or more holders of record of its shares (determined as provided in Section 605) either not subject to the reporting requirements of Section 13 of the Securities Exchange Act of 1934, or exempted from those reporting requirements by Section 12(g)(2) of that act, shall also describe briefly both of the following:
Any transaction (excluding compensation of officers and directors) during the previous fiscal year involving an amount in excess of forty thousand dollars ($40,000) (other than contracts let at competitive bid or services rendered at prices regulated by law) to which the corporation or its parent or subsidiary was a party and in which any director or officer of the corporation or of a subsidiary or (if known to the corporation or its parent or subsidiary) any holder of more than 10 percent of the outstanding voting shares of the corporation had a direct or indirect material interest, naming the person and stating the person’s relationship to the corporation, the nature of the person’s interest in the transaction and, where practicable, the amount of the interest; provided that in the case of a transaction with a partnership of which the person is a partner, only the interest of the partnership need be stated; and provided further that no report need be made in the case of any transaction approved by the shareholders (Section 153).
The amount and circumstances of any indemnification or advances aggregating more than ten thousand dollars ($10,000) paid during the fiscal year to any officer or director of the corporation pursuant to Section 317; provided that no report need be made in the case of indemnification approved by the shareholders (Section 153) under paragraph (2) of subdivision (e) of Section 317.
If no annual report for the last fiscal year has been sent to shareholders, the corporation shall, upon the written request of any shareholder made more than 120 days after the close of that fiscal year, deliver or mail to the person making the request within 30 days thereafter the financial statements required by subdivision (a) for that year. A shareholder or shareholders holding at least 5 percent of the outstanding shares of any class of a corporation may make a written request to the corporation for an income statement of the corporation for the three-month, six-month, or nine-month period of the current fiscal year ended more than 30 days before the date of the request and a balance sheet of the corporation as of the end of the period and, in addition, if no annual report for the last fiscal year has been sent to shareholders, the statements referred to in subdivision (a) for the last fiscal year. The statements shall be delivered or mailed to the person making the request within 30 days thereafter. A copy of the statements shall be kept on file in the principal office of the corporation for 12 months and it shall be exhibited at all reasonable times to any shareholder demanding an examination of the statements or a copy shall be mailed to the shareholder.
The quarterly income statements and balance sheets referred to in this section shall be accompanied by the report thereon, if any, of any independent accountants engaged by the corporation or the certificate of an authorized officer of the corporation that the financial statements were prepared without audit from the books and records of the corporation.
In addition to the penalties provided for in Section 2200, the superior court of the proper county shall enforce the duty of making and mailing or delivering the information and financial statements required by this section and, for good cause shown, may extend the time therefor.
In any action or proceeding under this section, if the court finds the failure of the corporation to comply with the requirements of this section to have been without justification, the court may award an amount sufficient to reimburse the shareholder for the reasonable expenses incurred by the shareholder, including attorney’s fees, in connection with the action or proceeding.
This section applies to any domestic corporation and also to a foreign corporation having its principal office in California or customarily holding meetings of its board in this state.
Every corporation shall file, within 90 days after the filing of its original articles and annually thereafter during the applicable filing period, on a form prescribed by the Secretary of State, a statement containing all of the following:
The name of the corporation and the Secretary of State’s file number.
The names and complete business or residence addresses of its incumbent directors.
The number of vacancies on the board, if any.
The names and complete business or residence addresses of its chief executive officer, secretary, and chief financial officer.
The street address of its principal executive office.
The mailing address of the corporation, if different from the street address of its principal executive office.
If the address of its principal executive office is not in this state, the street address of its principal business office in this state, if any.
If the corporation chooses to receive renewal notices and any other notifications from the Secretary of State by electronic mail instead of by United States mail, the corporation shall include a valid electronic mail address for the corporation or for the corporation’s designee to receive those notices.
A statement of the general type of business that constitutes the principal business activity of the corporation, such as, for example, manufacturer of aircraft, wholesale liquor distributor, or retail department store.
A statement indicating whether any officer or any director has an outstanding final judgment issued by the Division of Labor Standards Enforcement or a court of law, for which no appeal therefrom is pending, for the violation of any wage order or provision of the Labor Code.
The statement required by subdivision (a) shall also designate, as the agent of the corporation for the purpose of service of process, a natural person residing in this state or a corporation that has complied with Section 1505 and whose capacity to act as an agent has not terminated. If a natural person is designated, the statement shall set forth that person’s complete business or residence street address. If a corporate agent is designated, no address for it shall be set forth.
If there has been no change in the information in the last filed statement of the corporation on file in the Secretary of State’s office, the corporation may, in lieu of filing the statement required by subdivisions (a) and (b), advise the Secretary of State, on a form prescribed by the Secretary of State, that no changes in the required information have occurred during the applicable filing period.
For the purposes of this section, the applicable filing period for a corporation shall be the calendar month during which its original articles were filed and the immediately preceding five calendar months. The Secretary of State shall provide a notice to each corporation to comply with this section approximately three months prior to the close of the applicable filing period. The notice shall state the due date for compliance and shall be sent to the last address of the corporation according to the records of the Secretary of State or to the last electronic mail address according to the records of the Secretary of State if the corporation has elected to receive notices from the Secretary of State by electronic mail. The failure of the corporation to receive the notice is not an excuse for failure to comply with this section.
Whenever any of the information required by subdivision (a) is changed, the corporation may file a current statement containing all the information required by subdivisions (a) and (b). In order to change its agent for service of process or the address of the agent, the corporation must file a current statement containing all the information required by subdivisions (a) and (b). Whenever any statement is filed pursuant to this section, it supersedes any previously filed statement and the statement in the articles as to the agent for service of process and the address of the agent.
The Secretary of State may destroy or otherwise dispose of any statement filed pursuant to this section after it has been superseded by the filing of a new statement.
This section shall not be construed to place any person dealing with the corporation on notice of, or under any duty to inquire about, the existence or content of a statement filed pursuant to this section.
The statement required by subdivision (a) shall be available and open to the public for inspection. The Secretary of State shall provide access to all information contained in this statement by means of an online database.
In addition to any other fees required, a corporation shall pay a five-dollar ($5) disclosure fee when filing the statement required by subdivision (a). One-half of the fee shall, notwithstanding Section 12176 of the Government Code, be deposited into the Business Programs Modernization Fund established in subdivision (k), and one-half shall be deposited into the Victims of Corporate Fraud Compensation Fund established in Section 2280.
A corporation shall certify that the information it provides pursuant to subdivisions (a) and (b) is true and correct. No claim may be made against the state for inaccurate information contained in the statements.
There is hereby established the Business Programs Modernization Fund in the State Treasury. Moneys deposited into the fund shall, upon appropriation by the Legislature, be available to the Secretary of State to further the purposes of this section, including the development and maintenance of the online database required by subdivision (h), and by subdivision (c) of Section 2117.
This section shall become operative on January 1, 2022, or upon certification by the Secretary of State that California Business Connect is implemented, whichever date is earlier.
If the Secretary of State certifies California Business Connect is implemented prior to January 1, 2022, the Secretary of State shall post notice of the certification on the homepage of its internet website and send notice of the certification to the Legislative Counsel.
In addition to the statement required pursuant to Section 1502, every publicly traded corporation shall file annually, within 150 days after the end of its fiscal year, a statement, on a form prescribed by the Secretary of State, that includes all of the following information:
The name of the independent auditor that prepared the most recent auditor’s report on the corporation’s annual financial statements.
A description of other services, if any, performed for the corporation during its two most recent fiscal years and the period between the end of its most recent fiscal year and the date of the statement by the foregoing independent auditor, by its parent corporation, or by a subsidiary or corporate affiliate of the independent auditor or its parent corporation.
The name of the independent auditor employed by the corporation on the date of the statement, if different from the independent auditor listed pursuant to paragraph (1).
The compensation for the most recent fiscal year of the corporation paid to each member of the board of directors and paid to each of the five most highly compensated executive officers of the corporation who are not members of the board of directors, including the number of any shares issued, options for shares granted, and similar equity-based compensation granted to each of those persons. If the chief executive officer is not among the five most highly compensated executive officers of the corporation, the compensation paid to the chief executive officer shall also be included.
A description of any loan, including the amount and terms of the loan, made to any member of the board of directors by the corporation during the corporation’s two most recent fiscal years at an interest rate lower than the interest rate available from unaffiliated commercial lenders generally to a similarly-situated borrower.
A statement indicating whether an order for relief has been entered in a bankruptcy case with respect to the corporation, its executive officers, or members of the board of directors of the corporation during the 10 years preceding the date of the statement.
A statement indicating whether any member of the board of directors or executive officer of the corporation was convicted of fraud during the 10 years preceding the date of the statement, if the conviction has not been overturned or expunged.
A description of any material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which the corporation or any of its subsidiaries is a party or of which any of their property is the subject, as specified by Item 103 of Regulation S-K of the Securities and Exchange Commission (Section 229.103 of Title 12 of the Code of Federal Regulations). A description of any material legal proceeding during which the corporation was found legally liable by entry of a final judgment or final order that was not overturned on appeal during the five years preceding the date of the statement.
For purposes of this section, the following definitions apply:
“Publicly traded corporation” means a corporation, as defined in Section 162, that is an issuer as defined in Section 3 of the Securities Exchange Act of 1934, as amended (15 U.S.C. Sec. 78c), and has at least one class of securities listed or admitted for trading on a national securities exchange, on the OTC Bulletin Board, or on the electronic service operated by OTC Markets Group Inc.
“Executive officer” means the chief executive officer, president, any vice president in charge of a principal business unit, division, or function, any other officer of the corporation who performs a policymaking function, or any other person who performs similar policymaking functions for the corporation.
“Compensation” as used in paragraph (4) of subdivision (a) means all plan and nonplan compensation awarded to, earned by, or paid to the person for all services rendered in all capacities to the corporation and to its subsidiaries, as the compensation is specified by Item 402 of Regulation S-K of the Securities and Exchange Commission (Section 229.402 of Title 17 of the Code of Federal Regulations).
This statement shall be available and open to the public for inspection. The Secretary of State shall provide access to all information contained in this statement by means of an online database.
A corporation shall certify that the information it provides pursuant to this section is true and correct. No claim may be made against the state for inaccurate information contained in statements filed under this section with the Secretary of State.
An agent designated for service of process pursuant to Section 202, 1502, 2105, or 2117 may deliver to the Secretary of State, on a form prescribed by the Secretary of State for filing, a signed and acknowledged written statement of resignation as an agent for service of process. The form shall contain the name of the corporation, the Secretary of State’s file number of the corporation, the name of the resigning agent for service of process, and a statement that the agent is resigning. Thereupon the authority of the agent to act in such capacity shall cease and the Secretary of State forthwith shall mail or otherwise provide written notice of the filing of the statement of resignation to the corporation at its principal office.
The resignation of an agent may be effective if, on a form prescribed by the Secretary of State containing the name of the corporation, the Secretary of State’s file number for the corporation, and the name of the resigning agent for service of process, the agent disclaims having been properly appointed as the agent. Similarly, a person named as an officer or director may indicate that the person was never properly appointed as the officer or director.
If a natural person who has been designated agent for service of process pursuant to Section 202, 1502, 2105, or 2117 dies or resigns or no longer resides in the state or if the corporate agent for such purpose resigns, dissolves, withdraws from the state, forfeits its right to transact intrastate business, has its corporate rights, powers and privileges suspended or ceases to exist, the corporation shall forthwith file a designation of a new agent conforming to the requirements of Section 1502 or 2117.
Any domestic or foreign corporation, before it may be designated as the agent for the purpose of service of process of any entity pursuant to any law which refers to this section, shall file a certificate executed in the name of the corporation by an officer thereof stating all of the following:
The complete street address of its office or offices in this state, wherein any entity designating it as such agent may be served with process.
The name of each person employed by it at each such office to whom it authorizes the delivery of a copy of any such process.
Its consent that delivery thereof to any such person at the office where the person is employed shall constitute delivery of any such copy to it, as such agent.
Any corporation which has filed the certificate provided for in subdivision (a) may file any number of supplemental certificates containing all the statements provided for in subdivision (a), which, upon the filing thereof, shall supersede the statements contained in the original or in any supplemental certificate previously filed.
No domestic or foreign corporation may file a certificate pursuant to this section unless it is currently authorized to engage in business in this state and is in good standing on the records of the Secretary of State.
Upon request of an assessor, a domestic or foreign corporation owning, claiming, possessing or controlling property in this state subject to local assessment shall make available at the corporation’s principal office in California or at a place mutually acceptable to the assessor and the corporation a true copy of business records relevant to the amount, cost and value of all property that it owns, claims, possesses or controls within the county.
Any officers, directors, employees or agents of a corporation who do any of the following are liable jointly and severally for all the damages resulting therefrom to the corporation or any person injured thereby who relied thereon or to both:
Make, issue, deliver or publish any prospectus, report, circular, certificate, financial statement, balance sheet, public notice or document respecting the corporation or its shares, assets, liabilities, capital, dividends, business, earnings or accounts which is false in any material respect, knowing it to be false, or participate in the making, issuance, delivery or publication thereof with knowledge that the same is false in a material respect.
Make or cause to be made in the books, minutes, records or accounts of a corporation any entry which is false in any material particular knowing such entry is false.
Remove, erase, alter or cancel any entry in any books or records of the corporation, with intent to deceive.
The Attorney General, upon complaint that a foreign or domestic corporation is failing to comply with the provisions of this chapter or Chapter 6 (commencing with Section 600), 7 (commencing with Section 700), or 16 (commencing with Section 1600), may in the name of the people of the State of California send to the principal office of such corporation notice of the complaint. If the answer is not satisfactory, the Attorney General may institute, maintain or intervene in such suits, actions or proceedings of any type in any court or tribunal of competent jurisdiction or before any administrative agency for such relief by way of injunction, the dissolution of entities, the appointment of receivers or any other temporary, preliminary, provisional or final remedies as may be appropriate to protect the rights of shareholders or to undo the consequences of failure to comply with such requirements. In any such action, suit or proceeding there may be joined as parties all persons and entities responsible for or affected by such activity.
For a period of 60 days following the conclusion of an annual, regular, or special meeting of shareholders, a corporation shall, upon written request from a shareholder, forthwith inform the shareholder of the result of any particular vote of shareholders taken at the meeting, including the number of shares voting for, the number of shares voting against, and the number of shares abstaining or withheld from voting. If the matter voted on was the election of directors, the corporation shall report the number of shares (or votes if voted cumulatively) cast for each nominee for director. If more than one class or series of shares voted, the report shall state the appropriate numbers by class and series of shares.
Any foreign corporation qualified to transact intrastate business in this state shall provide the information specified in Section 1509, at the request of a shareholder resident in this state.
Any of the following shall be considered to be a shareholder resident in this state:
A natural person residing in this state.
A bank organized under Division 1 (commencing with Section 99) of the Financial Code, whether acting for itself, acting as a sole fiduciary, or acting with one or more other persons as a fiduciary.
A national bank having its head office in this state whether acting for itself, acting as a sole fiduciary, or acting with one or more other persons as a fiduciary.
Any retirement fund for public employees established or authorized by any law of this state.
Any foreign corporation which is not qualified to transact intrastate business in this state but has one or more subsidiaries which are domestic corporations or foreign corporations qualified to transact intrastate business in this state shall provide the information specified in Section 1509, at the request of a shareholder resident in this state, as defined by subdivision (b) of Section 1510.
For the purposes of Sections 1509, 1510, and 1511, a shareholder includes (1) any person named in a share certificate as a shareholder or (2) any person named as a shareholder on the records of a central depository, bank, or broker-dealer with respect to shares which are subject to the control of the central depository, bank, or broker-dealer.
A beneficiary of a trust, a beneficiary of the estate of a decedent, or an employee with respect to a pension, retirement, or health care trust or fund is not a shareholder of any shares standing in the name of the trust, the fund, the decedent, or the estate of the decedent.
A person who is a shareholder by reason of paragraph (2) of subdivision (a) shall provide the corporation with a photocopy of a receipt of a statement from the central depository, bank, or broker-dealer showing the person to be a shareholder and the corporation shall accept the photocopy as sufficient evidence thereof.
CHAPTER 16. Rights of Inspection [1600. - 1605.]
A shareholder or shareholders holding at least 5 percent in the aggregate of the outstanding voting shares of a corporation or who hold at least 1 percent of those voting shares and have filed a Schedule 14A with the United States Securities and Exchange Commission shall have an absolute right to do either or both of the following: (1) inspect and copy the record of shareholders’ names and addresses and shareholdings during usual business hours upon five business days’ prior written demand upon the corporation, or (2) obtain from the transfer agent for the corporation, upon written demand and upon the tender of its usual charges for such a list (the amount of which charges shall be stated to the shareholder by the transfer agent upon request), a list of the shareholders’ names and addresses, who are entitled to vote for the election of directors, and their shareholdings, as of the most recent record date for which it has been compiled or as of a date specified by the shareholder subsequent to the date of demand. The list shall be made available on or before the later of five business days after the demand is received or the date specified therein as the date as of which the list is to be compiled. A corporation shall have the responsibility to cause its transfer agent to comply with this subdivision.
Any delay by the corporation or the transfer agent in complying with a demand under subdivision (a) beyond the time limits specified therein shall give the shareholder or shareholders properly making the demand a right to obtain from the superior court, upon the filing of a verified complaint in the proper county and after a hearing, notice of which shall be given to such persons and in such manner as the court may direct, an order postponing any shareholders’ meeting previously noticed for a period equal to the period of such delay. Such right shall be in addition to any other legal or equitable remedies to which the shareholder may be entitled.
The record of shareholders shall also be open to inspection and copying by any shareholder or holder of a voting trust certificate at any time during usual business hours upon written demand on the corporation, for a purpose reasonably related to such holder’s interests as a shareholder or holder of a voting trust certificate.
Any inspection and copying under this section may be made in person or by agent or attorney. The rights provided in this section may not be limited by the articles or bylaws. This section applies to any domestic corporation and to any foreign corporation having its principal office in California or customarily holding meetings of its board in this state.
The accounting books, records, and minutes of proceedings of the shareholders and the board and committees of the board of any domestic corporation, and of any foreign corporation keeping any records in this state or having its principal office in California, or a true and accurate copy thereof if the original has been lost, destroyed, or is not normally physically located within this state shall be open to inspection at the corporation’s principal office in California, or if none, at the physical location for the corporation’s registered agent for service of process in this state, upon the written demand on the corporation of any shareholder or holder of a voting trust certificate at any reasonable time during usual business hours, for a purpose reasonably related to the holder’s interests as a shareholder or as the holder of a voting trust certificate.
As an alternative to the procedure in subdivision (a), the shareholder or holder of a voting trust certificate may elect to request that the corporation produce the books, records, and minutes by mail or electronically, if the shareholder or holder of a voting trust certificate pays for the reasonable costs for copying or converting the requested documents to electronic format.
The right of inspection created by this subdivision shall extend to the records of each subsidiary of a corporation subject to this subdivision.
The inspection by a shareholder or holder of a voting trust certificate may be made in person or by agent or attorney, and the right of inspection includes the right to copy and make extracts. The right of the shareholders to inspect the corporate records may not be limited by the articles or bylaws.
Every director shall have the absolute right at any reasonable time to inspect and copy all books, records and documents of every kind and to inspect the physical properties of the corporation of which such person is a director and also of its subsidiary corporations, domestic or foreign. Such inspection by a director may be made in person or by agent or attorney and the right of inspection includes the right to copy and make extracts. This section applies to a director of any foreign corporation having its principal office in California or customarily holding meetings of its board in California.
Upon refusal of a lawful demand for inspection, the superior court of the proper county, may enforce the right of inspection with just and proper conditions or may, for good cause shown, appoint one or more competent inspectors or accountants to audit the books and records kept in this state and investigate the property, funds and affairs of any domestic corporation or any foreign corporation keeping records in this state and of any subsidiary corporation thereof, domestic or foreign, keeping records in this state and to report thereon in such manner as the court may direct.
All officers and agents of the corporation shall produce to the inspectors or accountants so appointed all books and documents in their custody or power, under penalty of punishment for contempt of court.
All expenses of the investigation or audit shall be defrayed by the applicant unless the court orders them to be paid or shared by the corporation.
In any action or proceeding under Section 1600 or Section 1601, if the court finds the failure of the corporation to comply with a proper demand thereunder was without justification, the court may award an amount sufficient to reimburse the shareholder or holder of a voting trust certificate for the reasonable expenses incurred by such holder, including attorneys’ fees, in connection with such action or proceeding.
If any record subject to inspection pursuant to this chapter is not maintained in written form, a request for inspection is not complied with unless and until the corporation at its expense makes such record available in written form.
CHAPTER 17. Service of Process [1700. - 1702.]
In addition to the provisions of Chapter 4 (commencing with Section 413. 10) of Title 5 of Part 2 of the Code of Civil Procedure, process may be served upon domestic corporations as provided in this chapter.
Delivery by hand of a copy of any process against the corporation (a) to any natural person designated by it as agent or (b), if a corporate agent has been designated, to any person named in the latest certificate of the corporate agent filed pursuant to Section 1505 at the office of such corporate agent shall constitute valid service on the corporation.
If an agent for the purpose of service of process has resigned and has not been replaced or if the agent designated cannot with reasonable diligence be found at the address designated for personally delivering the process, or if no agent has been designated, and it is shown by affidavit to the satisfaction of the court that process against a domestic corporation cannot be served with reasonable diligence upon the designated agent by hand in the manner provided in Section 415.10, subdivision (a) of Section 415.20 or subdivision (a) of Section 415.30 of the Code of Civil Procedure or upon the corporation in the manner provided in subdivision (a), (b), or (c) of Section 416.10 or subdivision (a) of Section 416.20 of the Code of Civil Procedure, the court may make an order that the service be made upon the corporation by delivering by hand to the Secretary of State, or to any person employed in the Secretary of State’s office in the capacity of assistant or deputy, one copy of the process for each defendant to be served, together with a copy of the order authorizing such service. Service in this manner is deemed complete on the 10th day after delivery of the process to the Secretary of State.
Upon the receipt of any such copy of process and the fee therefor, the Secretary of State shall give notice of the service of the process to the corporation at its principal office, by forwarding to such office, by registered mail with request for return receipt, the copy of the process or, if the records of the Secretary of State do not disclose an address for its principal office, by forwarding such copy in the same manner to the last designated agent for service of process who has not resigned. If the agent for service of process has resigned and has not been replaced and the records of the Secretary of State do not disclose an address for its principal office, no action need be taken by the Secretary of State.
The Secretary of State shall keep a record of all process served upon the Secretary of State under this chapter and shall record therein the time of service and the Secretary of State’s action with reference thereto. The certificate of the Secretary of State, under the Secretary of State’s official seal, certifying to the receipt of process, the giving of notice thereof to the corporation and the forwarding of such process pursuant to this section, shall be competent and prima facie evidence of the matters stated therein.
The court order pursuant to subdivision (a) that service of process be made upon the corporation by delivery to the Secretary of State may be a court order of a court of another state, or of any federal court if the suit, action, or proceeding has been filed in that court.
CHAPTER 18. Involuntary Dissolution [1800. - 1809.]
A verified complaint for involuntary dissolution of a corporation on any one or more of the grounds specified in subdivision (b) may be filed in the superior court of the proper county by any of the following persons:
One-half or more of the directors in office.
A shareholder or shareholders who hold shares representing not less than 3313 percent of (i) the total number of outstanding shares (assuming conversion of any preferred shares convertible into common shares) or (ii) the outstanding common shares or (iii) the equity of the corporation, exclusive in each case of shares owned by persons who have personally participated in any of the transactions enumerated in paragraph (4) of subdivision (b), or any shareholder or shareholders of a close corporation.
Any shareholder if the ground for dissolution is that the period for which the corporation was formed has terminated without extension thereof.
Any other person expressly authorized to do so in the articles.
The grounds for involuntary dissolution are that:
The corporation has abandoned its business for more than one year.
The corporation has an even number of directors who are equally divided and cannot agree as to the management of its affairs, so that its business can no longer be conducted to advantage or so that there is danger that its property and business will be impaired or lost, and the holders of the voting shares of the corporation are so divided into factions that they cannot elect a board consisting of an uneven number.
There is internal dissension and two or more factions of shareholders in the corporation are so deadlocked that its business can no longer be conducted with advantage to its shareholders or the shareholders have failed at two consecutive annual meetings at which all voting power was exercised, to elect successors to directors whose terms have expired or would have expired upon election of their successors.
Those in control of the corporation have been guilty of or have knowingly countenanced persistent and pervasive fraud, mismanagement or abuse of authority or persistent unfairness toward any shareholders or its property is being misapplied or wasted by its directors or officers.
In the case of any corporation with 35 or fewer shareholders (determined as provided in Section 605), liquidation is reasonably necessary for the protection of the rights or interests of the complaining shareholder or shareholders.
The period for which the corporation was formed has terminated without extension of such period.
At any time prior to the trial of the action any shareholder or creditor may intervene therein.
This section does not apply to any corporation subject to the Banking Law (Division 1.1 (commencing with Section 1000) of the Financial Code), the Public Utilities Act (Part 1 (commencing with 201) of Division 1 of the Public Utilities Code), the Savings Association Law (Division 2 (commencing with Section 5000) of the Financial Code) or Article 14 (commencing with Section 1010) of Chapter 1 of Part 2 of Division 1 of the Insurance Code.
The Attorney General may bring an action against any domestic corporation or purported domestic corporation in the name of the people of this state, upon the Attorney General’s own information or upon complaint of a private party, to procure a judgment dissolving the corporation and annulling, vacating or forfeiting its corporate existence upon any of the following grounds:
The corporation has seriously offended against any provision of the statutes regulating corporations.
The corporation has fraudulently abused or usurped corporate privileges or powers.
The corporation has violated any provision of law by any act or default which under the law is a ground for forfeiture of corporate existence.
The corporation has failed to pay to the Franchise Tax Board for a period of five years any tax imposed upon it by the Bank and Corporation Tax Law.
If the ground of the action is a matter or act which the corporation has done or omitted to do that can be corrected by amendment of its articles or by other corporate action, such suit shall not be maintained unless (1) the Attorney General, at least 30 days prior to the institution of suit, has given the corporation written notice of the matter or act done or omitted to be done and (2) the corporation has failed to institute proceedings to correct it within the 30-day period or thereafter fails to prosecute such proceedings.
In any such action the court may order dissolution or such other or partial relief as it deems just and expedient. The court also may appoint a receiver for winding up the affairs of the corporation or may order that the corporation be wound up by its board subject to the supervision of the court.
Service of process on the corporation may be made pursuant to Chapter 17 or by written notice to the president or secretary of the corporation at the address indicated in the corporation’s last tax return filed pursuant to the Bank and Corporation Tax Law. The Attorney General shall also publish one time in a newspaper of general circulation in the proper county a notice to the shareholders of the corporation.
If the ground for the complaint for involuntary dissolution of the corporation is a deadlock in the board as set forth in subdivision (b)(2) of Section 1800, the court may appoint a provisional director. The provisions of subdivision (c) of Section 308 apply to any such provisional director so appointed.
If, at the time of the filing of a complaint for involuntary dissolution or at any time thereafter, the court has reasonable grounds to believe that unless a receiver of the corporation is appointed the interests of the corporation and its shareholders will suffer pending the hearing and determination of the complaint, upon the application of the plaintiff, and after a hearing upon such notice to the corporation as the court may direct and upon the giving of security pursuant to Sections 566 and 567 of the Code of Civil Procedure, the court may appoint a receiver to take over and manage the business and affairs of the corporation and to preserve its property pending the hearing and determination of the complaint for dissolution.
After hearing the court may decree a winding up and dissolution of the corporation if cause therefor is shown or, with or without winding up and dissolution, may make such orders and decrees and issue such injunctions in the case as justice and equity require.
Involuntary proceedings for winding up a corporation commence when the order for winding up is entered under Section 1804.
When an involuntary proceeding for winding up has commenced, the board shall conduct the winding up of the affairs of the corporation, subject to the supervision of the court, unless other persons are appointed by the court, on good cause shown, to conduct the winding up. The directors or such other persons may, subject to any restrictions imposed by the court, exercise all their powers through the executive officers without any order of court.
When an involuntary proceeding for winding up has commenced, the corporation shall cease to carry on business except to the extent necessary for the beneficial winding up thereof and except during such period as the board may deem necessary to preserve the corporation’s goodwill or going-concern value pending a sale of its business or assets, or both, in whole or in part. The directors shall cause written notice of the commencement of the proceeding for involuntary winding up to be given by mail to all shareholders and to all known creditors and claimants whose addresses appear on the records of the corporation, unless the order for winding up has been stayed by appeal therefrom or otherwise or the proceeding or the execution of the order has been enjoined.
When an involuntary proceeding for winding up has been commenced, the jurisdiction of the court includes:
The requirement of the proof of all claims and demands against the corporation, whether due or not yet due, contingent, unliquidated or sounding only in damages, and the barring from participation of creditors and claimants failing to make and present claims and proof as required by any order.
The determination or compromise of all claims of every nature against the corporation or any of its property, and the determination of the amount of money or assets required to be retained to pay or provide for the payment of claims.
The determination of the rights of shareholders and of all classes of shareholders in and to the assets of the corporation.
The presentation and filing of intermediate and final accounts of the directors or other persons appointed to conduct the winding up and hearing thereon, the allowance, disallowance or settlement thereof and the discharge of the directors or such other persons from their duties and liabilities.
The appointment of a commissioner to hear and determine any or all matters, with such power or authority as the court may deem proper.
The filling of any vacancies on the board which the directors or shareholders are unable to fill.
The removal of any director if it appears that the director has been guilty of dishonesty, misconduct, neglect or abuse of trust in conducting the winding up or if the director is unable to act. The court may order an election to fill the vacancy so caused, and may enjoin, for such time as it considers proper, the reelection of the director so removed; or the court, in lieu of ordering an election, may appoint a director to fill the vacancy caused by such removal. Any director so appointed by the court shall serve until the next annual meeting of shareholders or until a successor is elected or appointed.
Staying the prosecution of any suit, proceeding or action against the corporation and requiring the parties to present and prove their claims in the manner required of other creditors.
The determination of whether adequate provision has been made for payment or satisfaction of all debts and liabilities not actually paid.
The making of orders for the withdrawal or termination of proceedings to wind up and dissolve, subject to conditions for the protection of shareholders and creditors.
The making of an order, upon the allowance or settlement of the final accounts of the directors or such other persons, that the corporation has been duly wound up and is dissolved. Upon the making of such order, the corporate existence shall cease except for purposes of further winding up if needed.
The making of orders for the bringing in of new parties as the court deems proper for the determination of all questions and matters.
All creditors and claimants may be barred from participation in any distribution of the general assets if they fail to make and present claims and proofs within such time as the court may direct, which shall not be less than four nor more than six months after the first publication of notice to creditors unless it appears by affidavit that there are no claims, in which case the time limit may be three months. If it is shown that a claimant did not receive notice because of absence from the state or other cause, the court may allow a claim to be filed or presented at any time before distribution is completed.
Such notice to creditors shall be published not less than once a week for three consecutive weeks in a newspaper of general circulation published in the county in which the proceeding is pending or, if there is no such newspaper published in that county, in such newspaper as may be designated by the court, directing creditors and claimants to make and present claims and proofs to the person, at the place and within the time specified in the notice. A copy of the notice shall be mailed to each person shown as a creditor or claimant on the books of the corporation, at such person’s last known address.
Holders of secured claims may prove for the whole debt in order to realize any deficiency. If such creditors fail to present their claims they shall be barred only as to any right to claim against the general assets for any deficiency in the amount realized on their security.
Before any distribution is made the amount of any unmatured, contingent or disputed claim against the corporation which has been presented and has not been disallowed, or such part of any such claim as the holder would be entitled to if the claim were due, established or absolute, shall be paid into court and there remain to be paid over to the party when the party becomes entitled thereto or, if the party fails to establish a claim, to be paid over or distributed with the other assets of the corporation to those entitled thereto; or such other provision for the full payment of such claim, if and when established, shall be made as the court may deem adequate. A creditor whose claim has been allowed but is not yet due shall be entitled to its present value upon distribution.
Suits against the corporation on claims which have been rejected shall be commenced within 30 days after written notice of rejection thereof is given to the claimant.
Upon the final settlement of the accounts of the directors or other persons appointed pursuant to Section 1805 and the determination that the corporation’s affairs are in condition for it to be dissolved, the court may make an order declaring the corporation duly wound up and dissolved. The order shall declare:
That the corporation has been duly wound up, that a final franchise tax return, as described by Section 23332 of the Revenue and Taxation Code, has been filed with the Franchise Tax Board as required under Part 10.2 (commencing with Section 18401) of Division 2 of the Revenue and Taxation Code, and that its known debts and liabilities have been paid or adequately provided for, or that those debts and liabilities have been paid as far as its assets permitted, as the case may be. If there are known debts or liabilities for payment of which adequate provision has been made, the order shall state what provision has been made, setting forth the name and address of the corporation, person or governmental agency that has assumed or guaranteed the payment, or the name and address of the depositary with which deposit has been made or such other information as may be necessary to enable the creditor or other person to whom payment is to be made to appear and claim payment of the debt or liability.
That its known assets have been distributed to the persons entitled thereto or that it acquired no known assets, as the case may be.
That the accounts of directors or such other persons have been settled and that they are discharged from their duties and liabilities to creditors and shareholders.
That the corporation is dissolved.
The court may make such additional orders and grant such further relief as it deems proper upon the evidence submitted.
Upon the making of the order declaring the corporation dissolved, corporate existence shall cease except for the purposes of further winding up if needed; and the directors or such other persons shall be discharged from their duties and liabilities, except in respect to completion of the winding up.
Whenever a corporation is dissolved or its existence forfeited by order, decree or judgment of a court, a copy of the order, decree or judgment, certified by the clerk of court, shall forthwith be filed in the office of the Secretary of State. The Secretary of State shall notify the Franchise Tax Board of the dissolution.
CHAPTER 19. Voluntary Dissolution [1900. - 1907.]
Any corporation may elect voluntarily to wind up and dissolve by the vote of shareholders holding shares representing 50 percent or more of the voting power.
Any corporation which comes within one of the following descriptions may elect by approval by the board to wind up and dissolve:
A corporation as to which an order for relief has been entered under Chapter 7 of the federal bankruptcy law.
A corporation which has disposed of all of its assets and has not conducted any business for a period of five years immediately preceding the adoption of the resolution electing to dissolve the corporation.
A corporation which has issued no shares.
Notwithstanding any other provision of this division, when a corporation has not issued shares, a majority of the directors, or, if no directors have been named in the articles or been elected, the incorporator or a majority of the incorporators may sign and verify a certificate of dissolution stating the following:
That the certificate of dissolution is being filed within 12 months from the date the articles of incorporation were filed.
That the corporation does not have any debts or other liabilities, except as provided in paragraph (3).
That the tax liability will be satisfied on a taxes paid basis or that a person or corporation or other business entity assumes the tax liability, if any, of the dissolving corporation and is responsible for additional corporate taxes, if any, that are assessed and that become due after the date of the assumption of the tax liability.
That a final franchise tax return, as described by Section 23332 of the Revenue and Taxation Code, has been or will be filed with the Franchise Tax Board as required under Part 10.2 (commencing with Section 18401) of Division 2 of the Revenue and Taxation Code.
That the corporation has not conducted any business from the time of the filing of the articles of incorporation.
That the known assets of the corporation remaining after payment of, or adequately providing for, known debts and liabilities have been distributed to the persons entitled thereto or that the corporation acquired no known assets, as the case may be.
That a majority of the directors, or, if no directors have been named in the articles or been elected, the incorporator or a majority of the incorporators authorized the dissolution and elected to dissolve the corporation.
That the corporation has not issued any shares, and if the corporation has received payments for shares from investors, those payments have been returned to those investors.
That the corporation is dissolved.
A certificate of dissolution signed and verified pursuant to subdivision (a) shall be filed with the Secretary of State. The Secretary of State shall notify the Franchise Tax Board of the dissolution.
Upon filing a certificate of dissolution pursuant to subdivision (b), a corporation shall be dissolved and its powers, rights, and privileges shall cease.
Whenever a corporation has elected to wind up and dissolve a certificate evidencing such election shall forthwith be filed.
The certificate shall be an officers’ certificate or shall be signed and verified by at least a majority of the directors then in office or by one or more shareholders authorized to do so by shareholders holding shares representing 50 percent or more of the voting power and shall set forth:
That the corporation has elected to wind up and dissolve.
If the election was made by the vote of shareholders, the number of shares voting for the election and that the election was made by shareholders representing at least 50 percent of the voting power.
If the certificate is executed by a shareholder or shareholders, that the subscribing shareholder or shareholders were authorized to execute the certificate by shareholders holding shares representing at least 50 percent of the voting power.
If the election was made by the board pursuant to subdivision (b) of Section 1900, the certificate shall also set forth the circumstances showing the corporation to be within one of the categories described in said subdivision.
If an election to dissolve made pursuant to subdivision (a) of Section 1900 is made by the vote of all the outstanding shares and a statement to that effect is added to the certificate of dissolution pursuant to Section 1905, the separate filing of the certificate of election pursuant to this section is not required.
A voluntary election to wind up and dissolve may be revoked prior to distribution of any assets by the vote of shareholders holding shares representing a majority of the voting power, or by approval by the board if the election was by the board pursuant to subdivision (b) of Section 1900. Thereupon a certificate evidencing the revocation shall be signed, verified and filed in the manner prescribed by Section 1901.
The certificate shall set forth:
That the corporation has revoked its election to wind up and dissolve.
That no assets have been distributed pursuant to the election.
If the revocation was made by the vote of shareholders, the number of shares voting for the revocation and the total number of outstanding shares the holders of which were entitled to vote on the revocation.
If the election and revocation was by the board, that shall be stated.
Voluntary proceedings for winding up the corporation commence upon the adoption of the resolution of shareholders or directors of the corporation electing to wind up and dissolve, or upon the filing with the corporation of a written consent of shareholders thereto.
When a voluntary proceeding for winding up has commenced, the board shall continue to act as a board and shall have full powers to wind up and settle its affairs, both before and after the filing of the certificate of dissolution.
When a voluntary proceeding for winding up has commenced, the corporation shall cease to carry on business except to the extent necessary for the beneficial winding up thereof and except during such period as the board may deem necessary to preserve the corporation’s goodwill or going-concern value pending a sale of its business or assets, or both, in whole or in part. The board shall cause written notice of the commencement of the proceeding for voluntary winding up to be given by mail to all shareholders (except no notice need be given to the shareholders who voted in favor of winding up and dissolving the corporation) and to all known creditors and claimants whose addresses appear on the records of the corporation.
If a corporation is in the process of voluntary winding up, the superior court of the proper county, upon the petition of (a) the corporation, or (b) a shareholder or shareholders who hold shares representing 5 percent or more of the total number of any class of outstanding shares, or (c) any shareholder or shareholders of a close corporation, or (d) three or more creditors, and upon such notice to the corporation and to other persons interested in the corporation as shareholders and creditors as the court may order, may take jurisdiction over such voluntary winding up proceeding if that appears necessary for the protection of any parties in interest. The court, if it assumes jurisdiction, may make such orders as to any and all matters concerning the winding up of the affairs of the corporation and for the protection of its shareholders and creditors as justice and equity may require. The provisions of Chapter 18 (commencing with Section 1800) (except Sections 1800 and 1801) shall apply to such court proceedings.
When a corporation has been completely wound up without court proceedings therefor, a majority of the directors then in office shall sign and verify a certificate of dissolution stating:
That the corporation has been completely wound up.
That its known debts and liabilities have been actually paid, or adequately provided for, or paid or adequately provided for as far as its assets permitted, or that it has incurred no known debts or liabilities, as the case may be. If there are known debts or liabilities for payment of which adequate provision has been made, the certificate shall state what provision has been made, setting forth the name and address of the corporation, person or governmental agency that has assumed or guaranteed the payment, or the name and address of the depositary with which deposit has been made or any other information that may be necessary to enable the creditor or other person to whom payment is to be made to appear and claim payment of the debt or liability.
That its known assets have been distributed to the persons entitled thereto or that it acquired no known assets, as the case may be.
That the corporation is dissolved.
If no certificate of election is to be filed pursuant to subdivision (c) of Section 1901, that the election to dissolve was made by the vote of all the outstanding shares.
That a final franchise tax return, as described by Section 23332 of the Revenue and Taxation Code, has been or will be filed with the Franchise Tax Board, as required under Part 10.2 (commencing with Section 18401) of Division 2 of the Revenue and Taxation Code.
The certificate of dissolution shall be filed with the Secretary of State and thereupon the corporate powers, rights, and privileges of the corporation shall cease. The Secretary of State shall notify the Franchise Tax Board of the dissolution.
If a corporation has filed a certificate of dissolution with the Secretary of State on or after January 1, 1992, and before the effective date of the act adding this section, pursuant to Section 1905, prior to its amendment by the act adding this section, and the Franchise Tax Board has not, as of that effective date, made the determination required by subdivision (c) of Section 1905, prior to its amendment by the act adding this section, then the corporation shall be dissolved as of the date of filing the certificate of dissolution and thereupon its corporate existence shall cease.
Except as otherwise provided by law, if the term of existence for which any corporation was organized expires without renewal or extension thereof, the board shall terminate its business and wind up its affairs; and when the business and affairs of the corporation have been wound up a majority of the directors shall execute and file a certificate conforming to the requirements of Section 1905.
The board, in lieu of filing the certificate of dissolution, may petition the superior court of the proper county for an order declaring the corporation duly wound up and dissolved. Such petition shall be filed in the name of the corporation.
Upon the filing of the petition, the court shall make an order requiring all persons interested to show cause why an order should not be made declaring the corporation duly wound up and dissolved and shall direct that the order be served by notice to all creditors, claimants and shareholders in the same manner as the notice given under subdivision (b) of Section 1807.
Any person claiming to be interested as shareholder, creditor or otherwise may appear in the proceeding at any time before the expiration of 30 days from the completion of publication of the order to show cause and contest the petition, and upon failure to appear such person’s claim shall be barred.
CHAPTER 20. General Provisions Relating to Dissolution [2000. - 2011.]
Subject to any contrary provision in the articles, which may include a reference to a separate written agreement between two or more shareholders pertaining to the purchase of shares:
In any suit for involuntary dissolution, or in any proceeding for voluntary dissolution initiated by the vote of shareholders representing only 50 percent of the voting power, the corporation or, if it does not elect to purchase, the holders of 50 percent or more of the voting power of the corporation (the “purchasing parties”) may avoid the dissolution of the corporation and the appointment of any receiver by purchasing for cash the shares owned by the plaintiffs or by the shareholders so initiating the proceeding (the “moving parties”) at their fair value.
The fair value shall be determined on the basis of the liquidation value as of the valuation date but taking into account the possibility, if any, of sale of the entire business as a going concern in a liquidation. In fixing the value, the amount of any damages resulting if the initiation of the dissolution is a breach by any moving party or parties of an agreement with the purchasing party or parties may be deducted from the amount payable to the moving party or parties, unless the ground for dissolution is that specified in paragraph (4) of subdivision (b) of Section 1800. The election of the corporation to purchase may be made by the approval of the outstanding shares (Section 152) excluding shares held by the moving parties.
If the purchasing parties (1) elect to purchase the shares owned by the moving parties, and (2) are unable to agree with the moving parties upon the fair value of those shares, and (3) give bond with sufficient security to pay the estimated reasonable expenses (including attorneys’ fees) of the moving parties if those expenses are recoverable under subdivision (c), the court upon application of the purchasing parties, either in the pending action or in a proceeding initiated in the superior court of the proper county by the purchasing parties in the case of a voluntary election to wind up and dissolve, shall stay the winding up and dissolution proceeding and shall proceed to ascertain and fix the fair value of the shares owned by the moving parties.
The court shall appoint three disinterested appraisers to appraise the fair value of the shares owned by the moving parties, and shall make an order referring the matter to the appraisers so appointed for the purpose of ascertaining the value. The order shall prescribe the time and manner of producing evidence, if evidence is required. The award of the appraisers or of a majority of them, when confirmed by the court, shall be final and conclusive upon all parties. The court shall enter a decree, which shall provide in the alternative for winding up and dissolution of the corporation unless payment is made for the shares within the time specified by the decree. If the purchasing parties do not make payment for the shares within the time specified, judgment shall be entered against them and the surety or sureties on the bond for the amount of the expenses (including attorneys’ fees) of the moving parties. Any shareholder aggrieved by the action of the court may appeal the court’s decision.
If the purchasing parties desire to prevent the winding up and dissolution, they shall pay to the moving parties the value of their shares ascertained and decreed within the time specified pursuant to this section, or, in case of an appeal, as fixed on appeal. On receiving payment or the tender thereof, the moving parties shall transfer their shares to the purchasing parties.
For the purposes of this section, the valuation date shall be (1) in the case of a suit for involuntary dissolution under Section 1800, the date upon which that action was commenced, or (2) in the case of a proceeding for voluntary dissolution initiated by the vote of shareholders representing only 50 percent of the voting power, the date upon which that proceeding was initiated. However, in either case the court may, upon the hearing of a motion by any party, and for good cause shown, designate some other date as the valuation date.
The powers and duties of the directors (or other persons appointed by the court pursuant to Section 1805) and officers after commencement of a dissolution proceeding include, but are not limited to, the following acts in the name and on behalf of the corporation:
To elect officers and to employ agents and attorneys to liquidate or wind up its affairs.
To continue the conduct of the business insofar as necessary for the disposal or winding up thereof.
To carry out contracts and collect, pay, compromise and settle debts and claims for or against the corporation.
To defend suits brought against the corporation.
To sue, in the name of the corporation, for all sums due or owing to the corporation or to recover any of its property.
To collect any amounts remaining unpaid on subscriptions to shares or to recover unlawful distributions.
To sell at public or private sale, exchange, convey or otherwise dispose of all or any part of the assets of the corporation for cash in an amount deemed reasonable by the board without compliance with the provisions of Section 1001 (except subdivision (d) thereof), or (subject to compliance with the provisions of Sections 1001, 1200 and 1201, but Chapter 13 (commencing with Section 1300) shall not be applicable thereto) upon such other terms and conditions and for such other considerations as the board deems reasonable or expedient; and to execute bills of sale and deeds of conveyance in the name of the corporation.
In general, to make contracts and to do any and all things in the name of the corporation which may be proper or convenient for the purposes of winding up, settling and liquidating the affairs of the corporation.
A vacancy on the board may be filled during a winding up proceeding in the manner provided in Section 305.
When the identity of the directors or their right to hold office is in doubt, or if they are dead or unable to act, or they fail or refuse to act or their whereabouts cannot be ascertained, any interested person may petition the superior court of the proper county to determine the identity of the directors or, if there are no directors, to appoint directors to wind up the affairs of the corporation, after hearing upon such notice to such persons as the court may direct.
After determining that all the known debts and liabilities of a corporation in the process of winding up have been paid or adequately provided for, the board shall distribute all the remaining corporate assets among the shareholders according to their respective rights and preferences or, if there are no shareholders, to the persons entitled thereto. If the winding up is by court proceeding or subject to court supervision, the distribution shall not be made until after the expiration of any period for the presentation of claims which has been prescribed by order of the court.
The payment of a debt or liability, whether the whereabouts of the creditor is known or unknown, has been adequately provided for if the payment has been provided for by either of the following means:
Payment thereof has been assumed or guaranteed in good faith by one or more financially responsible corporations or other persons or by the United States government or any agency thereof, and the provision (including the financial responsibility of such corporations or other persons) was determined in good faith and with reasonable care by the board to be adequate at the time of any distribution of the assets by the board pursuant to this chapter.
The amount of the debt or liability has been deposited as provided in Section 2008.
This section does not prescribe the exclusive means of making adequate provision for debts and liabilities.
Distribution may be made either in money or in property or securities and either in installments from time to time or as a whole, if this can be done fairly and ratably and in conformity with the provisions of the articles and the rights of the shareholders, and shall be made as soon as reasonably consistent with the beneficial liquidation of the corporate assets.
If the corporation in process of winding up has both preferred and common shares outstanding, a plan of distribution of the shares, obligations or securities of any other corporation, domestic or foreign, or assets other than money which is not in accordance with the liquidation rights of the preferred shares as specified in the articles may nevertheless be adopted if approved by (1) the board and (2) by approval of the outstanding shares (Section 152) of each class. The plan may provide that such distribution is in complete or partial satisfaction of the rights of any of such shareholders upon distribution and liquidation of the assets.
A plan of distribution so approved shall be binding upon all the shareholders except as provided in subdivision (c). The board shall cause notice of the adoption of the plan to be given by mail within 20 days after its adoption to all holders of shares having a liquidation preference.
Shareholders having a liquidation preference who dissent from the plan of distribution are entitled to be paid the amount of their liquidation preference in cash if they file written demand for payment with the corporation within 30 days after the date of mailing of the notice of the adoption of the plan of distribution, unless the plan of distribution is abandoned. The demand shall state the number and class of the shares held of record by the shareholder in respect of which the shareholder claims payment.
If any such demand for cash payment is filed, the board in its discretion may abandon the plan without further approval by the outstanding shares (Section 152), and all shareholders shall then be entitled to distribution according to their rights and liquidation preferences in the process of winding up.
This section shall not apply to a distribution in accordance with a reorganization the principal terms of which have been approved pursuant to subdivision (b) of Section 1202.
If any shareholders or creditors are unknown or fail or refuse to accept their payment, dividend, or distribution in cash or property or their whereabouts cannot be ascertained after diligent inquiry, or the existence or amount of a claim of a creditor or shareholder is contingent, contested, or not determined, or if the ownership of any shares of stock is in dispute, the corporation may deposit any such payment, dividend, distribution, or the maximum amount of the claim with the Controller in trust for the benefit of those lawfully entitled to the payment, dividend, distribution, or the amount of the claim. The payment, dividend, or distribution shall be paid over by the depositary to the lawful owners, their representatives or assigns, upon satisfactory proof of title.
For the purpose of providing for the transmittal, receipt, accounting for, claiming, management, and investment of all money or other property deposited with the Controller under subdivision (a), the money or other property shall be deemed to be paid or delivered for deposit with the Controller under Chapter 7 (commencing with Section 1500) of Title 10 of Part 3 of the Code of Civil Procedure, and may be recovered in the manner prescribed in that chapter.
Whenever in the process of winding up a corporation any distribution of assets has been made, otherwise than under an order of court, without prior payment or adequate provision for payment of any of the debts and liabilities of the corporation, any amount so improperly distributed to any shareholder may be recovered by the corporation. Any of such shareholders may be joined as defendants in the same action or brought in on the motion of any other defendant.
Suit may be brought in the name of the corporation to enforce the liability under subdivision (a) against any or all shareholders receiving the distribution by any one or more creditors of the corporation, whether or not they have reduced their claims to judgment.
Shareholders who satisfy any liability under this section shall have the right of ratable contribution from other distributees similarly liable. Any shareholder who has been compelled to return to the corporation more than the shareholder’s ratable share of the amount needed to pay the debts and liabilities of the corporation may require that the corporation recover from any or all of the other distributees such proportion of the amounts received by them upon the improper distribution as to give contribution to those held liable under this section and make the distribution of the assets fair and ratable, according to the respective rights and preferences of the shares, after payment or adequate provision for payment of all the debts and liabilities of the corporation.
As used in this section, “process of winding up” includes proceedings under Chapters 18 and 19 and also any other distribution of assets to shareholders made in contemplation of termination or abandonment of the corporate business.
A corporation which is dissolved nevertheless continues to exist for the purpose of winding up its affairs, prosecuting and defending actions by or against it and enabling it to collect and discharge obligations, dispose of and convey its property and collect and divide its assets, but not for the purpose of continuing business except so far as necessary for the winding up thereof.
No action or proceeding to which a corporation is a party abates by the dissolution of the corporation or by reason of proceedings for winding up and dissolution thereof.
Any assets inadvertently or otherwise omitted from the winding up continue in the dissolved corporation for the benefit of the persons entitled thereto upon dissolution of the corporation and on realization shall be distributed accordingly.
Causes of action against a dissolved corporation, whether arising before or after the dissolution of the corporation, may be enforced against any of the following:
Against the dissolved corporation, to the extent of its undistributed assets, including, without limitation, any insurance assets held by the corporation that may be available to satisfy claims.
If any of the assets of the dissolved corporation have been distributed to shareholders, against shareholders of the dissolved corporation to the extent of their pro rata share of the claim or to the extent of the corporate assets distributed to them upon dissolution of the corporation, whichever is less.
A shareholder’s total liability under this section may not exceed the total amount of assets of the dissolved corporation distributed to the shareholder upon dissolution of the corporation.
Except as set forth in subdivision (c), all causes of action against a shareholder of a dissolved corporation arising under this section are extinguished unless the claimant commences a proceeding to enforce the cause of action against that shareholder of a dissolved corporation prior to the earlier of the following:
The expiration of the statute of limitations applicable to the cause of action.
Four years after the effective date of the dissolution of the corporation.
As a matter of procedure only, and not for purposes of determining liability, shareholders of the dissolved corporation may be sued in the corporate name of the corporation upon any cause of action against the corporation. This section does not affect the rights of the corporation or its creditors under Section 2009, or the rights, if any, of creditors under the Uniform Voidable Transactions Act, which may arise against the shareholders of a corporation.
This subdivision applies to corporations dissolved on and after January 1, 1992. Corporations dissolved prior to that date are subject to the law in effect prior to that date.
Summons or other process against such a corporation may be served by delivering a copy thereof to an officer, director, or person having charge of its assets or, if no such person can be found, to any agent upon whom process might be served at the time of dissolution. If none of those persons can be found with due diligence and it is so shown by affidavit to the satisfaction of the court, then the court may make an order that summons or other process be served upon the dissolved corporation by personally delivering a copy thereof, together with a copy of the order, to the Secretary of State or an assistant or deputy secretary of state. Service in this manner is deemed complete on the 10th day after delivery of the process to the Secretary of State.
Every such corporation shall survive and continue to exist indefinitely for the purpose of being sued in any quiet title action. Any judgment rendered in any such action shall bind each and all of its shareholders or other persons having any equity or other interest in that corporation, to the extent of their interest therein, and that action shall have the same force and effect as an action brought under the provisions of Sections 410.50 and 410.60 of the Code of Civil Procedure. Service of summons or other process in any such action may be made as provided in Chapter 4 (commencing with Section 413.10) of Title 5 of Part 2 of the Code of Civil Procedure or as provided in subdivision (b).
Upon receipt of that process and the fee therefor, the Secretary of State forthwith shall give notice to the corporation as provided in Section 1702.
For purposes of Article 4 (commencing with Section 19071) of Chapter 4 of Part 10.2 of Division 2 of the Revenue and Taxation Code, the liability described in this section shall be considered a liability at law with respect to a dissolved corporation.
CHAPTER 21. Foreign Corporations [2100. - 2117.1.]
This chapter applies only to foreign corporations transacting intrastate business, except as otherwise expressly provided.
Any foreign corporation (other than a foreign association) not transacting intrastate business may register its corporate name with the Secretary of State, provided its corporate name would be available pursuant to Section 201 to a new corporation organized under this division at the time of such registration.
Such registration may be made by filing (1) an application for registration signed by a corporate officer stating the name of the corporation, the state or place under the laws of which it is incorporated, and that it desires to register its name under this section; and (2) a certificate of an authorized public official of the state or place in which it is organized issued within the past six months from the submission of the application for registration in California stating that such corporation is in good standing under those laws. Such registration shall be effective until the close of the calendar year in which the application for registration is filed.
A corporation that has in effect a registration of its corporate name may renew such registration from year to year by annually filing an application for renewal setting forth the facts required to be set forth in an original application for registration and a certificate of good standing as required for the original registration between the first day of October and the 31st day of December in each year. Such renewal application shall extend the registration for the following calendar year.
A corporation that has in effect a registration of its corporate name may cancel the registration by delivering to the Secretary of State, on a form prescribed by the Secretary of State for filing, a certificate of cancellation of foreign name registration signed by a corporate officer containing the name of the corporation and the Secretary of State’s file number of the corporation.
A foreign corporation which has filed a designation of an agent for the service of process, pursuant to the requirements of any law relating to the qualification of foreign corporations in force at the time of the filing, need not file the statement provided for in Section 2105, but shall file an amended statement and designation when required by Section 2107.
Nothing in this chapter repeals, alters or amends the provisions of Sections 1600 to 1605, inclusive, of the Insurance Code or prevents any foreign insurance company from carrying out contracts made before the surrender of its right to engage in intrastate business or contracts made with citizens of other states who subsequently become citizens of or residents in this state.
Any foreign lending institution which has not qualified to do business in this state and which engages in any of the activities set forth in subdivision (d) of Section 191 shall be considered by such activities to have appointed the Secretary of State as its agent for service of process for any action arising out of any such activities, and, on or before June 30th of each year, shall file a statement showing the address to which any notice or process may be sent in the manner and with the effect provided in Section 2111.
No foreign lending institution solely by reason of engaging in any one or more of the activities set forth in subdivision (d) of Section 191 shall be required to qualify to do business in this state nor be subject to (a) any of the provisions of the Bank and Corporation Tax Law (commencing with Section 23001) of the Revenue and Taxation Code or (b) any of the provisions of this code or the Financial Code or Insurance Code relating to qualifications for doing or transacting business in this state or to requirements pertaining thereto or to the effects or results of failure to qualify to do business in this state.
A foreign corporation shall not transact intrastate business without having first obtained from the Secretary of State a certificate of qualification. To obtain that certificate it shall file, on a form prescribed by the Secretary of State, a statement and designation signed by a corporate officer or, in the case of a foreign association that has no officers, signed by a trustee stating:
The state or place of its incorporation or organization and a statement that the foreign corporation is authorized to exercise its powers and privileges in that state or place of its incorporation or organization.
The street address of its principal office.
The street address of its principal office in California, if any.
The mailing address of its principal office, if different from the addresses specified pursuant to paragraphs (3) and (4).
The name of an agent upon whom process directed to the corporation may be served within this state. The designation shall comply with subdivision (b) of Section 1502.
Its irrevocable consent to service of process directed to it upon the agent designated and to service of process on the Secretary of State if the agent designated or the agent’s successor is no longer authorized to act or cannot be found at the address given.
Consent under this paragraph extends to service of process directed to the foreign corporation’s agent in this state for a search warrant issued pursuant to Section 1524.2 of the Penal Code, or for any other validly issued and properly served search warrant, for records or documents that are in the possession of the foreign corporation and are located inside or outside of this state. This subparagraph shall apply to a foreign corporation that is a party or a nonparty to the matter for which the search warrant is sought. For purposes of this subparagraph, “properly served” means delivered by hand, or in a manner reasonably allowing for proof of delivery if delivered by United States mail, overnight delivery service, or facsimile to a person or entity listed in Section 2110, or any other means specified by the foreign corporation, including, but not limited to, email or submission via an internet web portal that the foreign corporation has designated for the purpose of service of process.
If it is a corporation that will be subject to the Insurance Code as an insurer, it shall state that fact.
Annexed to the statement and designation shall be a certificate by an authorized public official of the state or place of incorporation of the corporation to the effect that the corporation is an existing corporation in good standing in that state or place or, in the case of an association, an officers’ certificate stating that it is a validly organized and existing business association under the laws of a specified foreign jurisdiction.
Before it may be designated by a foreign corporation as its agent for service of process, a corporate agent must comply with Section 1505.
Subject to the provisions of subdivision (b), upon payment of the fees required by law the Secretary of State shall file the statement and designation prescribed in Section 2105 and shall issue to the corporation a certificate of qualification stating the date of filing of said statement and designation and that the corporation is qualified to transact intrastate business, subject, however, to any licensing requirements otherwise imposed by the laws of this state.
No foreign corporation having a name which would not be available pursuant to subdivision (b) of Section 201 to a new corporation organized under this division shall transact intrastate business in this state or qualify to do so under this chapter or file an amended statement and designation containing such name unless either: (1) it obtains and files an order from a court of competent jurisdiction permanently enjoining the other corporation having a conflicting name from doing business in this state under that name; or (2) the Secretary of State finds, upon proof by affidavit or otherwise as the Secretary of State may determine, that the business to be conducted in this state by the foreign corporation is not the same as or similar to the business being conducted by the corporation (or to be conducted by the proposed corporation) with whose name it may conflict and that the public is not likely to be deceived, and the foreign corporation agrees that it will transact business in this state under an alternate name disclosed to the Secretary of State and that it will use the alternate name in all of its dealings with the Secretary of State and in the conduct of its affairs in this state. The alternate name may be its name with the addition of some distinguishing word or words acceptable to the Secretary of State or a name available for the name of a domestic corporation pursuant to subdivision (b) of Section 201. A corporation which has made such an agreement with the Secretary of State shall not do business in this state except under the name agreed upon, so long as the agreement remains in effect.
This subdivision shall not apply to any corporation that is subject to the Insurance Code as an insurer unless the insurer has first obtained from the Insurance Commissioner a certificate approving the alternate name.
The Secretary of State shall not file any statement and designation pursuant to Section 2106 or any amended statement and designation pursuant to Section 2107, where it appears that the business is that of an insurer subject to the Insurance Code unless a certificate of the Insurance Commissioner approving the corporate name is attached thereto.
If any foreign corporation (but not a foreign association) qualified to transact intrastate business shall change its name or make a change affecting an alternate name under Section 2106, it shall file, on a form prescribed by the Secretary of State, an amended statement signed by a corporate officer setting forth the change made. The amended statement shall set forth the name relinquished as well as the new name alternate and there shall be annexed to the amended statement a certificate of an authorized public official of its state or place of incorporation issued within the past six months from the submission of the amended statement for filing in California that the change of name was made in accordance with the laws of that state or place of incorporation. Upon the filing of the amended statement, the Secretary of State shall issue a new certificate of qualification.
If any foreign association qualified to transact intrastate business shall change its name, the address of its principal office in California, the address of its principal office or its agent for the service of process, or if the stated address of any natural person designated as agent is changed, it shall file, on a form prescribed by the Secretary of State, an amended statement and designation signed by an officer or, in the case of a foreign association that has no officers, signed by a trustee setting forth the change or changes made. In the case of a change of name, the amended statement and designation shall set forth the name relinquished as well as the new name alternate and there shall be annexed to the amended statement and designation an officer’s certificate, or trustee’s certificate, if applicable, stating that such change of name was made in accordance with its declaration of trust. If the change includes a change of name, or a change affecting an alternate name pursuant to Section 2106, upon the filing of the amended statement, the Secretary of State shall issue a new certificate of qualification.
If the change includes a change of name of an insurer subject to the Insurance Code, the form shall include a statement that the corporation is such an insurer if it does not already so appear.
If a foreign corporation qualified to transact business in this state shall change the address of its principal office in California, the address of its principal office, or its agent for the service of process, or if the stated address of any natural person designated as agent is changed, the filing of a statement pursuant to Section 2117 shall supersede the statement and designation with respect thereto.
Delivery by hand of a copy of any process against a foreign corporation (a) to any officer of the corporation or its general manager in this state, or if the corporation is a bank to a cashier or an assistant cashier, (b) to any natural person designated by it as agent for the service of process, or (c), if the corporation has designated a corporate agent, to any person named in the latest certificate of the corporate agent filed pursuant to Section 1505 shall constitute valid service on the corporation. A copy of the statement and designation, or a copy of the latest statement filed pursuant to Section 2117, certified by the Secretary of State, is sufficient evidence of the appointment of an agent for the service of process.
In addition to the provisions of Chapter 4 (commencing with Section 413.10) of Title 5 of Part 2 of the Code of Civil Procedure, process may be served upon a foreign corporation as provided in this chapter.
If the agent designated for the service of process is a natural person and cannot be found with due diligence at the address stated in the designation or if the agent is a corporation and no person can be found with due diligence to whom the delivery authorized by Section 2110 may be made for the purpose of delivery to the corporate agent, or if the agent designated is no longer authorized to act, or if no agent has been designated and if no one of the officers or agents of the corporation specified in Section 2110 can be found after diligent search and it is so shown by affidavit to the satisfaction of the court, then the court may make an order that service be made by personal delivery to the Secretary of State or to an assistant or deputy secretary of state of two copies of the process together with two copies of the order, except that if the corporation to be served has not filed the statement required to be filed by Section 2105 then only one copy of the process and order need be delivered but the order shall include and set forth an address to which the process shall be sent by the Secretary of State. Service in this manner is deemed complete on the 10th day after delivery of the process to the Secretary of State.
Upon receipt of the process and order and the fee therefor the Secretary of State forthwith shall give notice to the corporation of the service of the process by forwarding by registered or certified mail, with request for return receipt, a copy of the process and order to the address specified in the order if the corporation has not filed the statement required by Section 2105 or to the two stated addresses of the corporation set forth in the latest statement filed pursuant to Section 2105 or 2117, or if only one address is set forth in the latest statement, to the sole stated address of the corporation.
The Secretary of State shall keep a record of all process served upon the Secretary of State and shall record therein the time of service and the Secretary of State’s action with respect thereto. The certificate of the Secretary of State, under the Secretary of State’s official seal, certifying to the receipt of process, the giving of notice thereof to the corporation, and the forwarding of the process pursuant to this section, shall be competent and prima facie evidence of the matters stated therein.
Subject to Section 2113, a foreign corporation which has qualified to transact intrastate business may surrender its right to engage in that business within this state by filing a certificate of surrender signed by a corporate officer or, in the case of a foreign association that has no officers, signed by a trustee stating:
The name of the corporation as shown on the records of the Secretary of State, and the state or place of incorporation or organization.
That it revokes its designation of agent for service of process.
That it surrenders its authority to transact intrastate business.
That it consents that process against it in any action upon any liability or obligation incurred within this state before the filing of the certificate of surrender may be served upon the Secretary of State.
A post office address to which the Secretary of State may mail a copy of any process against the corporation that is served upon the Secretary of State, which address or the name to which the process should be sent may be changed from time to time by filing a statement signed by a corporate officer or, in the case of a foreign association that has no officers, signed by a trustee stating the new address or name or both.
Except in the case of a foreign association, that a final franchise tax return, as described by Section 23332 of the Revenue and Taxation Code, has been or will be filed with the Franchise Tax Board, as required under Part 10.2 (commencing with Section 18401) of Division 2 of the Revenue and Taxation Code.
The Secretary of State shall notify the Franchise Tax Board of the surrender.
The filing of an agreement of merger of a foreign disappearing corporation qualified to transact intrastate business in this state pursuant to Section 1103, or the filing pursuant to subdivision (d) of Section 1108 of an agreement, certificate, or other document as to a merger that includes a disappearing foreign corporation qualified to transact intrastate business, or the filing of a certificate of ownership as to a foreign subsidiary corporation qualified to transact intrastate business in this state pursuant to Section 1110, or the filing by a foreign corporation qualified to transact intrastate business in this state of an organizational document containing a statement of conversion pursuant to Section 15911.08, 16908, or 17710.08, constitutes the surrender by the foreign corporation of its right to engage in intrastate business within this state.
With respect to corporations for which documents have not been filed as provided in subdivision (a), a certificate of surrender as prescribed by Section 2112 shall be filed by a foreign corporation qualified to transact intrastate business upon its merger into another foreign corporation.
In lieu of a signature as prescribed by Section 2112, a certificate of surrender pursuant to subdivision (b) for a merged foreign corporation may be signed in the name of the surviving corporation by an officer thereof. In that case, the certificate of surrender shall be accompanied by a certificate of an authorized public official of the state or place of incorporation of the merged foreign corporation stating that the corporation has been merged into another foreign corporation and setting forth the name and state or place of incorporation of the surviving foreign corporation.
A foreign corporation that has transacted intrastate business and has thereafter withdrawn from business in this state may be served with process in the manner provided in this chapter in any action brought in this state arising out of that business, whether or not it has ever complied with the requirements of this chapter.
A foreign corporation that has surrendered its right to transact intrastate business pursuant to Section 2112 or 2113 may be served with process in any action upon a liability or obligation incurred within this state prior to that surrender by delivery of the process to the Secretary of State, or an assistant or a deputy to the Secretary of State pursuant to this chapter and no court order authorizing this service shall be required. The process shall be mailed in the manner prescribed in this chapter except that it shall be sent to the address to which process is authorized to be sent in the certificate of surrender or to the address of the surviving domestic corporation in the case of a surrender under Section 2113.
If a foreign corporation that is qualified to transact intrastate business has its right to transact such business forfeited by the Franchise Tax Board pursuant to the Bank and Corporation Tax Law (Part 11 (commencing with Section 23001) of Division 2 of the Revenue and Taxation Code), service of process on that corporation may be effected in the manner set forth in Sections 2110 and 2111, as if the right to transact intrastate business had not been forfeited.
The fact that a corporation ceases to transact intrastate business without filing a certificate of surrender does not revoke the appointment of any agent for the service of process.
A foreign corporation (other than a foreign association or foreign nonprofit corporation but including a foreign parent corporation even though it does not itself transact intrastate business) is subject to the requirements of subdivision (b) commencing on the date specified in subdivision (d) and continuing until the date specified in subdivision (e) if:
more than one-half of its outstanding voting securities are held of record by persons having addresses in this state appearing on the books of the corporation on the record date for the latest meeting of shareholders held during its latest full income year or, if no meeting was held during that year, on the last day of the latest full income year. The property factor, payroll factor, and sales factor shall be those used in computing the portion of its income allocable to this state in its franchise tax return or, with respect to corporations the allocation of whose income is governed by special formulas or that are not required to file separate or any tax returns, which would have been so used if they were governed by this three-factor formula. The determination of these factors with respect to any parent corporation shall be made on a consolidated basis, including in a unitary computation (after elimination of intercompany transactions) the property, payroll, and sales of the parent and all of its subsidiaries in which it owns directly or indirectly more than 50 percent of the outstanding shares entitled to vote for the election of directors, but deducting a percentage of the property, payroll, and sales of any subsidiary equal to the percentage minority ownership, if any, in the subsidiary. For the purpose of this subdivision, any securities held to the knowledge of the issuer in the names of broker-dealers, nominees for broker-dealers (including clearing corporations), or banks, associations, or other entities holding securities in a nominee name or otherwise on behalf of a beneficial owner (collectively “nominee holders”), shall not be considered outstanding. However, if the foreign corporation requests all nominee holders to certify, with respect to all beneficial owners for whom securities are held, the number of shares held for those beneficial owners having addresses (as shown on the records of the nominee holder) in this state and outside of this state, then all shares so certified shall be considered outstanding and held of record by persons having addresses either in this state or outside of this state as so certified, provided that the certification so provided shall be retained with the record of shareholders and made available for inspection and copying in the same manner as is provided in Section 1600 with respect to that record. A current list of beneficial owners of a foreign corporation’s securities provided to the corporation by one or more nominee holders or their agent pursuant to the requirements of Rule 14b-1(b)(3) or 14b-2(b)(3) as adopted on January 6, 1992, promulgated under the Securities Exchange Act of 1934, shall constitute an acceptable certification with respect to beneficial owners for the purposes of this subdivision.
Except as provided in subdivision (c), the following chapters and sections of this division shall apply to a foreign corporation as defined in subdivision (a) (to the exclusion of the law of the jurisdiction in which it is incorporated):
Chapter 1 (general provisions and definitions), to the extent applicable to the following provisions;
Section 301 (annual election of directors);
Section 303 (removal of directors without cause);
Section 304 (removal of directors by court proceedings);
Section 305, subdivision (c) (filling of director vacancies where less than a majority in office elected by shareholders);
Section 309 (directors’ standard of care);
Section 316 (excluding paragraph (3) of subdivision (a) and paragraph (3) of subdivision (f)) (liability of directors for unlawful distributions);
Section 317 (indemnification of directors, officers, and others);
Sections 500 to 505, inclusive (limitations on corporate distributions in cash or property);
Section 506 (liability of shareholder who receives unlawful distribution);
Section 600, subdivisions (b) and (c) (requirement for annual shareholders’ meeting and remedy if same not timely held);
Section 708, subdivisions (a), (b), and (c) (shareholder’s right to cumulate votes at any election of directors);
Section 710 (supermajority vote requirement);
Section 1001, subdivision (d) (limitations on sale of assets);
Section 1101, subdivision (b) (limitations on mergers);
Section 1151 (first sentence only) (limitations on conversions);
Section 1152 (requirements of conversions);
Chapter 12 (commencing with Section 1200) (reorganizations);
Chapter 13 (commencing with Section 1300) (dissenters’ rights);
Sections 1500 and 1501 (records and reports);
Section 1508 (action by Attorney General);
Chapter 16 (commencing with Section 1600) (rights of inspection).
This section does not apply to any corporation (1) with outstanding securities listed on the New York Stock Exchange, the NYSE American, the NASDAQ Global Market, or the NASDAQ Capital Market, or (2) if all of its voting shares (other than directors’ qualifying shares) are owned directly or indirectly by a corporation or corporations not subject to this section.
For purposes of subdivision (a), the requirements of subdivision (b) shall become applicable to a foreign corporation only upon the first day of the first income year of the corporation (1) commencing on or after the 135th day of the income year immediately following the latest income year with respect to which the tests referred to in subdivision (a) have been met or (2) commencing on or after the entry of a final order by a court of competent jurisdiction declaring that those tests have been met.
For purposes of subdivision (a), the requirements of subdivision (b) shall cease to be applicable to a foreign corporation (1) at the end of the first income year of the corporation immediately following the latest income year with respect to which at least one of the tests referred to in subdivision (a) is not met or (2) at the end of the income year of the corporation during which a final order has been entered by a court of competent jurisdiction declaring that one of those tests is not met, provided that a contrary order has not been entered before the end of the income year.
Any foreign corporation that is subject to the requirements of subdivision (b) shall advise any shareholder of record, any officer, director, employee, or other agent (within the meaning of Section 317) and any creditor of the corporation in writing, within 30 days of receipt of written request for that information, whether or not it is subject to subdivision (b) at the time the request is received. Any party who obtains a final determination by a court of competent jurisdiction that the corporation failed to provide to the party information required to be provided by this subdivision or provided the party information of the kind required to be provided by this subdivision that was incorrect, then the court, in its discretion, shall have the power to include in its judgment recovery by the party from the corporation of all court costs and reasonable attorneys’ fees incurred in that legal proceeding to the extent they relate to obtaining that final determination.
Section 301.3 shall apply to a foreign corporation that is a publicly held corporation to the exclusion of the law of the jurisdiction in which the foreign corporation is incorporated.
For purposes of this section, a “publicly held corporation” means a foreign corporation with outstanding shares listed on a major United States stock exchange.
Section 301.4 shall apply to a foreign corporation that is a publicly held corporation to the exclusion of the law of the jurisdiction in which the foreign corporation is incorporated.
For purposes of this section, a “publicly held corporation” means a foreign corporation with outstanding shares listed on a major United States stock exchange.
The directors of a foreign corporation transacting intrastate business are liable to the corporation, its shareholders, creditors, receiver, liquidator or trustee in bankruptcy for the making of unauthorized dividends, purchase of shares or distribution of assets or false certificates, reports or public notices or other violation of official duty according to any applicable laws of the state or place of incorporation or organization, whether committed or done in this state or elsewhere. Such liability may be enforced in the courts of this state.
Every foreign corporation (other than a foreign association) qualified to transact intrastate business shall file, within 90 days after the filing of its original statement and designation of foreign corporation and annually thereafter during the applicable filing period, on a form prescribed by the Secretary of State, a statement containing all of the following:
The name of the corporation as registered in California and the California Secretary of State’s file number.
The names and complete business or residence addresses of its chief executive officer, secretary, and chief financial officer.
The street address of its principal executive office.
The mailing address of the corporation, if different from the street address of its principal executive office.
The street address of its principal business office in this state, if any.
If the corporation chooses to receive renewal notices and any other notifications from the Secretary of State by electronic mail instead of by United States mail, the corporation shall include a valid electronic mail address for the corporation or for the corporation’s designee to receive those notices.
A statement of the general type of business that constitutes the principal business activity of the corporation, such as, for example, manufacturer of aircraft, wholesale liquor distributor, or retail department store.
A statement indicating whether any officer or any director has an outstanding final judgment issued by the Division of Labor Standards Enforcement or a court of law, for which no appeal therefrom is pending, for the violation of any wage order or provision of the Labor Code.
The statement required by subdivision (a) shall also designate, as the agent of the corporation for the purpose of service of process, a natural person residing in this state or a corporation that has complied with Section 1505 and whose capacity to act as the agent has not terminated. If a natural person is designated, the statement shall set forth the person’s complete business or residence street address. If a corporate agent is designated, no address for it shall be set forth.
The statement required by subdivision (a) shall be available and open to the public for inspection. The Secretary of State shall provide access to all information contained in the statement by means of an online database.
In addition to any other fees required, a foreign corporation shall pay a five-dollar ($5) disclosure fee upon filing the statement required by subdivision (a). One-half of the fee shall, notwithstanding Section 12176 of the Government Code, be deposited into the Business Programs Modernization Fund established in subdivision (k) of Section 1502, and one-half shall be deposited into the Victims of Corporate Fraud Compensation Fund established in Section 2280.
Whenever any of the information required by subdivision (a) is changed, the corporation may file a current statement containing all the information required by subdivisions (a) and (b). In order to change its agent for service of process or the address of the agent, the corporation shall file a current statement containing all the information required by subdivisions (a) and (b). Whenever any statement is filed pursuant to this section, it supersedes any previously filed statement and the statement in the filing pursuant to Section 2105.
This section shall become operative on January 1, 2022, or upon certification by the Secretary of State that California Business Connect is implemented, whichever date is earlier.
If the Secretary of State certifies California Business Connect is implemented prior to January 1, 2022, the Secretary of State shall post notice of the certification on the homepage of its internet website and send notice of the certification to the Legislative Counsel.
In addition to the statement required pursuant to Section 2117, every publicly traded foreign corporation shall file annually, within 150 days after the end of its fiscal year, on a form prescribed by the Secretary of State, a statement that includes all of the following information:
The name of the independent auditor that prepared the most recent auditor’s report on the publicly traded foreign corporation’s annual financial statements.
A description of other services, if any, performed for the publicly traded foreign corporation during its two most recent fiscal years and the period between the end of its most recent fiscal year and the date of the statement by the foregoing independent auditor, by its parent corporation, or by a subsidiary or corporate affiliate of the independent auditor or its parent corporation.
The name of the independent auditor employed by the foreign corporation on the date of the statement, if different from the independent auditor listed pursuant to paragraph (1).
The compensation for the most recent fiscal year of the publicly traded foreign corporation paid to each member of the board of directors and paid to each of the five most highly compensated executive officers of the foreign corporation who are not members of the board of directors, including the number of any shares issued, options for shares granted, and similar equity-based compensation granted to each of those persons. If the chief executive officer is not among the five most highly compensated executive officers of the corporation, the compensation paid to the chief executive officer shall also be included.
A description of any loan, including the amount and terms of the loans, made to any member of the board of directors by the publicly traded foreign corporation during the foreign corporation’s two most recent fiscal years at an interest rate lower than the interest rate available from unaffiliated commercial lenders generally to a similarly situated borrower.
A statement indicating whether an order for relief has been entered in a bankruptcy case with respect to the foreign corporation, its executive officers, or members of the board of directors of the foreign corporation during the 10 years preceding the date of the statement.
A statement indicating whether any member of the board of directors or executive officer of the publicly traded foreign corporation was convicted of fraud during the 10 years preceding the date of the statement, which conviction has not been overturned or expunged.
A description of any material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which the corporation or any of its subsidiaries is a party or of which any of their property is the subject, as specified by Item 103 of Regulation S-K of the Securities and Exchange Commission (Section 229.103 of Title 12 of the Code of Federal Regulations). A description of any material legal proceeding during which the corporation was found legally liable by entry of a final judgment or final order that was not overturned on appeal during the five years preceding the date of the statement.
For purposes of this section, the following definitions apply:
“Publicly traded foreign corporation” means a foreign corporation, as defined in Section 171, that is an issuer as defined in Section 3 of the Securities Exchange Act of 1934, as amended (15 U.S.C. Sec. 78c), and has at least one class of securities listed or admitted for trading on a national securities exchange, on the OTC Bulletin Board, or on the electronic service operated by OTC Markets Group Inc.
“Executive officer” means the chief executive officer, president, any vice president in charge of a principal business unit, division, or function, any other officer of the corporation who performs a policymaking function, or any other person who performs similar policymaking functions for the corporation.
“Compensation” as used in paragraph (4) of subdivision (a) means all plan and nonplan compensation awarded to, earned by, or paid to the person for all services rendered in all capacities to the corporation and to its subsidiaries, as the compensation is specified by Item 402 of Regulation S-K of the Securities and Exchange Commission (Section 229.402 of Title 17 of the Code of Federal Regulations).
“Loan” as used in paragraph (5) of subdivision (a) excludes an advance for expenses, the foreign corporation’s payment of life insurance premiums, and an advance of litigation expenses, in each instance as permitted according to the applicable law of the state or place of incorporation or organization of the foreign corporation.
This statement shall be available and open to the public for inspection. The Secretary of State shall provide access to all information contained in this statement by means of an online database.
A foreign corporation shall certify that the information it provides pursuant to this section is true and correct. No claim may be made against the state for inaccurate information contained in statements filed under this section with the Secretary of State.
CHAPTER 22. Crimes and Penalties [2200. - 2260.]
Every corporation that neglects, fails, or refuses: (a) to keep or cause to be kept or maintained the record of shareholders or books of account required by this division to be kept or maintained, (b) to prepare or cause to be prepared or submitted the financial statements required by this division to be prepared or submitted, or (c) to give any shareholder of record the advice required by subdivision (f) of Section 2115, is subject to penalty as provided in this section.
The penalty shall be twenty-five dollars ($25) for each day that the failure or refusal continues, up to a maximum of one thousand five hundred dollars ($1,500), beginning 30 days after receipt of the written request that the duty be performed from one entitled to make the request, except that, in the case of a failure to give advice required by subdivision (f) of Section 2115, the 30-day period shall run from the date of receipt of the request made pursuant to subdivision (f) of Section 2115, and no additional request is required by this section.
The penalty shall be paid to the shareholder or shareholders jointly making the request for performance of the duty, and damaged by the neglect, failure, or refusal, if suit therefor is commenced within 90 days after the written request is made, including any request made pursuant to subdivision (f) of Section 2115; but the maximum daily penalty because of failure to comply with any number of separate requests made on any one day or for the same act shall be two hundred fifty dollars ($250).
Any officer of a corporation charged with the duty of entering a transfer of shares upon the books of the corporation and issuing a share certificate or, with respect to uncertificated securities, an initial transaction statement or written statements, who unreasonably neglects, fails or refuses to perform such duty after written request by any person entitled thereto is subject to a penalty of one hundred dollars ($100) and the further penalty of ten dollars ($10) for each day that such default continues, beginning five days after receipt of the request, up to a maximum of five hundred dollars ($500). The penalty shall be paid to each person aggrieved. It may be enforced by action and shall be in addition to all other remedies.
Every director or other officer unreasonably causing such neglect, failure or refusal to make such entries upon the books of the corporation or to issue a certificate or, with respect to uncertificated securities, an initial transaction statement or written statements, for shares to a person entitled thereto is subject to a like penalty.
Any penalty prescribed by Section 2200 or Section 2201 shall be in addition to any remedy by injunction or action for damages or by writ of mandate for the nonperformance of acts and duties enjoined by law upon the corporation or its directors or officers.
The court in which an action for any such penalty is brought may reduce, remit or suspend the penalty on such terms and conditions as it may deem reasonable when it is made to appear that the neglect, failure or refusal was inadvertent or excusable.
Any foreign corporation which transacts intrastate business and which does not hold a valid certificate from the Secretary of State may be subject to a penalty of twenty dollars ($20) for each day that unauthorized intrastate business is transacted; and the foreign corporation, by transacting unauthorized intrastate business, shall be deemed to consent to the jurisdiction of the courts of California in any civil action arising in this state in which the corporation is named a party defendant.
The penalty established by subdivision (a) of this section shall be assessed according to the number of days it is found that the corporation has been willfully doing unauthorized intrastate business. Prosecution under this section may be brought, and the money penalty recovered thereby shall be paid, in the manner provided by Section 2258 for a prosecution brought under that section. The amount of the penalty assessed shall be determined by the court based upon the circumstances, including the size of the corporation and the willfulness of the violation.
A foreign corporation subject to the provisions of Chapter 21 (commencing with Section 2100) which transacts intrastate business without complying with Section 2105 shall not maintain any action or proceeding upon any intrastate business so transacted in any court of this state, commenced prior to compliance with Section 2105, until it has complied with the provisions thereof and has paid to the Secretary of State a penalty of two hundred fifty dollars ($250) in addition to the fees due for filing the statement and designation required by Section 2105 and has filed with the clerk of the court in which the action is pending receipts showing the payment of the fees and penalty and all franchise taxes and any other taxes on business or property in this state that should have been paid for the period during which it transacted intrastate business.
Upon the failure of a corporation to file the statement required by Section 1502, the Secretary of State shall provide a notice of that delinquency to the corporation. The notice shall also contain information concerning the application of this section, advise the corporation of the penalty imposed by Section 19141 of the Revenue and Taxation Code for failure to timely file the required statement after notice of the delinquency has been provided by the Secretary of State, and shall advise the corporation of its right to request relief from the Secretary of State because of reasonable cause or unusual circumstances that justify the failure to file. If, within 60 days of providing notice of the delinquency, a statement pursuant to Section 1502 has not been filed by the corporation, the Secretary of State shall certify the name of the corporation to the Franchise Tax Board.
Upon certification pursuant to subdivision (a), the Franchise Tax Board shall assess against the corporation the penalty provided in Section 19141 of the Revenue and Taxation Code.
The penalty herein provided shall not apply to a corporation that on or prior to the date of certification pursuant to subdivision (a) has dissolved, has converted to another type of business entity, or has been merged into another corporation or other business entity.
The penalty herein provided shall not apply and the Secretary of State need not provide a notice of the delinquency to a corporation if the corporate powers, rights, and privileges have been suspended by the Franchise Tax Board pursuant to Section 23301, 23301.5, or 23775 of the Revenue and Taxation Code on or prior to, and remain suspended on, the last day of the filing period pursuant to Section 1502. The Secretary of State need not provide notice of the filing requirement pursuant to Section 1502 to a corporation if the corporate powers, rights, and privileges have been so suspended by the Franchise Tax Board on or prior to, and remain suspended on, the day the Secretary of State prepares the notice for sending.
If, after certification pursuant to subdivision (a), the Secretary of State finds (1) the required statement was filed before the expiration of the 60-day period after providing notice of the delinquency, or (2) the failure to provide notice of delinquency was due to an error of the Secretary of State, the Secretary of State shall promptly decertify the name of the corporation to the Franchise Tax Board. The Franchise Tax Board shall then promptly abate any penalty assessed against the corporation pursuant to Section 19141 of the Revenue and Taxation Code.
If the Secretary of State determines that the failure of a corporation to file the statement required by Section 1502 is excusable because of reasonable cause or unusual circumstances that justify the failure, the Secretary of State may waive the penalty imposed by this section and by Section 19141 of the Revenue and Taxation Code, in which case the Secretary of State shall not certify the name of the corporation to the Franchise Tax Board, or if already certified, the Secretary of State shall promptly decertify the name of the corporation.
A corporation that (1) fails to file a statement pursuant to Section 1502 for an applicable filing period, (2) has not filed a statement pursuant to Section 1502 during the preceding 24 months, and (3) was certified for penalty pursuant to Section 2204 for the same filing period, is subject to suspension pursuant to this section rather than to penalty pursuant to Section 2204.
When subdivision (a) is applicable, the Secretary of State shall provide a notice to the corporation informing the corporation that its corporate powers, rights, and privileges will be suspended after 60 days if it fails to file a statement pursuant to Section 1502.
After the expiration of the 60-day period without any statement filed pursuant to Section 1502, the Secretary of State shall notify the Franchise Tax Board of the suspension and provide a notice of the suspension to the corporation, and thereupon, the corporate powers, rights, and privileges of the corporation are suspended, except for the purpose of filing an application for exempt status or amending the articles of incorporation as necessary either to perfect that application or to set forth a new name.
A statement pursuant to Section 1502 may be filed notwithstanding suspension of the corporate powers, rights, and privileges pursuant to this section or Section 23301, 23301.5, or 23775 of the Revenue and Taxation Code. Upon the filing of a statement pursuant to Section 1502 by a corporation that has suffered suspension pursuant to this section, the Secretary of State shall certify that fact to the Franchise Tax Board and the corporation may thereupon be relieved from suspension unless the corporation is held in suspension by the Franchise Tax Board by reason of Section 23301, 23301.5, or 23775 of the Revenue and Taxation Code.
A domestic corporation, as defined in Section 167, may be subject to administrative dissolution pursuant to this section if, as of January 1, 2019, or at any time thereafter, the corporation’s corporate powers, rights, and privileges are, and have been, suspended by the Franchise Tax Board pursuant to Article 7 (commencing with Section 23301) of Chapter 2 of Part 11 of Division 2 of the Revenue and Taxation Code for a period of not less than 60 continuous months.
Prior to administrative dissolution of the corporation, the corporation shall be notified of the pending administrative dissolution as follows:
The Franchise Tax Board shall mail written notice to the last known address of the corporation.
If the corporation does not have a valid address in the records of the Franchise Tax Board, the notice provided in subdivision (d) shall be deemed sufficient notice prior to administrative dissolution.
The Franchise Tax Board shall transmit to the Secretary of State the names and Secretary of State file numbers of the corporations subject to administrative dissolution pursuant to this section.
The Secretary of State shall provide 60 days’ notice of the pending administrative dissolution on its Internet Web site by listing the corporation’s name and the Secretary of State’s file number. The Secretary of State shall also, in conjunction with the information above, provide instructions for a corporation to submit a written objection of the pending administrative dissolution to the Franchise Tax Board, before the expiration of the 60 day’s notice.
A corporation may provide the Franchise Tax Board with a written objection to the administrative dissolution.
The Franchise Tax Board shall notify the Secretary of State if a written objection has been received.
If a written objection to the administrative dissolution is not received by the Franchise Tax Board during the 60-day period described in subdivision (d), the corporation shall be administratively dissolved pursuant to this section. The certificate of dissolution of the Secretary of State shall be prima facie evidence of the administrative dissolution.
If the written objection of a corporation to the administrative dissolution has been received by the Franchise Tax Board before the expiration of the 60-day period described in subdivision (d), that corporation shall have an additional 90 days from the date the written objection is received by the Franchise Tax Board to file returns, pay or otherwise satisfy all accrued taxes, penalties, and interest, file a current Statement of Information with the Secretary of State, fulfill any other requirements to be eligible, and apply for revivor.
If the conditions in paragraph (1) are satisfied, the administrative dissolution shall be canceled.
If the conditions in paragraph (1) are not satisfied, the corporation shall be administratively dissolved pursuant to this section as of the later of the date that is 90 days after the receipt of the written objection or after the period in paragraph (3), if so extended.
The Franchise Tax Board may extend the 90-day period in paragraph (1), but for no more than one period of 90 days.
Upon administrative dissolution pursuant to this section, the corporation’s liabilities for qualified taxes, interest, and penalties, as defined in paragraph (2) of subdivision (b) of Section 23310 of the Revenue and Taxation Code, if any, shall be abated. Any actions taken by the Franchise Tax Board to collect the abated liability shall be released, withdrawn, or otherwise terminated by the Franchise Tax Board and no subsequent administrative or civil action shall be taken or brought to collect all or part of that amount.
If the corporation is administratively dissolved pursuant to this section, the liability to creditors, if any, is not discharged. The liability of the directors, shareholders, transferees, or other persons related to the administratively dissolved corporation is not discharged.
The administrative dissolution of a corporation pursuant to this section shall not diminish or adversely affect the ability of the Attorney General to enforce liabilities as otherwise provided by law.
No administrative appeal, writ, or other judicial action may be taken based on the Franchise Tax Board’s or the Secretary of State’s actions pursuant to this section, except pursuant to subdivision (h) if related to repayment of amounts erroneously received after administrative dissolution has occurred.
Upon administrative dissolution, the corporate rights, powers, and privileges of the corporation shall cease.
Sections 2204 and 2205 apply to foreign corporations with respect to the statements required to be filed by Section 2117. For this purpose, the suspension of the corporate powers, rights, and privileges of a domestic corporation shall mean the forfeiture of the exercise of the corporate powers, rights, and privileges of a foreign corporation in this state.
A foreign nonprofit corporation which has suffered the forfeiture of the exercise of the corporate powers, rights, and privileges in this state may nevertheless file an application for exempt status as specified in Section 23301 of the Revenue and Taxation Code.
The forfeiture of the exercise of the corporate powers, rights, and privileges of a foreign corporation in this state as used in subdivision (a) does not prohibit the transaction of business in this state by a foreign corporation if the business transacted subsequent to the forfeiture would not, considered as an entirety, require the foreign corporation to obtain a certificate of qualification pursuant to Sections 191 and 2105.
A corporation is liable for a civil penalty in an amount not exceeding one million dollars ($1,000,000) if the corporation does both of the following:
Has actual knowledge that an officer, director, manager, or agent of the corporation does any of the following:
Makes, publishes, or posts, or has made, published, or posted, either generally or privately to the shareholders or other persons, either of the following:
An oral, written, or electronically transmitted report, exhibit, notice, or statement of its affairs or pecuniary condition that includes a material statement or omission that is false and intended to give the shares of stock in the corporation a materially greater or a materially less apparent market value than they really possess.
An oral, written, or electronically transmitted report, prospectus, account, or statement of operations, values, business, profits, or expenditures, that includes a material false statement or omission intended to give the shares of stock in the corporation a materially greater or a materially less apparent market value than they really possess.
Refuses, or has refused to make, any book entry or post any notice required by law in the manner required by law.
Misstates or conceals, or has misstated or concealed, from a regulatory body a material fact in order to deceive a regulatory body to avoid a statutory or regulatory duty, or to avoid a statutory or regulatory limit or prohibition.
Within 30 days after actual knowledge is acquired of the actions described in paragraph (1), the corporation knowingly fails to do both of the following:
Notify the Attorney General or appropriate government agency in writing, unless the corporation has actual knowledge that the Attorney General or appropriate government agency has been notified.
Notify its shareholders in writing, unless the corporation has actual knowledge that the shareholders have been notified.
The requirement for notification under this section does not apply if the action taken or about to be taken by the corporation, or by an officer, director, manager, or agent of the corporation under paragraph (1) of subdivision (a), is abated within the time prescribed for reporting, unless the appropriate government agency requires disclosure by regulation.
If the action reported to the Attorney General pursuant to this section implicates the government authority of an agency other than the Attorney General, the Attorney General shall promptly forward the written notice to that agency.
If the Attorney General was not notified pursuant to subparagraph (A) of paragraph (2) of subdivision (a), but the corporation reasonably and in good faith believed that it had complied with the notification requirements of this section by notifying a government agency listed in paragraph (5) of subdivision (e), no penalties shall apply.
For purposes of this section:
“Manager” means a person having both of the following:
Management authority over a business entity.
Significant responsibility for an aspect of a business that includes actual authority for the financial operations or financial transactions of the business.
“Agent” means a person or entity authorized by the corporation to make representations to the public about the corporation’s financial condition and who is acting within the scope of the agency when the representations are made.
“Shareholder” means a person or entity that is a shareholder of the corporation at the time the disclosure is required pursuant to subparagraph (B) of paragraph (2) of subdivision (a).
“Notify its shareholders” means to give sufficient description of an action taken or about to be taken that would constitute acts or omissions as described in paragraph (1) of subdivision (a). A notice or report filed by a corporation with the United States Securities and Exchange Commission that relates to the facts and circumstances giving rise to an obligation under paragraph (1) of subdivision (a) shall satisfy all notice requirements arising under paragraph (2) of subdivision (a), but is not the exclusive means of satisfying the notice requirements, if the Attorney General or appropriate agency is informed in writing that the filing has been made together with a copy of the filing or an electronic link where it is available online without charge.
“Appropriate government agency” means an agency on the following list that has regulatory authority with respect to the financial operations of a corporation:
Department of Financial Protection and Innovation.
Department of Insurance.
Department of Managed Health Care.
United States Securities and Exchange Commission.
“Actual knowledge of the corporation” means the knowledge an officer or director of a corporation actually possesses or does not consciously avoid possessing, based on an evaluation of information provided pursuant to the corporation’s disclosure controls and procedures.
“Refuse to make a book entry” means the intentional decision not to record an accounting transaction when all of the following conditions are satisfied:
The independent auditors required recordation of an accounting transaction during the course of an audit.
The corporation’s audit committee has not approved the independent auditor’s recommendation.
The decision is made for the primary purpose of rendering the financial statements materially false or misleading.
“Refuse to post any notice required by law” means an intentional decision not to post a notice required by law when all of the following conditions exist:
The decision not to post the notice has not been approved by the corporation’s audit committee.
The decision is intended to give the shares of stock in the corporation a materially greater or a materially less apparent market value than they really possess.
“Misstate or conceal material facts from a regulatory body” means an intentional decision not to disclose material facts when all of the following conditions exist:
The decision not to disclose material facts has not been approved by the corporation’s audit committee.
The decision is intended to give the shares of stock in the corporation a materially greater or a materially less apparent market value than they really possess.
“Material false statement or omission” means an untrue statement of material fact or an omission to state a material fact necessary in order to make the statements made under the circumstances under which they were made not misleading.
“Officer” means any person as set forth in Rule 16a-1 promulgated under the Securities Exchange Act of 1934 or any successor regulation thereto, except an officer of a subsidiary corporation who is not also an officer of the parent corporation.
This section only applies to corporations that are issuers, as defined in Section 2 of the Sarbanes-Oxley Act of 2002 (15 U.S.C. Sec. 7201 et seq.).
An action to enforce this section may only be brought by the Attorney General or a district attorney or city attorney in the name of the people of the state.
Any promoter, director or officer of a corporation who knowingly and willfully issues or consents to the issuance of certificates for certificated securities, or initial transaction statements or written statements for uncertificated securities, in violation of this division with intent to defraud present or future shareholders, subscribers, purchasers of shares or creditors is guilty of a misdemeanor punishable by a fine of not more than one thousand dollars ($1,000) or imprisonment for not more than one year or both.
Every person (a) who signs the name of a fictitious person to any subscription for or agreement to take stock in any domestic or foreign corporation, existing or proposed, or (b) who signs to any subscription or agreement the name of any person, knowing that the person has no means or does not intend in good faith to comply with all the terms thereof or that there is any understanding or agreement that the terms of the subscription or agreement are not to be complied with or enforced, is guilty of a misdemeanor.
Any director of a stock corporation, domestic or foreign, who concurs in any vote or act of the directors of the corporation or any of them, knowingly and with dishonest or fraudulent purpose, to make any dividend or distribution of assets except in the cases and in the manner allowed by law, either with the design of defrauding creditors or shareholders or of giving a false appearance to the value of the stock and thereby defrauding subscribers or purchasers, is guilty of a misdemeanor, punishable by a fine of not more than one thousand dollars ($1,000) or imprisonment for not more than one year or both.
Every director, officer or agent of any corporation, domestic or foreign, is guilty of a felony (a) who knowingly concurs in making, publishing or posting either generally or privately to the shareholders or other persons (1) any written report, exhibit, statement of its affairs or pecuniary condition or notice containing any material statement which is false, or (2) any untrue or willfully or fraudulently exaggerated report, prospectus, account, statement of operations, values, business, profits, expenditures or prospects, or (3) any other paper or document intended to produce or give, or having a tendency to produce or give, the shares of stock in such corporation a greater value or a less apparent or market value than they really possess, or (b) who refuses to make any book entry or post any notice required by law in the manner required by law.
Every director, officer or agent of any corporation, domestic or foreign, who knowingly receives or acquires possession of any property of the corporation, otherwise than in payment of a just demand, and, with intent to defraud, omits to make, or to cause or direct to be made, a full and true entry thereof in the books or accounts of the corporation is guilty of a public offense.
Every director, officer, agent or shareholder of any corporation, domestic or foreign, who, with intent to defraud, destroys, alters, mutilates or falsifies any of the books, papers, writings or securities belonging to the corporation or makes or concurs in omitting to make any material entry in any book of accounts or other record or document kept by the corporation is guilty of a public offense.
Each public offense specified in this section is punishable by imprisonment pursuant to subdivision (h) of Section 1170 of the Penal Code, or by imprisonment in a county jail not exceeding one year, or a fine not exceeding one thousand dollars ($1,000), or by both that fine and imprisonment.
Every officer, agent or clerk of any corporation, domestic or foreign, or any person proposing to organize such a corporation or to increase the capital stock of any such corporation, who knowingly exhibits any false, forged or altered book, paper, voucher, security or other instrument of evidence to any public officer or board authorized by law to examine the organization of such corporation or to investigate its affairs or to allow an increase of its capital, with intent to deceive such officer or board in respect thereto, is punishable by imprisonment pursuant to subdivision (h) of Section 1170 of the Penal Code, or by imprisonment in a county jail for not exceeding one year.
Every person who, without being authorized so to do, subscribes the name of another to or inserts the name of another in any prospectus, circular or other advertisement or announcement of any corporation, domestic or foreign, whether existing or intended to be formed, with intent to permit the document to be published and thereby to lead persons to believe that the person whose name is so subscribed is an officer, agent, shareholder or promoter of such corporation, when in fact no such relationship exists to the knowledge of such person, is guilty of a misdemeanor.
Any foreign corporation subject to the provisions of Chapter 21 which transacts intrastate business without complying therewith is guilty of a misdemeanor, punishable by fine of not less than five hundred dollars ($500) nor more than one thousand dollars ($1,000), to be recovered in any court of competent jurisdiction.
Prosecution under this section may be brought by the Attorney General or by any district attorney. If brought by the latter, one-half of the fine collected shall be paid to the treasurer of the county in which the conviction was had and one-half to the State Treasurer. If brought by the Attorney General the entire amount of fine collected shall be paid to the State Treasurer to the credit of the General Fund of the state.
Any person who transacts intrastate business on behalf of a foreign corporation which is not authorized to transact such business in this state, knowing that it is not so authorized, is guilty of a misdemeanor punishable by fine of not less than fifty dollars ($50) nor more than six hundred dollars ($600).
CHAPTER 22.5. Victims of Corporate Fraud Compensation Fund [2280. - 2296.]
The Victims of Corporate Fraud Compensation Fund is hereby established in the State Treasury. The fund shall be administered by the Secretary of State for the sole purpose of providing restitution to the victims of a corporate fraud. The Secretary of State shall adopt regulations in furtherance of the administration of this chapter. Notwithstanding Section 13340 of the Government Code, the money in the fund is continuously appropriated to the Secretary of State for the purposes authorized by this chapter.
As used in this chapter:
“Agent” means a person who was an officer or director of a corporation, as defined in subdivision (e), at the time the fraudulent acts occurred, was named in a final criminal restitution order in connection with the fraudulent acts, and was acting in the person’s capacity as the corporation’s officer or director when committing the fraudulent acts.
“Application” means a request for payment from the fund submitted to the Secretary of State pursuant to this chapter.
“Claimant” means an aggrieved person who resides in the state at the time of the fraud and who submits an application pursuant to this chapter.
“Complaint,” for the purpose of an application based on a criminal restitution order, means the facts of the underlying transaction or transactions upon which the criminal restitution order is based.
“Court of competent jurisdiction” means a state or federal court situated in California.
“Final judgment” means a judgment, arbitration award, or criminal restitution order for which appeals have been exhausted or for which the period for appeal has expired, enforcement of which is not barred by the order of any court or by any statutory provision, which has not been nullified or rendered void by any court order or statutory provision, and for which the claimant has not otherwise been fully reimbursed. The following are examples of final judgments:
A civil judgment that has been entered against a corporation for fraud, misrepresentation, or deceit, with the intent to defraud, and includes findings of facts and conclusions of law.
If the matter was submitted to arbitration, a copy of the arbitration decision and any other documentation supporting the arbitration award. An arbitration award against a corporation for conduct constituting fraud, misrepresentation, or deceit, with the intent to defraud, that includes findings of fact and conclusions of law rendered in accordance with the rules established by the American Arbitration Association or another recognized arbitration body, and in accordance with Sections 1280 to 1294.2, inclusive, of the Code of Civil Procedure where applicable, and where the arbitration award has been confirmed and reduced to judgment pursuant to Section 1287.4 of the Code of Civil Procedure.
A criminal restitution order issued by a court of competent jurisdiction against a corporation, or an agent of the corporation, for fraud, misrepresentation, or deceit, with the intent to defraud, pursuant to subdivision (f) of Section 1202.4 of the Penal Code or Section 3663 of Title 18 of the United States Code. An application for payment from the fund that is based on a criminal restitution order shall comply with all of the requirements of this chapter.
“Fund” means the Victims of Corporate Fraud Compensation Fund created by Section 2280.
“Judgment debtor” means a corporation or agent against which a judgment, arbitration award, or criminal restitution order has been entered for conduct constituting intentional fraud.
When an aggrieved person obtains a final judgment in a court of competent jurisdiction against a corporation based upon the corporation’s fraud, misrepresentation, or deceit, made with intent to defraud, or obtains a criminal restitution order against an agent based upon the agent's fraud, misrepresentation, or deceit, made with intent to defraud while acting in the agent’s capacity as the corporation’s officer or director, the aggrieved person may, upon the judgment becoming final and after diligent collection efforts are made, file an application with the Secretary of State for payment from the fund, within the limitations specified in Section 2289, for the amount unpaid on the judgment that represents the awarded actual and direct loss, any awarded compensatory damages, and awarded costs to the claimant in the final judgment, excluding punitive damages.
The application shall be delivered in person or by certified mail to the Secretary of State not later than 18 months after the judgment has become final.
The application shall be made on a form prescribed by the Secretary of State and shall include each of the following:
The name and address of the claimant.
If the claimant is represented by an attorney for the application, the name, business address, and telephone number of the attorney. If the claimant is not represented by an attorney for the application, a telephone number where the claimant can be reached during regular business hours shall be included.
The name and address of the corporation and the agent, if any.
The identification of the final judgment, the amount of the claim that remains unreimbursed from any source, and an explanation of the claim’s computation.
A copy of a final judgment and a copy of the civil complaint and any amendments thereto upon which the judgment finding fraud, misrepresentation, or deceit, made with the intent to defraud, was made shall be deemed to satisfy compliance with the requirements prescribed in this paragraph. The claimant may also provide any additional documentation that he or she believes may help the Secretary of State in evaluating the application, including, but not limited to, evidence submitted to the court in the underlying judgment or a detailed narrative statement of facts in explanation of the allegations of the complaint upon which the underlying judgment is based.
If the final judgment is a criminal restitution order, the claimant shall provide the charging document and the restitution order, and if the defendant is an agent, documentation showing the defendant named in the restitution order is an agent as defined in this chapter.
A description of searches and inquiries conducted by or on behalf of the claimant with respect to the judgment debtor’s assets liable to be sold or applied to satisfaction of the judgment. A court’s determination or finding of the judgment debtor’s insolvency or lack of assets to pay the claimant shall be deemed to satisfy the requirements prescribed in this paragraph.
Each of the following representations by the claimant:
That the claimant is not a spouse, registered domestic partner, or an immediate family member of an employee, officer, director, managing agent, or other principal of the corporation nor a personal representative of the spouse, registered domestic partner, or an immediate family member of an employee, officer, director, managing agent, or other principal of the corporation.
That the claimant has complied with all of the requirements of this section.
That the judgment underlying the claim meets the requirements of subdivisions (a) and (b), including all of the following:
That the judgment was for fraud, misrepresentation, or deceit by the corporation or the agent of the corporation, with the intent to defraud.
That the judgment is unpaid in part or in whole.
That the underlying judgment and debt have not been discharged in bankruptcy, or the underlying judgment is statutorily nondischargeable, or, in the case of a bankruptcy proceeding that is open at or after the time of the filing of the application, that the judgment and debt have been declared to be nondischargeable by the judge or stipulated as nondischargeable by the parties in the proceeding and that the claimant has been granted permission by the bankruptcy court to proceed with collection or otherwise proceed with the claimant’s claims against the judgment debtor or debtors.
That the claimant does not have a pending claim and has not collected on the final judgment from any other restitution fund. If the claimant has a pending claim or has collected from another fund, a description of the nature of the pending claim and the recovery amounts from any restitution fund.
The Secretary of State shall include with the application form a notice to the claimant of his or her obligation to protect the underlying judgment from discharge in bankruptcy, to be appended to the application.
If a claimant is a spouse, registered domestic partner, or an immediate family member of an employee, officer, director, managing agent, or other principal of the corporation, or is a personal representative of the spouse, registered domestic partner, or an immediate family member of an employee, officer, director, managing agent, or other principal of the corporation, the claimant shall not be precluded for that reason alone from receiving an award where the claimant can otherwise meet the requirements of this section.
The Secretary of State shall provide notice to the corporation and all agents named in the application that a claimant has submitted an application for payment from the fund and shall also provide within that notice, as prescribed by the Secretary of State, the method to contest the payment from the fund.
The notice to the corporation shall be provided by certified mail addressed to the corporation’s last designated agent for service of process of record with the Secretary of State and notice shall be deemed complete five calendar days after the notice is mailed.
If the corporation or its agent wishes to contest payment of an application by the Secretary of State, the corporation or agent shall mail or deliver a written response addressed to the Secretary of State within 30 calendar days of the notice of the application, and shall mail or deliver a copy of the response to the claimant. The written response of the corporation or agent shall not be directed to issues and facts conclusively established by the underlying judgment. If the corporation fails to mail or deliver a timely response, the corporation shall have waived the corporation’s right to present objections to payment of the application, and shall not thereafter be entitled to notice of any action taken or proposed to be taken by the Secretary of State with respect to the application.
The response by the corporation shall be by an officer or director and shall contain proof of service showing that a copy of the response was sent to the claimant, or if the claimant is represented by an attorney for purposes of the application, to the claimant’s attorney, at the address specified in the application for the claimant or the claimant’s attorney, respectively.
If the corporation is not represented by an attorney in objecting to payment of the application, the response shall contain the name, title, and address of the officer, director, managing agent, or other responsible person authorized to represent the corporation and the address at which the corporation wishes to receive correspondence and notices relating to the application, and a telephone number at which the corporation’s representative can be reached during regular business hours. If the corporation is represented by an attorney in objecting to the application, the response shall contain the name, business address, and telephone number of the attorney.
If the Secretary of State determines that the application, as submitted by the claimant, fails to comply with the requirements of Section 2282, the Secretary of State shall, within 21 calendar days after receipt of the application by a single claimant or within 40 calendar days after receipt of the application by multiple claimants, mail an itemized list of deficiencies to the claimant.
The time within which the Secretary of State is required to act under Section 2284 shall be measured from the date of receipt by the Secretary of State of a completed application. In the event of an irreconcilable dispute between the claimant and the Secretary of State on the question of whether the application is complete, the claimant may immediately file the claim with the court pursuant to Section 2287.
If the Secretary of State has mailed one or more itemized lists of deficiencies to a claimant, and, if after 30 calendar days the Secretary of State has not received a response to the latest list of deficiencies, the Secretary of State shall notify the claimant that, unless the claimant responds to the deficiencies within a specified period of time of not less than 15 calendar days, the application will be denied.
The Secretary of State shall render a final written decision on the application within 90 calendar days after a completed application has been received unless the claimant agrees in writing to extend the time within which the Secretary of State may render a decision.
The Secretary of State may deny or grant the application or may enter into a compromise with the claimant to pay less in settlement than the full amount of the claim. If the claimant refuses to accept a settlement of the claim offered by the Secretary of State, the written decision of the Secretary of State shall be to deny the claim. Evidence of settlement offers and discussions between the Secretary of State and the claimant shall not be competent evidence in judicial proceedings undertaken by the claimant pursuant to Section 2287.
Upon issuance of a proposed decision to award payment or an offer to compromise, the claimant shall have 60 calendar days from the date of service of the proposed award or offer to compromise to accept the proposed award or offer to compromise. If the claimant fails to accept the proposed award or offer to compromise within the specified time, the application shall be deemed denied.
The Secretary of State shall give written notice, as prescribed by the Secretary of State, of a decision rendered with respect to the application to the claimant.
The Secretary of State shall give notice, as prescribed by the Secretary of State, to the corporation and all agents named in the application that the Secretary of State has made a decision to award funds to the claimant and shall provide a copy of the decision to the corporation and all agents named in the application.
A claimant against whom the Secretary of State has rendered a decision denying an application may, within six months after the mailing of the notice of the denial, file a verified petition in superior court for an Order Directing Payment Out of the Victims of Corporate Fraud Compensation Fund based upon the grounds set forth in the application to the Secretary of State. If the underlying judgment is a California state court judgment, the petition shall be filed in the court in which the underlying judgment was entered. If the underlying judgment is not a California state court judgment or is a federal court judgment, the petition shall be filed in the superior court of any county within California that would have been a proper venue if the underlying lawsuit had been filed in a California state court, or in the Superior Court of the County of Sacramento.
A copy of the petition shall be served upon the Secretary of State by the claimant. A certificate or affidavit of service shall be filed by the claimant with the court. Service on the Secretary of State may be made by mail addressed to the Secretary of State’s office.
The Secretary of State shall have 30 calendar days after being served with the petition in which to file a written response. The court shall thereafter set the matter for hearing upon the request of the claimant. The court shall grant a request of the Secretary of State for one continuance of as much as 30 calendar days and may, upon a showing of good cause by any party, continue the hearing as the court deems appropriate.
The claimant shall have the burden of proving compliance with the requirements of Section 2282 by competent evidence at an evidentiary hearing. The claimant shall be entitled to a de novo review of the merits of the application as contained in the administrative record.
At any time during the court proceedings, the petition may be compromised or settled by the Secretary of State and the court shall, upon joint petition of the claimant and the Secretary of State, issue an order directing payment out of the fund.
The Secretary of State may defend any action on behalf of the fund and shall have recourse to all appropriate means of defense and review, including examination of witnesses and the right to relitigate any issues that are material and relevant in the proceeding against the fund. The claimant’s judgment shall create a rebuttable presumption of the fraud, misrepresentation, or deceit by the corporation, which presumption shall affect the burden of producing evidence.
If the civil judgment, arbitration award, or criminal restitution order in the underlying action on which the final judgment in favor of the petitioner was by default, stipulation, consent, or pursuant to Section 594 of the Code of Civil Procedure, or if the action against the corporation or its agent was defended by a trustee in bankruptcy, the petitioner shall have the burden of proving that the cause of action against the corporation or its agent was for fraud, misrepresentation, or deceit.
If the final judgment is a criminal restitution order against an agent, the petitioner shall have the burden of proving that the defendant named in the criminal restitution order qualifies as an agent as defined in this chapter. An active corporation, that has submitted a response to the application pursuant to Section 2282.2, may be permitted by the court to appear in the action regarding the sole issue of whether the defendant named in the criminal restitution order qualifies as its agent as defined in this chapter.
The Secretary of State may move the court at any time to dismiss the petition when it appears there are no triable issues and the petition is without merit. The motion may be supported by affidavit of any person or persons having knowledge of the facts, and may be made on the basis that the petition, and the judgment referred to therein, does not form the basis for a meritorious recovery claim within the purview of Section 2282; provided, however, the Secretary of State shall give written notice at least 10 calendar days before hearing on the motion to the claimant.
Notwithstanding any other provision of this chapter and regardless of the number of persons aggrieved in an instance of corporate fraud, or misrepresentation or deceit resulting in a judgment meeting the requirements of Section 2282, or the number of judgments against a corporation or its agent, the liability of the fund shall not exceed fifty thousand dollars ($50,000) for any one claimant per single judgment finding fraud, misrepresentation, or deceit, made with the intent to defraud.
When multiple corporations or their agents are involved in the same event or series of events that are the basis of the claimant’s final judgment and the conduct of two or more of the corporations or their agents results in a judgment meeting the requirements of Section 2282, the claimant may seek recovery from the fund based on the judgment against any one of the corporations or their agents, subject to the limitations of subdivision (a).
When multiple claimants are involved in a corporate fraud, or in misrepresentation or deceit by a corporation or its agents, resulting in a judgment meeting the requirements of Section 2282, each claimant may seek recovery from the fund individually, subject to the limitations of subdivision (a).
Claimants who are spouses, registered domestic partners, or persons other than natural persons, that have obtained an eligible final judgment shall be considered one claimant.
If, at any time, the money deposited in the fund is insufficient to satisfy any duly authorized award or offer of settlement, the Secretary of State shall, when sufficient money has been deposited in the fund, satisfy the unpaid awards or offer of settlement, in the order that the awards or offers of settlement were originally filed.
Any sums received by the Secretary of State pursuant to any provisions of this chapter shall be deposited in the State Treasury and credited to the fund.
It shall be unlawful for any person or the agent of any person to file with the Secretary of State any notice, statement, or other document required under the provisions of this chapter that is false or untrue or contains any willful, material misstatement of fact. That conduct shall constitute a public offense punishable by imprisonment in a county jail for a period of not more than one year or a fine of not more than one thousand dollars ($1,000), or both.
When the Secretary of State has paid from the fund any sum to the claimant, the Secretary of State shall be subrogated to all of the rights of the claimant and the claimant shall assign all of his or her right, title, and interest in the judgment to the Secretary of State and any amount and interest so recovered by the Secretary of State on the judgment shall be deposited in the fund.
If the Secretary of State pays from the fund any amount in settlement of a claim or toward satisfaction of a final judgment against a corporation or its agent, the corporation or its agent shall be required to pay to the fund the amount paid plus interest at the prevailing legal rate applicable to a judgment rendered in any court of this state, within 30 calendar days of the date that the Secretary of State provided notice of the payment of the award or compromise. If the corporation or its agent fails to make the required payment to the fund within the required time, the corporation shall be suspended until the payment is made. A discharge in bankruptcy shall not relieve a corporation or its agent from the penalties and disabilities provided in this chapter.
The Secretary of State shall not make any award to a claimant from the fund if the claimant has received payment from any other restitution funds or for the portions of the judgment that the claimant has collected from the corporation or its agent or any other defendant in the underlying judgment.
The failure of an aggrieved person to comply with all of the provisions of this chapter shall constitute a waiver of any rights hereunder.
This chapter shall apply to applications submitted to the Secretary of State on or after January 1, 2013.
On and after the effective date of the act adding this subdivision, the Secretary of State shall not accept any new applications from claimants for payment from the fund. Thereafter, the Secretary of State shall wind down the activities of the fund pursuant to this chapter. While any obligation of the Secretary of State incurred pursuant to this chapter remains outstanding and not fully performed or discharged, the rights, powers, and duties of the Secretary of State shall not be diminished or impaired in any manner that will adversely affect the interests and rights of existing claimants or other parties to those obligations.
The Secretary of State, starting February 1, 2027, and annually thereafter until all outstanding claims have been paid, shall provide to the Joint Legislative Budget Committee and other appropriate committees of the Legislature an update on the fund balance, the number of outstanding claims and the amount owed, and the estimated time for paying off any outstanding claims. When all outstanding claims are paid off, the department shall submit a notice to the Joint Legislative Budget Committee and appropriate committees of the Legislature.
Funding for purposes other than those described in this chapter after all outstanding claims are paid is contingent upon an appropriation of funds by the Legislature in the annual Budget Act.
CHAPTER 23. Transition Provisions [2300. - 2319.]
As used in this chapter, the term “new law” means this division of the Corporations Code as amended by act of the California Legislature, 1975–76 Regular Session, effective January 1, 1977, and as in effect on that date; the term “prior law” means the applicable law as in effect prior to January 1, 1977; and the term “effective date” means January 1, 1977.
Except as otherwise expressly provided in this chapter, the provisions of the new law apply on and after the effective date to all corporations referred to in Section 162 existing on the effective date and to all actions taken by the directors or shareholders of such corporations on and after the effective date.
Except as otherwise expressly provided in this chapter, all of the sections of the new law governing acts, contracts or other transactions by a corporation or its directors or shareholders apply only to such acts, contracts or transactions occurring on or after the effective date and the prior law governs such acts, contracts or transactions occurring prior thereto.
Except as otherwise expressly provided in this chapter, any vote or consent by the directors or shareholders of a corporation prior to the effective date in accordance with the prior law shall be effective in accordance with the prior law and if any certificate or document is required to be filed in any public office of this state relating to such action, it may be filed after the effective date in accordance with the prior law.
The provisions of Sections 202, 204 (other than subdivision (a) thereof) and 205 of the new law relating to the contents of articles do not apply to corporations existing on the effective date unless and until an amendment of the articles is filed stating that the corporation elects to be governed by all of the provisions of the new law not otherwise applicable to it under this chapter. Such amendment may be adopted by approval of the board alone, except that, if any such amendment makes any change in the articles other than conforming the statement of purposes and powers to subdivision (b) of Section 202 and the deletion of any references to par value and location of principal office and deleting any statement regarding the number of directors or conforming any such statement to Section 212 (subject to Section 2304), it shall also be approved by the outstanding shares (Section 152) if such approval is otherwise required for the changes made. The amendment shall not name the corporation’s initial agent for service of process if a report required by Section 1502 has been filed.
The absence of any reference to par value in the articles of a corporation which is subject to the prior law relating to the contents of articles as specified in Section 2302 is equivalent to a statement that the shares of stock are to be without par value.
Sections 206 and 207 of the new law apply to corporations existing on the effective date, but any statement in the articles of such corporation, prior to an amendment thereof pursuant to Section 2302, relating to the purposes or powers of the corporation shall not be construed as a limitation unless it is expressly stated as such.
The effect of a difference between the articles and bylaws in the statement of the number of directors shall not be governed by subdivision (a) of Section 212 of the new law for a corporation existing on the effective date, which shall continue to be governed by the prior law, unless and until an amendment of its articles is filed pursuant to Section 2302. If such amendment makes any change in the number of directors or the maximum or minimum number of directors or makes a change from a fixed to a variable board or vice versa, it shall also be approved by the outstanding shares (Section 152).
Subdivision (a) of Section 312 of the new law applies to a corporation existing on the effective date, but the “treasurer” of such corporation shall be deemed to be the “chief financial officer.”
Section 317 of the new law governs any proposed indemnification by a corporation after the effective date, whether the events upon which the indemnification is based occurred before or after the effective date. Any statement relating to indemnification contained in the articles or bylaws of a corporation on the effective date shall not be construed as limiting the indemnification permitted by Section 317 unless it is expressly stated as so intended.
Sections 417 and 418 of the new law relating to required statements on certificates representing shares apply to certificates representing shares of corporations existing on the effective date only if the shares are originally issued after the effective date, and the prior law shall continue to govern the certificates representing shares originally issued prior to the effective date, unless and until an amendment of the articles is filed pursuant to Section 2302, and the certificate is presented for transfer.
Chapter 5 of the new law applies to any distribution to its shareholders made after the effective date by a corporation existing on the effective date, except that any such distribution effected pursuant to a contract for the purchase or redemption of shares entered into by the corporation prior to the effective date may be made if permissible under Chapter 5 or under the prior law in effect at the time the contract was entered into.
Subdivision (a) of Section 510 of the new law applies only to shares acquired after the effective date.
The provisions of Chapter 6 (commencing with Section 600) and Chapter 7 (commencing with Section 700) (other than Section 706) of the new law apply to any meeting of shareholders held after the effective date and to any action by shareholders pursuant to written consent which becomes effective after the effective date and to any vote cast at such a meeting or consent given for such action (whether or not a proxy or consent was executed by the shareholder prior to the effective date); provided, however, that the prior law shall apply to any such meeting of shareholders and to any vote cast at such a meeting if such meeting was initially called for a date prior to the effective date and notice thereof was given to shareholders entitled to vote thereat.
Section 706 of the new law applies to agreements and voting trusts entered into after the effective date and prior law governs such agreements or trusts entered into prior thereto unless the agreement or trust is amended or extended thereafter, in which event the new law applies.
Section 800 of the new law applies to actions commenced after the effective date and prior law governs actions pending on the effective date.
Chapters 10 (commencing with Section 1000), 11 (commencing with Section 1100), 12 (commencing with Section 1200) and 13 (commencing with Section 1300) of the new law apply to transactions consummated after the effective date, unless a required approval of the outstanding shares (Section 152) has been given prior to the effective date or has been given after the effective date but at a meeting of shareholders initially called for a date prior to the effective date, in which case the transaction shall be governed by the prior law.
A foreign association which has transacted intrastate business in this state prior to the effective date and which is required by Section 2105 of the new law to obtain a certificate of qualification from the Secretary of State shall not be subject to any direct or indirect penalty as a result of failure to obtain such certificate of qualification if the certificate of qualification is obtained no later than four months after the effective date.
When any corporate agent for service of process has been designated prior to the effective date and such designation of agent included a name of a city, town or village wherein the corporate agent maintained an office, service on such agent may be effected at any office of the agent set forth in the certificate of the corporate agent filed pursuant to Section 1505 of the new law or filed pursuant to Section 3301.5, 3301.6, 6403.5 or 6403.6 of the prior law, whether or not such office is in said city, town or village.
Any corporation existing on the first day of January, 1873, formed under the laws of this state, and still existing, which has not already elected to continue its existence under the prior law, may, at any time, elect to continue its existence under the provisions of this code applicable thereto by the unanimous vote of all its directors, or such election may be made at any annual meeting of the shareholders, or at any meeting called by the directors especially for considering the subject, if voted by shareholders representing a majority of the voting power, or may be made by the directors upon the written consent of that number of the shareholders.
A certificate of the action of the directors, signed by them and their secretary, when the election is made by their unanimous vote, or upon the written consent of the shareholders, or a certificate of the proceedings of the meeting of the shareholders, when the election is made at any such meeting, signed by the chairperson and secretary of the meeting and a majority of the directors, shall be filed in the office of the Secretary of State, and thereafter the corporation continues its existence under the provisions of this code which are applicable thereto, and possesses all the rights, and powers, and is subject to all the obligations, restrictions, and limitations prescribed thereby.
If the corporate rights, privileges and powers of a corporation have been suspended and are still suspended immediately prior to the effective date pursuant to Sections 5700 through 5908 of the old law and provisions of law there referred to, said sections and provisions continue to apply to such a corporation until restoration by the Controller pursuant to said sections.
DIVISION 1.5. SOCIAL PURPOSE CORPORATIONS ACT [2500. - 3503.]
CHAPTER 1. General Provisions and Definitions [2500. - 2517.]
This division shall be known and may be cited as the Social Purpose Corporations Act.
Except as otherwise expressly stated, the provisions of Division 1 (commencing with Section 100) shall apply to corporations organized under this division, and references in that division to the terms “close corporation,” “constituent corporation,” “corporation,” “disappearing corporation,” “domestic corporation,” “foreign corporation,” “surviving corporation,” and similar terms shall be read to apply, in the same manner, to include the similar “social purpose corporation.”
This division applies only to social purpose corporations organized expressly under this division whether organized or existing under this division or amended, merged or converted into a social purpose corporation in accordance with Chapter 9 (commencing with Section 900) of Division 1, Chapter 11 (commencing with Section 1100) of Division 1 or Chapter 11.5 (commencing with Section 1150) of Division 1, including all flexible purpose corporations formed under this division prior to January 1, 2015, and now existing except as provided in paragraph (2) of subdivision (b) of Section 2601 and paragraph (3) of subdivision (b) of Section 2602.
Every social purpose corporation organized under the laws of this state or similar foreign social purpose corporation, all of the capital stock of which is beneficially owned by the United States, an agency or instrumentality of the United States or any social purpose corporation or similar foreign social purpose corporation the whole of the capital stock of which is owned by the United States or by an agency or instrumentality of the United States, is conclusively presumed to be an agency and instrumentality of the United States and is entitled to all privileges and immunities to which the holders of all of its stock are entitled as agencies of the United States.
Unless otherwise expressly provided, whenever reference is made in this division to any other state or federal statute, that reference is to that statute as it may be amended from time to time, whether before or after the enactment of this division.
A social purpose corporation may be sued in the same manner as a corporation as provided in the Code of Civil Procedure.
A social purpose corporation formed under this division shall, in respect of its property, as a condition of its existence as a social purpose corporation, be subject, in the same manner as a corporation, to the provisions of the Code of Civil Procedure authorizing the attachment of corporate property.
The fees of the Secretary of State for filing instruments by or on behalf of social purpose corporations shall be the same fees prescribed for corporations in Article 3 (commencing with Section 12180) of Chapter 3 of Part 2 of Division 3 of Title 2 of the Government Code.
Provisions of the articles described in paragraph (3) of subdivision (e) of Section 2602 and subdivisions (a) and (b) of Section 2603 may be made dependent upon facts ascertainable outside of the articles, if the manner in which those facts shall operate upon those provisions is clearly and expressly set forth in the articles. Similarly, any of the terms of an agreement of merger pursuant to Section 1101 may be made dependent upon facts ascertainable outside of that agreement, if the manner in which those facts shall operate upon the terms of the agreement is clearly and expressly set forth in the agreement of merger.
Notwithstanding subdivision (a), when any provisions or terms of articles or an agreement of merger are made dependent upon facts ascertainable outside of the filed instrument through a reference to an agreement or similar document, the social purpose corporation filing that instrument shall maintain at its principal office a copy of that referenced agreement or document and all amendments, and shall provide to its shareholders, in the case of articles, or to shareholders of any constituent corporation or other business entity, in the case of an agreement of merger, a copy of them upon written request and without charge.
For the purposes of this section, “referenced agreement” means an agreement or contract to which the social purpose corporation is a party. An amendment or revision of a referenced agreement shall require shareholder approval, in addition to any other required approvals, upon any of the following circumstances:
If the amendment or revision of the referenced agreement would result in a material change in the rights, preferences, privileges, or restrictions of a class or series of shares, the amendment or revision shall be approved by the outstanding shares, as defined in Section 152, of that class or series.
If the amendment or revision of the referenced agreement would result in a material change in the rights or liabilities of any class or series of shares with respect to the subject matter of paragraph (1), (2), (3), (5), or (9) of subdivision (a) of Section 2603, the amendment or revision shall be approved by the outstanding shares, as defined in Section 152, of that class or series.
If the amendment or revision of the referenced agreement would result in a material change in the restrictions on transfer or hypothecation of any class or series of shares, the amendment or revision shall be approved by the outstanding shares, as defined in Section 152, of that class or series.
If the amendment or revision of the referenced agreement would result in a change of any of the principal terms of an agreement of merger, the amendment or revision shall be approved in the same manner as required by Section 3504 for a change in the principal terms of an agreement of merger.
Nothing contained in this division shall be construed to modify the provisions of subdivision (h) of Section 25102, or the conditions provided therein to the availability of an exemption under that subdivision.
“Close social purpose corporation” means a social purpose corporation that is also a close corporation.
“Constituent social purpose corporation” means a social purpose corporation that is merged with or into one or more corporations or one or more other business entities and includes a surviving social purpose corporation.
“Disappearing social purpose corporation” means a constituent social purpose corporation that is not the surviving entity.
“Domestic social purpose corporation” means a corporation organized under this division.
“Social purpose corporation,” unless otherwise expressly provided, refers only to a corporation organized under this division.
“Social purpose corporation subject to the Banking Law” means any of the following:
A social purpose corporation that, with the approval of the Commissioner of Financial Protection and Innovation, is incorporated for the purpose of engaging in, or that is authorized by the Commissioner of Financial Protection and Innovation to engage in, the commercial banking business under the Banking Law (Division 1.1 (commencing with Section 1000) of the Financial Code).
Any social purpose corporation that, with the approval of the Commissioner of Financial Protection and Innovation, is incorporated for the purpose of engaging in, or that is authorized by the Commissioner of Financial Protection and Innovation to engage in, the industrial banking business under the Banking Law (Division 1.1 (commencing with Section 1000) of the Financial Code).
Any social purpose corporation, other than a social purpose corporation described in subdivision (d), that, with the approval of the Commissioner of Financial Protection and Innovation, is incorporated for the purpose of engaging in, or that is authorized by the Commissioner of Financial Protection and Innovation to engage in, the trust business under the Banking Law (Division 1.1 (commencing with Section 1000) of the Financial Code).
Any social purpose corporation that is authorized by the Commissioner of Financial Protection and Innovation and the Commissioner of Insurance to maintain a title insurance department to engage in title insurance business and a trust department to engage in trust business.
Any social purpose corporation that, with the approval of the Commissioner of Financial Protection and Innovation, is incorporated for the purpose of engaging in, or that is authorized by the Commissioner of Financial Protection and Innovation to engage in, business under Article 1 (commencing with Section 1850) of Chapter 21 of Division 1.1 of the Financial Code.
“Reorganization” means a merger reorganization, an exchange reorganization, or a sale of assets reorganization.
“Exchange reorganization” means the acquisition by one domestic social purpose corporation, foreign social purpose corporation, or other business entity in exchange, in whole or in part, for its equity securities, or the equity securities of a domestic social purpose corporation, a foreign social purpose corporation, or an other business entity that is in control of the acquiring entity, of equity securities of another domestic social purpose corporation, foreign social purpose corporation, or other business entity if, immediately after the acquisition, the acquiring entity has control of the other entity.
“Sale-of-assets reorganization” means the acquisition by one domestic social purpose corporation, foreign social purpose corporation, or other business entity in exchange in whole or in part for its equity securities, or the equity securities of a domestic social purpose corporation, a foreign social purpose corporation, or an other business entity that is in control of the acquiring entity, or for its debt securities, or debt securities of a domestic social purpose corporation, foreign social purpose corporation, or other business entity that is in control of the acquiring entity, that are not adequately secured and that have a maturity date in excess of five years after the consummation of the reorganization, or both, of all or substantially all of the assets of another domestic social purpose corporation, foreign social purpose corporation, or other business entity.
“Share exchange tender offer” means any acquisition by one social purpose corporation in exchange in whole or in part for its equity securities, or the equity securities of a corporation or a social purpose corporation that is in control of the acquiring social purpose corporation, of shares of another corporation or social purpose corporation, other than an exchange reorganization (subdivision (b) of Section 2511).
“Special purpose” means the special purpose set forth in a social purpose corporation’s articles pursuant to subdivision (b) of Section 2602.
“Special purpose current report” means the report required of a social purpose corporation pursuant to Section 3501.
“Special purpose MD&A” means the management discussion and analysis required of a social purpose corporation pursuant to subdivision (b) of Section 3500.
“Special purpose objectives” means those objectives set forth by management and the directors of a social purpose corporation for purposes of measuring the impact of the social purpose corporation’s efforts relating to its special purpose in accordance with Section 3500.
“Surviving social purpose corporation” means a social purpose corporation into which one or more other corporations or one or more other business entities is merged.
CHAPTER 2. Organization and Bylaws [2600. - 2605.]
One or more natural persons, partnerships, associations, social purpose corporations, or corporations, domestic or foreign, may form a social purpose corporation under this division by executing and filing articles of incorporation.
If initial directors are named in the articles, each director named in the articles shall sign and acknowledge the articles. If initial directors are not named in the articles, the articles shall be signed by one or more incorporators who shall be persons described in subdivision (a).
The corporate existence begins upon the filing of the articles and continues perpetually, unless otherwise expressly provided by law or in the articles.
An existing business association organized as a trust under the laws of this state or of a foreign jurisdiction may incorporate under this division upon approval by its board of trustees or similar governing body and approval by the affirmative vote of two-thirds of the outstanding voting shares of beneficial interest, or a greater proportion of the outstanding shares of beneficial interest or the vote of those other classes of shares of beneficial interest as may be specifically required by its declaration of trust or bylaws, and the filing of articles with a certificate attached pursuant to this chapter.
In addition to the matters required to be set forth in the articles pursuant to Section 2602, the articles filed pursuant to this section shall state that an existing unincorporated association, stating its name, is being incorporated by the filing of the articles.
The articles filed pursuant to this section shall be signed by the president, or any vice president, and the secretary, or any assistant secretary, of the existing association and shall be accompanied by a certificate signed and verified by those officers signing the articles and stating that the incorporation of the association has been approved by the trustees and by the required vote of holders of shares of beneficial interest in accordance with subdivision (a).
Upon the filing of articles pursuant to this section, the social purpose corporation shall succeed automatically to all of the rights and property of the association being incorporated and shall be subject to all of its debts and liabilities in the same manner as if the social purpose corporation had itself incurred them. The incumbent trustees of the association shall constitute the initial directors of the social purpose corporation and shall continue in office until the next annual meeting of the shareholders or their earlier death, resignation, or removal. All rights of creditors and all liens upon the property of the association shall be preserved unimpaired. Any action or proceeding pending by or against the association may be prosecuted to judgment, which shall bind the social purpose corporation, or the social purpose corporation may be proceeded against or substituted in its place.
The filing for record in the office of the county recorder of any county in this state in which any of the real property of the association is located of a copy of the articles filed pursuant to this section, certified by the Secretary of State, shall evidence record ownership in the social purpose corporation of all interests of the association in and to the real property located in that county.
The Secretary of State shall not file articles setting forth a name in which “bank,” “trust,” “trustee,” or related words appear, unless the certificate of approval of the Commissioner of Financial Protection and Innovation is attached to the articles. This subdivision does not apply to the articles of any social purpose corporation subject to the Banking Law on which is endorsed the approval of the Commissioner of Financial Protection and Innovation.
The name of a social purpose corporation shall not be a name that the Secretary of State determines is likely to mislead the public and shall be distinguishable in the records of the Secretary of State from all of the following:
The name of any corporation.
The name of any foreign corporation authorized to transact intrastate business in this state.
Each name that is under reservation pursuant to this title.
The name of a foreign corporation that has registered its name pursuant to Section 2101.
An alternate name of a foreign corporation under subdivision (b) of Section 2106.
A name that will become the record name of a domestic or foreign corporation upon a corporate instrument when there is a delayed effective or file date.
The use by a social purpose corporation of a name in violation of this section may be enjoined notwithstanding the filing of its articles by the Secretary of State.
A corporation formed pursuant to this division before January 1, 2015, may elect to change its status from a flexible purpose corporation to a social purpose corporation by amending its articles of incorporation to change its name to replace “flexible purpose corporation” with “social purpose corporation” and to replace the term “flexible purpose corporation” with “social purpose corporation” as applicable in any statements contained in the articles. For any flexible purpose corporation formed before January 1, 2015, that has not amended its articles of incorporation to change its status to a social purpose corporation, any reference in this division to social purpose corporation shall be deemed a reference to “flexible purpose corporation.”
Any applicant may, upon payment of the fee prescribed in Article 3 (commencing with Section 12180) of Chapter 3 of Part 2 of Division 3 of Title 2 of the Government Code, obtain from the Secretary of State a certificate of reservation of any name not prohibited by subdivision (b), and upon the issuance of the certificate the name stated in the certificate shall be reserved for a period of 60 days. The Secretary of State shall not, however, issue certificates reserving the same name for two or more consecutive 60-day periods to the same applicant or for the use or benefit of the same person. No consecutive reservations shall be made by or for the use or benefit of the same person of names so similar as to fall within the prohibitions of subdivision (b).
The articles of incorporation shall set forth:
The name of the social purpose corporation that shall contain the words “social purpose corporation” or an abbreviation of those words.
Either of the following statements, as applicable:
“The purpose of this social purpose corporation is to engage in any lawful act or activity for which a social purpose corporation may be organized under Division 1.5 of the California Corporations Code, other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code, for the benefit of the overall interests of the social purpose corporation and its shareholders and in furtherance of the following enumerated purposes ____.”
“The purpose of this social purpose corporation is to engage in the profession of ____ (with the insertion of a profession permitted to be incorporated by the California Corporations Code) and any other lawful activities, other than the banking or trust company business, not prohibited to a social purpose corporation engaging in that profession by applicable laws and regulations, for the benefit of the overall interests of the social purpose corporation and its shareholders and in furtherance of the following enumerated purposes ____.”
A statement that a purpose of the social purpose corporation, in addition to the purpose stated pursuant to paragraph (1), is to engage in one or more of the following enumerated purposes, as also specified in the statement set forth pursuant to paragraph (1):
One or more charitable or public purpose activities that a nonprofit public benefit corporation is authorized to carry out.
The purpose of promoting positive effects of, or minimizing adverse effects of, the social purpose corporation’s activities upon any of the following, provided that the corporation consider the purpose in addition to or together with the financial interests of the shareholders and compliance with legal obligations, and take action consistent with that purpose:
The social purpose corporation’s employees, suppliers, customers, and creditors.
The community and society.
The environment.
For any corporation organized under this division before January 1, 2015, that has not elected to change its status to a social purpose corporation, a statement that the corporation is organized as a flexible purpose corporation under the Corporate Flexibility Act of 2011. Such a corporation is not required to revise the statements required in paragraphs (1) and (2) to conform to the changes made by the act adding this subparagraph.
For any corporation organized under this division on and after January 1, 2015, or that has elected to change its status to a social purpose corporation pursuant to paragraph (2) of subdivision (b) of Section 2601, a statement that the corporation is organized as a social purpose corporation under the Social Purpose Corporations Act.
If the social purpose corporation is a social purpose corporation subject to the Banking Law (Division 1.1 (commencing with Section 1000) of the Financial Code), the articles shall set forth a statement of purpose that is prescribed by the applicable provision of the Banking Law (Division 1.1 (commencing with Section 1000) of the Financial Code).
If the social purpose corporation is a social purpose corporation subject to the Insurance Code as an insurer, the articles shall additionally state that the business of the social purpose corporation is to be an insurer.
If the social purpose corporation is intended to be a professional corporation within the meaning of the Moscone-Knox Professional Corporation Act (Part 4 (commencing with Section 13400) of Division 3), the articles shall additionally contain the statement required by Section 13404. The articles shall not set forth any further or additional statement with respect to the purposes or powers of the social purpose corporation, except by way of limitation or except as expressly required by any law of this state, other than this division, or any federal or other statute or regulation, including the Internal Revenue Code and regulations thereunder as a condition of acquiring or maintaining a particular status for tax purposes.
If the social purpose corporation is a close social purpose corporation, a statement as required by subdivision (a) of Section 158.
The name and street address in this state of the social purpose corporation’s initial agent for service of process in accordance with subdivision (b) of Section 1502.
The initial street address of the corporation.
The initial mailing address of the corporation, if different from the initial street address.
If the social purpose corporation is authorized to issue only one class of shares, the total number of shares that the social purpose corporation is authorized to issue.
If the social purpose corporation is authorized to issue more than one class of shares, or if any class of shares is to have two or more series, the articles shall state:
The total number of shares of each class that the social purpose corporation is authorized to issue and the total number of shares of each series that the social purpose corporation is authorized to issue or that the board is authorized to fix the number of shares of any such series.
The designation of each class and the designation of each series or that the board may determine the designation of any such series.
The rights, preferences, privileges, and restrictions granted to or imposed upon the respective classes or series of shares or the holders thereof, or that the board, within any limits and restrictions stated, may determine or alter the rights, preferences, privileges, and restrictions granted to or imposed upon any wholly unissued class of shares or any wholly unissued series of any class of shares. As to any series the number of shares of which is authorized to be fixed by the board, the articles may also authorize the board, within the limits and restrictions stated in the article or in any resolution or resolutions of the board originally fixing the number of shares constituting any series, to increase or decrease, but not below the number of shares of such series then outstanding, the number of shares of any series subsequent to the issue of shares of that series. If the number of shares of any series shall be so decreased, the shares constituting that decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of that series.
The articles of incorporation may set forth:
Any or all of the following provisions, which shall not be effective unless expressly provided in the articles:
Granting, with or without limitations, the power to levy assessments upon the shares or any class of shares.
Granting to shareholders preemptive rights to subscribe to any or all issues of shares or securities.
Special qualifications of persons who may be shareholders.
A provision limiting the duration of the social purpose corporation’s existence to a specified date.
A provision requiring, for any or all corporate actions, except as provided in Section 303, subdivision (b) of Section 402.5, subdivision (c) of Section 708, and Section 1900, the vote of a larger proportion or of all of the shares of any class or series, or the vote or quorum for taking action of a larger proportion or of all of the directors, than is otherwise required by Division 1 (commencing with Section 100) or this division.
So long as consistent with the purpose of the social purpose corporation as set forth in the articles in accordance with subdivision (b) of Section 2602, a provision limiting or restricting the business in which the social purpose corporation may engage or the powers which the social purpose corporation may exercise, or both.
A provision conferring upon the holders of any evidences of indebtedness, issued or to be issued by the social purpose corporation, the right to vote in the election of the directors and on any other matters on which shareholders may vote.
A provision conferring upon shareholders the right to determine the consideration for which shares shall be issued.
Provisions eliminating or limiting the personal liability of a director for monetary damages in an action brought by or in the right of the social purpose corporation for breach of a director’s duties to the social purpose corporation and its shareholders, as set forth in Section 2700, subject to the following:
The provision may not eliminate or limit the liability of directors (i) for acts or omissions that involve intentional misconduct or a knowing and culpable violation of law, (ii) for acts or omissions that a director believes to be contrary to the best interests of the social purpose corporation or its shareholders and its corporate purposes as expressed in its articles, or that involve the absence of good faith on the part of the director, (iii) for any transaction from which a director derived an improper personal benefit, (iv) for acts or omissions that show a reckless disregard for the director’s duty to the social purpose corporation or its shareholders in circumstances in which the director was aware, or should have been aware, in the ordinary course of performing a director’s duties, of a risk of serious injury to the social purpose corporation, its shareholders, or its corporate purposes as expressed in its articles, (v) for acts or omissions that constitute an unexcused pattern of inattention that amounts to an abdication of the director’s duty to the social purpose corporation, its shareholders, or its corporate purposes as expressed in its articles pursuant to Section 2602, or (vi) under Section 310 or 2701.
The provision shall not eliminate or limit the liability of a director for any act or omission occurring prior to the date on which the provision becomes effective.
The provision shall not eliminate or limit the liability of an officer for any act or omission as an officer, notwithstanding that the officer is also a director or that his or her actions, if negligent or improper, have been ratified by the directors.
A provision authorizing, whether by bylaw, agreement, or otherwise, the indemnification of agents of the social purpose corporation for breach of duty to the social purpose corporation and its shareholders, provided, however, that the provision may not provide for indemnification of any agent for any acts or omissions or transactions from which a director may not be relieved of liability as described in subparagraphs (A), (B), and (C) of paragraph (10).
Notwithstanding this subdivision, bylaws may require, for all or any actions by the board, the affirmative vote of a majority of the authorized number of directors. Nothing contained in this subdivision shall affect the enforceability, as between the parties thereto, of any lawful agreement not otherwise contrary to public policy.
Reasonable restrictions upon the right to transfer or hypothecate shares of any class or classes or series, except that no restriction shall be binding with respect to shares issued prior to the adoption of the restriction unless the holders of those shares voted in favor of the restriction.
The names and addresses of the persons appointed to act as initial directors.
Any other provision, not in conflict with law, for the management of the business and for the conduct of the affairs of the social purpose corporation, including any provision that is required or permitted by this division to be stated in the bylaws.
This section shall become operative on January 1, 2022.
Subject to any limitation contained in the articles, to compliance with any other applicable laws, and to consistency with the special purpose of the social purpose corporation, any social purpose corporation other than a social purpose corporation subject to the Banking Law or a professional social purpose corporation may engage in any business activity. A social purpose corporation subject to the Banking Law or a professional social purpose corporation may engage in any business activity not prohibited by the respective statutes and regulations to which it is subject.
Subject to any limitations contained in the articles, to compliance with other provisions of this division and any other applicable laws, and to consistency with the special purpose of the social purpose corporation, a social purpose corporation shall have all the powers of a natural person in carrying out its business activities, including, without limitation, the power to:
Adopt, use, and at will alter a corporate seal. Failure to affix a seal does not affect the validity of any instrument.
Adopt, amend, and repeal bylaws.
Qualify to do business in any other state, territory, dependency, or foreign country.
Subject to the provisions of Section 510, issue, purchase, redeem, receive, take or otherwise acquire, own, hold, sell, lend, exchange, transfer or otherwise dispose of, pledge, use, and otherwise deal in and with its own shares, bonds, debentures, and other securities.
Make donations, regardless of specific corporate benefit, for the public welfare or for a community fund, hospital, charitable, educational, scientific, civic, or similar purposes.
Pay pensions, and establish and carry out pension, profit-sharing, share bonus, share purchase, share option, savings, thrift, and other retirement, incentive, and benefit plans, trusts, and provisions for any or all of the directors, officers, and employees of the social purpose corporation or any of its subsidiaries or affiliates, and to indemnify and purchase and maintain insurance on behalf of any fiduciary of these plans, trusts, or provisions.
Subject to the provisions of Section 315, assume obligations, enter into contracts, including contracts of guaranty or suretyship, incur liabilities, borrow and lend money and otherwise use its credit, and secure any of its obligations, contracts, or liabilities by mortgage, pledge, or other encumbrance of all or any part of its property, franchises, and income.
Participate with others in any partnership, joint venture, or other association, transaction, or arrangement of any kind, whether or not that participation involves sharing or delegation of control with or to others.
CHAPTER 3. Directors and Management [2700. - 2702.]
A director shall perform the duties of a director, including duties as a member of any committee of the board upon which the director may serve, in good faith, in a manner the director believes to be in the best interests of the social purpose corporation and its shareholders, and with that care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances.
In performing the duties of a director, a director shall be entitled to rely upon information, opinions, reports, or statements, including financial statements and other financial data, in each case prepared or presented by any of the following:
An officer or employee of the social purpose corporation whom the director believes to be reliable and competent in the matters presented.
Counsel, independent accountants, or other persons as to matters which the director believes to be within that person’s professional or expert competence.
A committee of the board upon which the director does not serve, as to matters within its designated authority, which committee the director believes to merit confidence, so long as the director acts in good faith, after reasonable inquiry when the need therefor is indicated by the circumstances and without knowledge that would cause that reliance to be unwarranted.
In discharging his or her duties, a director shall consider those factors, and give weight to those factors, as the director deems relevant, including the overall prospects of the social purpose corporation, the best interests of the social purpose corporation and its shareholders, and the purposes of the social purpose corporation as set forth in its articles.
A person who performs the duties of a director in accordance with subdivisions (a), (b), and (c) shall have no liability based upon any alleged failure to discharge the person’s obligations as a director. The liability of a director for monetary damages may be eliminated or limited by a social purpose corporation’s articles to the extent provided in paragraph (10) of subdivision (a) of Section 2603.
Notwithstanding any of the purposes set forth in its articles, a social purpose corporation shall not be deemed to hold any of its assets for the benefit of any party other than its shareholders. However, nothing in this division shall be construed as negating existing charitable trust principles or the Attorney General’s authority to enforce any charitable trust created.
Nothing in this section, express or implied, is intended to create or grant or shall create or grant any right in or for any person or any cause of action by or for any person, and a director shall not be responsible to any party other than the social purpose corporation and its shareholders.
Subject to Section 2700, directors of a social purpose corporation who approve any of the following corporate actions shall be jointly and severally liable to the social purpose corporation for the benefit of all of the creditors or shareholders entitled to institute an action under subdivision (c):
The distribution of assets to shareholders after institution of dissolution proceedings of the social purpose corporation, without paying or adequately providing for all known liabilities of the social purpose corporation, excluding any claims not filed by creditors within the time limit set by the court in a notice given to creditors under Chapter 18 (commencing with Section 1800) of Division 1, Chapter 20 (commencing with Section 1900) of Division 1, and Chapter 20 (commencing with Section 2000).
The making of any loan or guaranty contrary to Section 2715.
A director who is present at a meeting of the board, or any committee of the board, at which an action specified in subdivision (a) is taken and who abstains from voting, shall be deemed to have approved the action.
Suit may be brought in the name of the social purpose corporation to enforce the liability as follows:
Under paragraph (1) of subdivision (a) against any or all directors liable, by the persons entitled to sue under subdivision (b) of Section 506.
Under paragraph (2) or (3) of subdivision (a) against any or all directors liable, by any one or more creditors of the social purpose corporation whose debts or claims arose prior to the time of any of the corporate actions specified in paragraph (2) or (3) of subdivision (a) and who have not consented to the corporate action, regardless of whether they have reduced their claims to judgment.
Under paragraph (3) of subdivision (a) against any or all directors liable, by any one or more holders of shares outstanding at the time of any corporate action specified in paragraph (3) of subdivision (a) who have not consented to the corporate action, without regard to the provisions of Section 2900.
The damages recoverable from a director under this section shall be the amount of the illegal distribution, or if the illegal distribution consists of property, the fair market value of that property at the time of the illegal distribution, plus interest thereon from the date of the distribution at the legal rate on judgments until paid, together with all reasonably incurred costs of appraisal or other valuation, if any, of that property or loss suffered by the social purpose corporation as a result of the illegal loan or guaranty, respectively, but not exceeding the liabilities of the social purpose corporation owed to nonconsenting creditors at the time of the violation and the injury suffered by nonconsenting shareholders.
Any director sued under this section may implead all other directors liable and may compel contribution, either in that action or in an independent action against directors not joined in that action.
Directors liable under this section shall also be entitled to be subrogated to the rights of the social purpose corporation:
With respect to paragraph (1) of subdivision (a), against shareholders who received the distribution.
With respect to paragraph (2) of subdivision (a), against shareholders who received the distribution of assets.
With respect to paragraph (3) of subdivision (a), against the person who received the loan or guaranty.
Any director sued under this section may file a cross-complaint against the person or persons who are liable to the director as a result of the subrogation provided for in this subdivision or may proceed against them in an independent action.
For the purposes of this section:
“Agent” means any person who is or was a director, officer, employee, or other agent of the social purpose corporation, or is or was serving at the request of the social purpose corporation as a director, officer, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust, or other enterprise, or was a director, officer, employee, or agent of a foreign or domestic corporation which was a predecessor corporation of the social purpose corporation or of another enterprise at the request of the predecessor corporation.
“Proceeding” means any threatened, pending, or completed action or proceeding, whether civil, criminal, administrative, or investigative.
“Expenses” includes without limitation attorneys’ fees and any expenses of establishing a right to indemnification under subdivision (b).
Subject to the standards and restrictions, if any, set forth in its articles or bylaws, and subject to the limitations required by paragraph (11) of subdivision (a) of Section 2603, a social purpose corporation may indemnify and hold harmless any agent or any other person from and against any and all claims and demands whatsoever.
Expenses incurred in defending any proceeding may be advanced by the social purpose corporation prior to the final disposition of the proceeding. The provisions of subdivision (a) of Section 315 do not apply to advances made pursuant to this subdivision.
A social purpose corporation may purchase and maintain insurance on behalf of any of its agents against any liability asserted against or incurred by the agent in that capacity or arising out of the agent’s status as an agent regardless of whether the social purpose corporation would have the power to indemnify the agent against that liability under this section. The fact that a social purpose corporation owns all or a portion of the shares of the company issuing a policy of insurance shall not render this subdivision inapplicable if either of the following conditions are satisfied:
The insurance provided by this subdivision is limited as indemnification is required to be limited by paragraph (11) of subdivision (a) of Section 2603.
The company issuing the insurance policy is organized, licensed, and operated in a manner that complies with the insurance laws and regulations applicable to its jurisdiction of organization.
The company issuing the policy provides procedures for processing claims that do not permit that company to be subject to the direct control of the social purpose corporation that purchased that policy.
The policy issued provides for some manner of risk sharing between the issuer and purchaser of the policy, on one hand, and some unaffiliated person or persons, on the other, such as by providing for more than one unaffiliated owner of the company issuing the policy or by providing that a portion of the coverage furnished will be obtained from some unaffiliated insurer or reinsurer.
This section does not apply to any proceeding against any trustee, investment manager, or other fiduciary of an employee benefit plan in that person’s capacity as such, even though the person may also be an agent as defined in subdivision (a) of the employer social purpose corporation. A social purpose corporation shall have power to indemnify a trustee, investment manager, or other fiduciary to the extent permitted by subdivision (f) of Section 2605.
CHAPTER 4. Shares and Share Certificates [2800. - 2800.]
All certificates representing shares of a social purpose corporation shall contain, in addition to any other statements required by this section, the following conspicuous language on the face of the certificate.
“This entity is a social purpose corporation organized under Division 1.5 of the California Corporations Code. The articles of this corporation state one or more purposes required by law. Refer to the articles on file with the Secretary of State, and the bylaws and any agreements on file with the secretary of the corporation, for further information.”
There shall also appear on the certificate, the initial transaction statement, and written statements, unless stated or summarized under subdivision (a) or (b) of Section 417, the statements required by all of the following, to the extent applicable:
The fact that the shares are subject to restrictions upon transfer.
If the shares are assessable or are not fully paid, a statement that they are assessable or the statements required by subdivision (d) of Section 409 if they are not fully paid.
The fact that the shares are redeemable.
The fact that the shares are convertible and the period for conversion.
Statements or references to statements on the face of the certificate, the initial transaction statement, and written statements required by paragraph (1) or (2) shall be conspicuous.
Unless stated on the certificate, the initial transaction statement, and written statements as required by subdivision (a), no restriction upon transfer, no right of redemption and no voting agreement under subdivision (a) of Section 706, no irrevocable proxy under subdivision (e) of Section 705, and no voting restriction imposed by the social purpose corporation shall be enforceable against a transferee of the shares without actual knowledge of the restriction, right, agreement, or proxy. With regard only to liability to assessment or for the unpaid portion of the subscription price, unless stated on the certificate as required by subdivision (a), that liability shall not be enforceable against a transferee of the shares. For the purpose of this subdivision, “transferee” includes a purchaser from the social purpose corporation.
All certificates representing shares of a close social purpose corporation shall contain, in addition to any other statements required by this section, the following conspicuous legend on the face thereof:
“This social purpose corporation is a close social purpose corporation. The number of holders of record of its shares of all classes cannot exceed ____ (a number not in excess of 35). Any attempted voluntary inter vivos transfer which would violate this requirement is void. Refer to the articles, bylaws, and any agreements on file with the secretary of the social purpose corporation for further restrictions.”
Any attempted voluntary inter vivos transfer of the shares of a close social purpose corporation that would result in the number of holders of record of its shares exceeding the maximum number specified in its articles is void if the certificate contains the legend required by subdivision (c).
Notwithstanding any other subdivision, the certificates representing shares of a corporation formed pursuant to this division as a “flexible purpose corporation” before January 1, 2015, shall continue to be valid even if the certificates reference a “flexible purpose corporation.” A corporation formed pursuant to this division before January 1, 2015, may, but is not required to, reissue certificates to replace “flexible purpose corporation” with “social purpose corporation” as applicable. Any reference to a “flexible purpose corporation” or any abbreviation of that term in certificates representing shares of a corporation formed pursuant to this division before January 1, 2015, shall also be a reference to “social purpose corporation.”
CHAPTER 5. Shareholder Derivative Actions [2900. - 2900.]
As used in this section:
“Social purpose corporation” includes an unincorporated association.
“Board” includes the managing body of an unincorporated association.
“Shareholder” includes a member of an unincorporated association.
“Shares” includes memberships in an unincorporated association.
Shareholders of a social purpose corporation may maintain a derivative lawsuit to enforce the requirements set forth in subdivision (c) of Section 2700.
No action may be instituted or maintained in right of any domestic or foreign social purpose corporation under this section by any party other than a shareholder of the social purpose corporation.
No action may be instituted or maintained in right of any domestic or foreign social purpose corporation by any holder of shares or of voting trust certificates of the social purpose corporation unless both of the following conditions exist:
The plaintiff alleges in the complaint that plaintiff was a shareholder, of record or beneficially, or the holder of voting trust certificates at the time of the transaction or any part thereof of which plaintiff complains or that plaintiff’s shares or voting trust certificates thereafter devolved upon plaintiff by operation of law from a holder who was a holder at the time of the transaction or any part thereof complained of. Any shareholder who does not meet these requirements may nevertheless be allowed, in the discretion of the court, to maintain the action on a preliminary showing to and determination by the court, by motion and after a hearing, at which the court shall consider the evidence by affidavit or testimony, as it deems material, of all of the following:
There is a strong prima facie case in favor of the claim asserted on behalf of the social purpose corporation.
No other similar action has been or is likely to be instituted.
The plaintiff acquired the shares before there was disclosure to the public or to the plaintiff of the wrongdoing of which plaintiff complains.
Unless the action can be maintained the defendant may retain a gain derived from defendant’s willful breach of a fiduciary duty.
The requested relief will not result in unjust enrichment of the social purpose corporation or any shareholder of the social purpose corporation.
The plaintiff alleges in the complaint with particularity plaintiff’s efforts to secure from the board the action as plaintiff desires, or the reasons for not making that effort, and alleges further that plaintiff has either informed the social purpose corporation or the board in writing of the ultimate facts of each cause of action against each defendant or delivered to the social purpose corporation or the board a true copy of the complaint which plaintiff proposes to file.
In any action referred to in subdivision (c), at any time within 30 days after service of summons upon the social purpose corporation or upon any defendant who is an officer or director of the social purpose corporation, or held that office at the time of the acts complained of, the social purpose corporation or the defendant may move the court for an order, upon notice and hearing, requiring the plaintiff to furnish a bond as hereinafter provided. The motion shall be based upon one or both of the following grounds:
There is no reasonable possibility that the prosecution of the cause of action alleged in the complaint against the moving party will benefit the social purpose corporation or its shareholders.
The moving party, if other than the social purpose corporation, did not participate in the transaction complained of in any capacity.
The court on application of the social purpose corporation or any defendant may, for good cause shown, extend the 30-day period for an additional period or periods not exceeding 60 days.
At the hearing upon any motion pursuant to subdivision (d), the court shall consider the evidence, written or oral, by witnesses or affidavit, as may be material to the ground or grounds upon which the motion is based, or to a determination of the probable reasonable expenses, including attorney’s fees, of the social purpose corporation and the moving party that will be incurred in the defense of the action. If the court determines, after hearing the evidence adduced by the parties, that the moving party has established a probability in support of any of the grounds upon which the motion is based, the court shall fix the amount of the bond, not to exceed fifty thousand dollars ($50,000), to be furnished by the plaintiff for reasonable expenses, including attorney’s fees, which may be incurred by the moving party and the social purpose corporation in connection with the action, including expenses for which the social purpose corporation may become liable pursuant to Section 2702. A ruling by the court on the motion shall not be a determination of any issue in the action or of the merits thereof. If the court, upon the motion, makes a determination that a bond shall be furnished by the plaintiff as to any one or more defendants, the action shall be dismissed as to the defendant or defendants, unless the bond required by the court has been furnished within such reasonable time as may be fixed by the court.
If the plaintiff, either before or after a motion is made pursuant to subdivision (d), or any order or determination pursuant to the motion, furnishes a bond in the aggregate amount of fifty thousand dollars ($50,000) to secure the reasonable expenses of the parties entitled to make the motion, the plaintiff shall be deemed to have complied with the requirements of this section and with any order for a bond theretofore made, and any motion then pending shall be dismissed and no further or additional bond shall be required.
If a motion is filed pursuant to subdivision (d), no pleadings need be filed by the social purpose corporation or any other defendant and the prosecution of the action shall be stayed until 10 days after the motion has been disposed of.
CHAPTER 6. Amendment of Articles [3000. - 3002.]
A proposed amendment to the articles of a social purpose corporation shall be approved by the outstanding shares of a class, regardless of whether that class is entitled to vote thereon by the provisions of the articles, if the amendment would:
Effect an exchange, reclassification, or cancellation of all or part of the shares of that class, including a reverse stock split but excluding a stock split.
Effect an exchange, or create a right of exchange, of all or part of the shares of another class into the shares of that class.
Change the rights, preferences, privileges, or restrictions of the shares of that class.
Create a new class of shares having rights, preferences, or privileges prior to the shares of that class, or increase the rights, preferences, or privileges or the number of authorized shares of any class having rights, preferences, or privileges prior to the shares of that class.
In the case of preferred shares, divide the shares of any class into series having different rights, preferences, privileges, or restrictions or authorize the board to do so.
Cancel or otherwise affect dividends on the shares of that class that have accrued but have not been paid.
A proposed amendment shall be approved by an affirmative vote of at least two-thirds of the outstanding shares of each class, or a greater vote if required in the articles, regardless of whether that class is entitled to vote thereon by the provisions of the articles, if the amendment would materially alter any special purpose of the social purpose corporation stated in the articles pursuant to paragraph (2) of subdivision (b) of Section 2602, regardless of whether that purpose, as amended, would comply with the provisions of that paragraph.
Different series of the same class shall not constitute different classes for the purpose of voting by classes except when a series is adversely affected by an amendment in a different manner than other shares of the same class.
In addition to approval by a class as provided in subdivisions (a) and (b), a proposed amendment shall also be approved by the outstanding voting shares (Section 152).
A social purpose corporation may, by amendment of its articles pursuant to this section, change its status to that of a nonprofit public benefit corporation, nonprofit mutual benefit corporation, nonprofit religious corporation, or cooperative corporation.
The amendment of the articles to change its status to a nonprofit corporation shall revise the statement of purpose, delete the authorization for shares and any other provisions relating to authorized or issued shares, make other changes as may be necessary or desired, and, if any shares have been issued, provide either for the cancellation of those shares or for the conversion of those shares to memberships of the nonprofit corporation. The amendment of the articles to change status to a cooperative corporation shall revise the statement of purpose, make other changes as may be necessary or desired, and, if any shares have been issued, provide for the cancellation of those shares or for the change of those shares to memberships of the cooperative corporation, if necessary.
If shares have been issued, an amendment to change status to a nonprofit corporation shall be approved by all of the outstanding shares of all classes regardless of limitations or restrictions on their voting rights and an amendment to change status to a cooperative corporation shall be approved by the outstanding shares of each class regardless of limitations or restrictions on their voting rights.
If an amendment pursuant to this section is included in a merger agreement, the provisions of this section shall apply, except that any provision for cancellation or conversion of shares shall be in the merger agreement rather than in the amendment of the articles.
Notwithstanding subdivision (c), if a social purpose corporation is a mutual water company within the meaning of Section 2705 of the Public Utilities Code and under the terms of the status change each outstanding share is converted to a membership of a nonprofit mutual benefit corporation, an amendment to change status to a nonprofit mutual benefit corporation shall be approved by the outstanding shares of each class regardless of limitations or restrictions on their voting rights.
A social purpose corporation may, by amendment of its articles pursuant to this section, change its status to that of a business corporation.
The amendment of the articles to change status to a business corporation shall revise the statement of purpose to delete any provisions in the articles that are permitted by Section 2602, but that are not permitted to be in the articles of a domestic corporation.
If shares have been issued, an amendment to change status to a business corporation shall be approved by an affirmative vote of at least two-thirds of the outstanding shares of each class, or a greater vote if required in the articles, regardless of whether that class is entitled to vote thereon by the provisions of the articles. If the status change is approved, shareholders with dissenting shares, as defined in subdivision (b) of Section 1300, may exercise dissenters’ rights pursuant to Section 3305 and Chapter 13 (commencing with Section 1300) of Division 1.
If an amendment pursuant to this section is included in a merger agreement, the provisions of this section shall apply, except that any provision for cancellation or conversion of shares shall be in the merger agreement rather than in the amendment of the articles.
CHAPTER 7. Sales of Assets [3100. - 3100.]
A social purpose corporation may sell, lease, convey, exchange, transfer, or otherwise dispose of all or substantially all of its assets when the principal terms of the transaction are approved by the board and are approved by an affirmative vote of at least two-thirds of the outstanding shares of each class, or a greater vote if required in the articles, regardless of whether that class is entitled to vote thereon by the provisions of the articles, either before or after approval by the board and before the transaction. A transaction constituting a reorganization shall be subject to Chapter 12 (commencing with Section 1200) of Division 1 and Chapter 10 (commencing with Section 3400) of this division and shall not be subject to this section, other than subdivision (d). A transaction constituting a conversion shall be subject to Chapter 11.5 (commencing with Section 1150) of Division 1 and Chapter 9 (commencing with Section 3300) of this division and shall not be subject to this section.
Notwithstanding approval of two-thirds of the outstanding shares, the board may abandon the proposed transaction without further action by the shareholders, subject to the contractual rights, if any, of third parties.
The sale, lease, conveyance, exchange, transfer, or other disposition may be made upon those terms and conditions and for that consideration as the board may deem in the best interests of the social purpose corporation. The consideration may be money, securities, or other property.
If the acquiring party in a transaction pursuant to subdivision (a) or subdivision (g) of Section 2001 is in control of or under common control with the disposing social purpose corporation, the principal terms of the sale shall be approved by at least 90 percent of the voting power of the disposing social purpose corporation unless the disposition is to a domestic or foreign other business entity or social purpose corporation, the articles of incorporation of which specify materially the same purposes, in consideration of the nonredeemable common shares or nonredeemable equity securities of the acquiring party or its parent.
Subdivision (d) shall not apply to a transaction if the Commissioner of Financial Protection and Innovation, the Insurance Commissioner, or the Public Utilities Commission has approved the terms and conditions of the transaction and the fairness of those terms and conditions pursuant to Section 25142, Section 1209 of the Financial Code, Section 838.5 of the Insurance Code, or Section 822 of the Public Utilities Code.
CHAPTER 8. Merger [3200. - 3203.]
If any disappearing social purpose corporation in a merger is a close social purpose corporation and the surviving social purpose corporation is not a close social purpose corporation, the merger shall be approved by an affirmative vote of at least two-thirds of the outstanding shares of each class, or a greater vote if required in the articles, regardless of whether that class is entitled to vote thereon by the provisions of the articles, of the disappearing social purpose corporation. The articles may provide for a lesser vote, but not less than a majority of the outstanding shares of each class.
If any disappearing corporation in a merger is a social purpose corporation and the surviving entity is not a social purpose corporation, or is a social purpose corporation the articles of incorporation of which set forth materially different purposes, the merger shall be approved by an affirmative vote of at least two-thirds of the outstanding shares of each class, or a greater vote if required in the articles, regardless of whether that class is entitled to vote thereon by the provisions of the articles, of the disappearing social purpose corporation. If the merger is approved, shareholders with dissenting shares, as defined in subdivision (b) of Section 1300, may exercise dissenters’ rights pursuant to Section 3305 and Chapter 13 (commencing with Section 1300) of Division 1.
If a disappearing social purpose corporation in a merger is a social purpose corporation governed by this division and the surviving corporation is a nonprofit public benefit corporation, a nonprofit mutual benefit corporation, or a nonprofit religious corporation, the merger shall be approved by all of the outstanding shares of all classes of the disappearing social purpose corporation, regardless of limitations or restrictions on their voting rights, notwithstanding any provision of Chapter 10 (commencing with Section 3400).
Any one or more social purpose corporations may merge with one or more other business entities. One or more domestic social purpose corporations not organized under this division and one or more foreign corporations may be parties to the merger. Notwithstanding this section, the merger of any number of social purpose corporations with any number of other business entities may be effected only if:
In a merger in which a domestic social purpose corporation not organized under this division or a domestic other business entity is a party, it is authorized by the laws under which it is organized to effect the merger.
In a merger in which a foreign corporation is a party, it is authorized by the laws under which it is organized to effect the merger.
In a merger in which a foreign other business entity is a party, it is authorized by the laws under which it is organized to effect the merger.
Each social purpose corporation and each other party that desires to merge shall approve, and shall be a party to, an agreement of merger. Other persons, including a parent party, may be parties to the agreement of merger. The board of each social purpose corporation that desires to merge, and, if required, the shareholders, shall approve the agreement of merger. The agreement of merger shall be approved on behalf of each party by those persons required to approve the merger by the laws under which it is organized. The agreement of merger shall state:
The terms and conditions of the merger.
The name and place of incorporation or organization of each party to the merger and the identity of the surviving party.
The amendments, if any, subject to Sections 900, 902, 907, and 3002 to the articles of the surviving social purpose corporation, if applicable, to be effected by the merger. If any amendment changes the name of the surviving social purpose corporation, if applicable, the new name may be, subject to subdivision (b) of Section 2601, the same as or similar to the name of a disappearing party to the merger.
The manner of converting the shares of each constituent social purpose corporation into shares, interests, or other securities of the surviving party. If any shares of any constituent social purpose corporation are not to be converted solely into shares, interests, or other securities of the surviving party, the agreement of merger shall state (A) the cash, rights, securities, or other property that the holders of those shares are to receive in exchange for the shares, which cash, rights, securities, or other property may be in addition to or in lieu of shares, interests, or other securities of the surviving party, or (B) that the shares are canceled without consideration.
Any other details or provisions required by the laws under which any party to the merger is organized, including, if a domestic corporation is a party to the merger, Section 3203, if a public benefit corporation or a religious corporation is a party to the merger, Section 6019.1, if a mutual benefit corporation is a party to the merger, Section 8019.1, if a consumer cooperative corporation is a party to the merger, Section 12540.1, if a domestic limited partnership is a party to the merger, Section 15911.12, if a domestic partnership is a party to the merger, Section 16911, and if a domestic limited liability company is a party to the merger, Section 17551.
Any other details or provisions as are desired, including, without limitation, a provision for the payment of cash in lieu of fractional shares or for any other arrangement with respect thereto consistent with the provisions of Section 407.
Each share of the same class or series of any constituent social purpose corporation, other than the cancellation of shares held by a party to the merger or its parent, or a wholly owned subsidiary of either, in another constituent social purpose corporation, shall, unless all shareholders of the class or series consent and except as provided in Section 407, be treated equally with respect to any distribution of cash, rights, securities, or other property. Notwithstanding paragraph (4) of subdivision (b), the nonredeemable common shares of a constituent social purpose corporation may be converted only into nonredeemable common shares of a surviving social purpose corporation or a parent party or nonredeemable equity securities of a surviving party other than a social purpose corporation if another party to the merger or its parent owns, directly or indirectly, prior to the merger shares of that corporation representing more than 50 percent of the voting power of that social purpose corporation, unless all of the shareholders of the class consent and except as provided in Section 407.
Notwithstanding its prior approval, an agreement of merger may be amended prior to the filing of the agreement of merger or the certificate of merger, as is applicable, if the amendment is approved by the board of each constituent social purpose corporation and, if the amendment changes any of the principal terms of the agreement, by the outstanding shares, if required by Chapter 10 (commencing with Section 3400), in the same manner as the original agreement of merger. If the agreement of merger as so amended and approved is also approved by each of the other parties to the agreement of merger, the agreement of merger as so amended shall then constitute the agreement of merger.
The board of a constituent social purpose corporation may, in its discretion, abandon a merger, subject to the contractual rights, if any, of third parties, including other parties to the agreement of merger, without further approval by the outstanding shares, at any time before the merger is effective.
Each constituent social purpose corporation shall sign the agreement of merger by its chairperson of the board, president, or a vice president and also by its secretary or an assistant secretary acting on behalf of their respective corporations.
If the surviving party is a domestic social purpose corporation, or if a domestic corporation or a foreign corporation, a public benefit corporation, a mutual benefit corporation, a religious corporation, or a corporation organized under the Consumer Cooperative Corporation Law (Part 2 (commencing with Section 12200) of Division 3) is a party to the merger, after required approvals of the merger by each constituent social purpose corporation through approval of the board and any approval of the outstanding shares required by Chapter 10 (commencing with Section 3400) and by the other parties to the merger, the surviving party shall file a copy of the agreement of merger with an officers’ certificate of each constituent domestic social purpose corporation and foreign social purpose corporation attached stating the total number of outstanding shares of each class entitled to vote on the merger, and identifying any other person or persons whose approval is required, that the agreement of merger in the form attached or its principal terms, as required, were approved by that social purpose corporation by a vote of a number of shares of each class that equaled or exceeded the vote required, specifying each class entitled to vote and the percentage vote required of each class and, if applicable, by that other person or persons whose approval is required, or that the merger agreement was entitled to be and was approved by the board alone, as provided in Section 3401, in the case of a social purpose corporation subject to that section. If equity securities of a parent party are to be issued in the merger, the officers’ certificate of that controlled party shall state either that no vote of the shareholders of the parent party was required or that the required vote was obtained. In lieu of an officers’ certificate, a certificate of merger, on a form prescribed by the Secretary of State, shall be filed for each constituent other business entity. The certificate of merger shall be executed and acknowledged by each domestic constituent limited liability company by all managers of the limited liability company, unless a lesser number is specified in its articles or organization or operating agreement, and by each domestic constituent limited partnership by all general partners, unless a lesser number is provided in its certificate of limited partnership or partnership agreement, and by each domestic constituent general partnership by two partners, unless a lesser number is provided in its partnership agreement, and by each foreign constituent limited liability company by one or more managers and by each foreign constituent general partnership or foreign constituent limited partnership by one or more general partners, and by each constituent reciprocal insurer by the chairperson of the board, president, or vice president, and by the secretary or assistant secretary, or, if a constituent reciprocal insurer has not appointed those officers, by the chairperson of the board, president, or vice president, and by the secretary or assistant secretary of the constituent reciprocal insurer’s attorney-in-fact, and by each other party to the merger by those persons required or authorized to execute the certificate of merger by the laws under which that party is organized, specifying for that party the provision of law or other basis for the authority of the signing persons. The certificate of merger shall set forth, if a vote of the shareholders, members, partners, or other holders of interests of the constituent other business entity was required, a statement setting forth the total number of outstanding interests of each class entitled to vote on the merger and that the agreement of merger in the form attached or its principal terms, as required, were approved by a vote of the number of interests of each class that equaled or exceeded the vote required, specifying each class entitled to vote and the percentage vote required of each class, and any other information required to be set forth under the laws under which the constituent other business entity is organized, including, if a domestic limited partnership is a party to the merger, subdivision (a) of Section 15911.14, if a domestic partnership is a party to the merger, subdivision (b) of Section 16915, and, if a domestic limited liability company is a party to the merger, subdivision (a) of Section 17552. The certificate of merger for each constituent foreign other business entity, if any, shall also set forth the statutory or other basis under which that foreign other business entity is authorized by the laws under which it is organized to effect the merger. The merger and any amendment of the articles of the surviving social purpose corporation, if applicable, contained in the agreement of merger shall be effective upon filing of the agreement of merger with an officer’s certificate of each constituent domestic corporation and foreign corporation and a certificate of merger for each constituent other business entity, subject to subdivision (c) of Section 110 and subject to the provisions of subdivision (j), and the several parties thereto shall be one entity. If a domestic reciprocal insurer organized after 1974 to provide medical malpractice insurance is a party to the merger, the agreement of merger or certificate of merger shall not be filed until there has been filed the certificate issued by the Insurance Commissioner approving the merger pursuant to Section 1555 of the Insurance Code. The Secretary of State may certify a copy of the agreement of merger separate from the officers’ certificates and certificates of merger attached thereto.
If the surviving entity is an other business entity, and no public benefit corporation, mutual benefit corporation, religious corporation, or corporation organized under the Consumer Cooperative Corporation Law (Part 2 (commencing with Section 12200) of Division 3) is a party to the merger, after required approvals of the merger by each constituent social purpose corporation through approval of the board and any approval of the outstanding shares required by Chapter 10 (commencing with Section 3400) and by the other parties to the merger, the parties to the merger shall file a certificate of merger in the office of, and on a form prescribed by, the Secretary of State. The certificate of merger shall be executed and acknowledged by each constituent domestic and foreign social purpose corporation by its chairperson of the board, president, or a vice president and also by its secretary or an assistant secretary and by each domestic constituent limited liability company by all managers of the limited liability company, unless a lesser number is specified in its articles of organization or operating agreement, and by each domestic constituent limited partnership by all general partners, unless a lesser number is provided in its certificate of limited partnership or partnership agreement, and by each domestic constituent general partnership by two partners, unless a lesser number is provided in its partnership agreement, and by each foreign constituent limited liability company by one or more managers and by each foreign constituent general partnership or foreign constituent limited partnership by one or more general partners, and by each constituent reciprocal insurer by the chairperson of the board, president, or vice president, and by the secretary or assistant secretary, or, if a constituent reciprocal insurer has not appointed those officers, by the chairperson of the board, president, or vice president, and by the secretary or assistant secretary of the constituent reciprocal insurer’s attorney-in-fact. The certificate of merger shall be signed by each other party to the merger by those persons required or authorized to execute the certificate of merger by the laws under which that party is organized, specifying for that party the provision of law or other basis for the authority of the signing persons. The certificate of merger shall set forth all of the following:
The name, place of incorporation or organization, and the Secretary of State’s file number, if any, of each party to the merger, separately identifying the disappearing parties and the surviving party.
If the approval of the outstanding shares of a constituent social purpose corporation was required by Chapter 10 (commencing with Section 3400), a statement setting forth the total number of outstanding shares of each class entitled to vote on the merger and that the principal terms of the agreement of merger were approved by a vote of the number of shares of each class entitled to vote and the percentage vote required of each class.
The future effective date or time, not more than 90 days subsequent to the date of filing of the merger, if the merger is not to be effective upon the filing of the certificate of merger with the Secretary of State.
A statement, by each party to the merger that is a domestic corporation not organized under this division, a foreign corporation or foreign other business entity, or an other business entity, of the statutory or other basis under which that party is authorized by the laws under which it is organized to effect the merger.
Any other information required to be stated in the certificate of merger by the laws under which each respective party to the merger is organized, including, if a domestic limited liability company is a party to the merger, subdivision (a) of Section 17552, if a domestic partnership is a party to the merger, subdivision (b) of Section 16915, and, if a domestic limited partnership is a party to the merger, subdivision (a) of Section 15911.14.
Any other details or provisions that may be desired.
Unless a future effective date or time is provided in a certificate of merger, in which event the merger shall be effective at that future effective date or time, a merger shall be effective upon the filing of the certificate of merger with the Secretary of State and the several parties thereto shall be one entity. The surviving other business entity shall keep a copy of the agreement of merger at its principal place of business which, for purposes of this subdivision, shall be the office referred to in Section 17057 if a domestic limited liability company, at the business address specified in paragraph (5) of subdivision (a) of Section 17552 if a foreign limited liability company, at the office referred to in subdivision (a) of Section 16403 if a domestic general partnership, at the business address specified in subdivision (f) of Section 16911 if a foreign partnership, at the office referred to in subdivision (a) of Section 15901.14 if a domestic limited partnership, or at the business address specified in paragraph (5) of subdivision (a) of Section 15911.14 if a foreign limited partnership. Upon the request of a holder of equity securities of a party to the merger, a person with authority to do so on behalf of the surviving other business entity shall promptly deliver to that holder, a copy of the agreement of merger. A waiver by that holder of the rights provided in the foregoing sentence shall be unenforceable. If a domestic reciprocal insurer organized after 1974 to provide medical malpractice insurance is a party to the merger the agreement of merger or certificate of merger shall not be filed until there has been filed the certificate issued by the Insurance Commissioner approving the merger in accordance with Section 1555 of the Insurance Code.
A copy of an agreement of merger certified on or after the effective date by an official having custody thereof has the same force in evidence as the original and, except as against the state, is conclusive evidence of the performance of all conditions precedent to the merger, the existence on the effective date of the surviving party to the merger, and the performance of the conditions necessary to the adoption of any amendment to the articles, if applicable, contained in the agreement of merger.
For all purposes for a merger in which the surviving entity is a domestic other business entity and the filing of a certificate of merger is required by paragraph (2) of subdivision (g), a copy of the certificate of merger duly certified by the Secretary of State is conclusive evidence of the merger of the constituent corporations, either by themselves or together with the other parties to the merger, into the surviving other business entity.
Any action or proceeding pending by or against any disappearing social purpose corporation or disappearing party to the merger may be prosecuted to judgment, which shall bind the surviving party, or the surviving party may be proceeded against or substituted in its place.
Nothing in this section shall be construed to affect the liability a general partner of a disappearing limited partnership or general partnership may have in connection with the debts and liabilities of the disappearing limited partnership or general partnership existing prior to the time the merger is effective.
The merger of domestic social purpose corporations with foreign corporations or foreign other business entities in a merger in which one or more other business entities is a party shall comply with subdivision (a) and this subdivision.
If the surviving party is a domestic social purpose corporation or domestic other business entity, the merger proceedings with respect to that party and any domestic disappearing social purpose corporation shall conform to the provisions of this section. If the surviving party is a foreign corporation or foreign other business entity, then, subject to the requirements of subdivision (c), Section 407, Chapter 10 (commencing with Section 3400), and Chapter 13 (commencing with Section 1300) of Division 1, and, if applicable, corresponding provisions of the Nonprofit Corporation Law (Division 2 (commencing with Section 5002)) or the Consumer Cooperative Corporation Law (Part 2 (commencing with Section 12200) of Division 3), with respect to any domestic constituent corporations, Chapter 13 (commencing with Section 17600) of Title 2.5 with respect to any domestic constituent limited liability companies, Article 6 (commencing with Section 16601) of Chapter 5 of Title 2 with respect to any domestic constituent general partnerships, and Article 11.5 (commencing with Section 15911.20) of Chapter 5.5 of Title 2 with respect to any domestic constituent limited partnerships, the merger proceedings may be in accordance with the laws of the state or place of incorporation or organization of the surviving party.
If the surviving party is a domestic social purpose corporation or domestic other business entity, the certificate of merger or the agreement of merger with attachments shall be filed as provided in subdivision (g) and thereupon, subject to subdivision (c) of Section 110 or paragraph (2) of subdivision (g), as applicable, the merger shall be effective as to each domestic constituent social purpose corporation and domestic constituent other business entity.
If the surviving party is a foreign corporation or foreign other business entity, the merger shall become effective in accordance with the law of the jurisdiction in which the surviving party is organized, but, except as provided in paragraph (5), the merger shall be effective as to any domestic disappearing social purpose corporation as of the time of effectiveness in the foreign jurisdiction upon the filing in this state of a copy of the agreement of merger with an officers’ certificate of each constituent foreign and domestic social purpose corporation and a certificate of merger of each constituent other business entity attached, which officers’ certificates and certificates of merger shall conform to the requirements of paragraph (1) of subdivision (g). If one or more domestic other business entities is a disappearing party in a merger pursuant to this subdivision in which a foreign other business entity is the surviving entity, a certificate of merger required by the laws under which that domestic other business entity is organized, including subdivision (a) of Section 15911.14, subdivision (b) of Section 16915, or subdivision (a) of Section 17552, as is applicable, shall also be filed at the same time as the filing of the agreement of merger.
If the date of the filing in this state pursuant to this subdivision is more than six months after the time of the effectiveness in the foreign jurisdiction, or if the powers of a domestic disappearing social purpose corporation are suspended at the time of effectiveness in the foreign jurisdiction, the merger shall be effective as to the domestic disappearing social purpose corporation as of the date of filing in this state.
In a merger described in paragraph (3) or (4), each foreign disappearing social purpose corporation that is qualified for the transaction of intrastate business shall by virtue of the filing pursuant to this subdivision, subject to subdivision (c) of Section 110, automatically surrender its right to transact intrastate business in this state. The filing of the agreement of merger or certificate of merger, as is applicable, pursuant to this subdivision, by a disappearing foreign other business entity registered for the transaction of intrastate business in this state shall, by virtue of that filing, subject to subdivision (c) of Section 110, automatically cancel the registration for that foreign other business entity, without the necessity of the filing of a certificate of cancellation.
CHAPTER 9. Conversions [3300. - 3307.]
For purposes of this chapter, the following definitions shall apply:
“Converted social purpose corporation” means a social purpose corporation that results from a conversion of an other business entity or a foreign other business entity or a foreign corporation pursuant to Section 3307.
“Converted entity” means a domestic other business entity that results from a conversion of a social purpose corporation under this chapter.
“Converting social purpose corporation” means a social purpose corporation that converts into a domestic other business entity pursuant to this chapter.
“Converting entity” means an other business entity or a foreign other business entity or foreign corporation that converts into a social purpose corporation pursuant to Section 3307.
“Domestic other business entity” has the meaning provided in Section 167.7.
“Foreign other business entity” has the meaning provided in Section 171.07.
“Other business entity” has the meaning provided in Section 174.5.
A social purpose corporation may be converted into a domestic other business entity pursuant to this chapter if, pursuant to the proposed conversion, each of the following conditions is met:
Each share of the same class or series of the converting social purpose corporation shall, unless all the shareholders of the class or series consent, be treated equally with respect to any cash, rights, securities, or other property to be received by, or any obligations or restrictions to be imposed on, the holder of that share.
The conversion is approved by an affirmative vote of at least two-thirds of the outstanding shares of each class, or a greater vote if required in the articles, regardless of whether that class is entitled to vote thereon by the provisions of the articles.
Nonredeemable common shares of the converting social purpose corporation shall be converted only into nonredeemable equity securities of the converted entity unless all of the shareholders of the class consent.
Paragraph (1) shall not restrict the ability of the shareholders of a converting social purpose corporation to appoint one or more managers, if the converted entity is a limited liability company, or one or more general partners, if the converted entity is a limited partnership, in the plan of conversion or in the converted entity’s governing documents.
Notwithstanding subdivision (a), the conversion of a social purpose corporation into a domestic other business entity may be effected only if both of the following conditions are met:
The law under which the converted entity will exist expressly permits the formation of that entity pursuant to a conversion.
The social purpose corporation complies with any and all other requirements of any other law that applies to conversion to the converted entity.
A social purpose corporation that desires to convert to a domestic other business entity shall approve a plan of conversion. The plan of conversion shall state all of the following:
The terms and conditions of the conversion.
The jurisdiction of the organization of the converted entity and of the converting social purpose corporation and the name of the converted entity after conversion.
The manner of converting the shares of each of the shareholders of the converting social purpose corporation into securities of, or interests in, the converted entity.
The provisions of the governing documents for the converted entity, including the articles and bylaws, partnership agreement or limited liability company articles of organization and operating agreement, to which the holders of interests in the converted entity are to be bound.
Any other details or provisions that are required by the laws under which the converted entity is organized, or that are desired by the converting social purpose corporation.
The plan of conversion shall be approved by the board of the converting social purpose corporation, and the principal terms of the plan of the conversion shall be approved by at least two-thirds of the outstanding shares of each class, or a greater vote if required in the articles, regardless of whether that class is entitled to vote thereon by the provisions of the articles of the converting social purpose corporation. The approval of at least two-thirds of the outstanding shares may be given before or after approval by the board. If the plan is approved, shareholders with dissenting shares, as defined in subdivision (b) of Section 1300, may exercise dissenters’ rights pursuant to Section 3305 and Chapter 13 (commencing with Section 1300) of Division 1.
If the social purpose corporation is converting into a general or limited partnership or into a limited liability company, then in addition to the approval of the shareholders set forth in subdivision (b), the plan of conversion shall be approved by each shareholder who will become a general partner or manager, as applicable, of the converted entity pursuant to the plan of conversion unless the shareholders have dissenters’ rights pursuant to Section 3305 and Chapter 13 (commencing with Section 1300) of Division 1.
Upon the effectiveness of the conversion, all shareholders of the converting social purpose corporation, except those that exercise dissenters’ rights as provided in Section 3305 and Chapter 13 (commencing with Section 1300) of Division 1, shall be deemed parties to any agreement or agreements constituting the governing documents for the converted entity adopted as part of the plan of conversion, regardless of whether a shareholder has executed the plan of conversion or those governing documents for the converted entity. Any adoption of governing documents made pursuant thereto shall be effective at the effective time or date of the conversion.
Notwithstanding its prior approval by the board and the outstanding shares, or either of them, a plan of conversion may be amended before the conversion takes effect if the amendment is approved by the board and, if it changes any of the principal terms of the plan of conversion, by the shareholders of the converting social purpose corporation in the same manner and to the same extent as was required for approval of the original plan of conversion.
A plan of conversion may be abandoned by the board of a converting social purpose corporation, or by the shareholders of a converting social purpose corporation if the abandonment is approved by the outstanding shares, in each case in the same manner as required for approval of the plan of conversion, subject to the contractual rights of third parties, at any time before the conversion is effective.
The converted entity shall keep the plan of conversion at the principal place of business of the converted entity if the converted entity is a domestic partnership, or at the office at which records are to be kept under Section 15901.14 if the converted entity is a domestic limited partnership, or at the office at which records are to be kept under Section 17701.13 if the converted entity is a domestic limited liability company. Upon the request of a shareholder of a converting social purpose corporation, the authorized person on behalf of the converted entity shall promptly deliver to the shareholder, at the expense of the converted entity, a copy of the plan of conversion. A waiver by a shareholder of the rights provided in this subdivision shall be unenforceable.
After the approval, as provided in Section 3302, of a plan of conversion by the board and the outstanding shares of a social purpose corporation converting into a domestic other business entity, the converting social purpose corporation shall cause the filing of all documents required by law to effect the conversion and create the converted entity, which documents shall include a certificate of conversion or a statement of conversion as required by Section 3304, and the conversion shall thereupon be effective.
A copy of the statement of partnership authority, certificate of limited partnership, or articles of organization complying with Section 3304, duly certified by the Secretary of State on or after the effective date, shall be conclusive evidence of the conversion of the social purpose corporation.
To convert a social purpose corporation:
If the social purpose corporation is converting into a domestic limited partnership, a statement of conversion shall be completed on the certificate of limited partnership for the converted entity.
If the social purpose corporation is converting into a domestic partnership, a statement of conversion shall be completed on the statement of partnership authority for the converted entity, or if no statement of partnership authority is filed, then a certificate of conversion shall be filed separately.
If the social purpose corporation is converting into a domestic limited liability company, a statement of conversion shall be completed on the articles of organization for the converted entity.
Any statement or certificate of conversion of a converting social purpose corporation shall be executed and acknowledged by those officers of the converting social purpose corporation as would be required to sign an officers’ certificate, and shall set forth all of the following:
The name and the Secretary of State’s file number of the converting social purpose corporation.
A statement of the total number of outstanding shares of each class entitled to vote on the conversion, that the principal terms of the plan of conversion were approved by a vote of the number of shares of each class which equaled or exceeded the vote required under Section 3302, specifying each class entitled to vote and the percentage vote required of each class.
The name, form, and jurisdiction of organization of the converted entity.
The name and street address of the converted entity’s agent for service of process. If a corporation qualified under Section 1505 is designated as the agent, no address for it shall be set forth.
The certificate of conversion shall be on a form prescribed by the Secretary of State.
The filing with the Secretary of State of a statement of conversion on an organizational document or a certificate of conversion as set forth in subdivision (a) shall have the effect of the filing of a certificate of dissolution by the converting social purpose corporation and no converting social purpose corporation that has made the filing is required to file a certificate of election under Section 1901 or a certificate of dissolution under Section 1905 as a result of that conversion.
Upon the effectiveness of a conversion pursuant to this chapter, a converted entity that is a domestic partnership, domestic limited partnership, or domestic limited liability company shall be deemed to have assumed the liability of the converting social purpose corporation to prepare and file or cause to be prepared and filed all tax and information returns otherwise required of the converting social purpose corporation under the Corporation Tax Law (Part 11 (commencing with Section 23001) of Division 2 of the Revenue and Taxation Code) and to pay any tax liability determined to be due pursuant to that law.
The shareholders with dissenting rights, as defined in subdivision (b) of Section 1300, of a converting social purpose corporation shall have all of the rights under Chapter 13 (commencing with Section 1300) of Division 1 of the shareholders of a corporation involved in a reorganization requiring the approval of its outstanding shares, and the converting social purpose corporation shall have all of the obligations under Chapter 13 (commencing with Section 1300) of Division 1 of a corporation involved in the reorganization. Solely for purposes of applying the provisions of Chapter 13 (commencing with Section 1300) of Division 1, and not for purposes of this chapter, a conversion pursuant to Section 3301 or 3307 shall be deemed to constitute a reorganization.
Notwithstanding any other provision of law, the Secretary of State shall charge an entity a fee not to exceed one hundred fifty dollars ($150) for its conversion made under this chapter.
An other business entity or a foreign other business entity or a foreign corporation may be converted into a social purpose corporation pursuant to this chapter only if the converting entity is authorized by the laws under which it is organized to effect the conversion.
An other business entity or a foreign other business entity or a foreign corporation that desires to convert into a social purpose corporation shall approve a plan of conversion or other instrument as is required to be approved to effect the conversion pursuant to the laws under which that entity is organized.
The conversion of an other business entity or a foreign other business entity or a foreign corporation shall be approved by the number or percentage of the partners, members, shareholders, or other holders of interest of the converting entity that is required by the laws under which that entity is organized, or a greater or lesser percentage as may be set forth in the converting entity’s partnership agreement, articles of organization, operating agreement, articles of incorporation, or other governing document in accordance with applicable laws.
The conversion by an other business entity or a foreign other business entity or a foreign corporation shall be effective under this chapter upon the filing with the Secretary of State of the articles of incorporation of the converted corporation, containing a statement of conversion that complies with subdivision (e).
A statement of conversion of an entity converting into a social purpose corporation pursuant to this chapter shall set forth all of the following:
The name, form, and jurisdiction of organization of the converting entity.
The Secretary of State’s file number, if any, of the converting entity.
If the converting entity is a foreign other business entity or a foreign corporation, the statement of conversion shall contain the following:
A statement that the converting entity is authorized to effect the conversion by the laws under which it is organized.
A statement that the converting entity has approved a plan of conversion or other instrument as is required to be approved to effect the conversion pursuant to the laws under which the converting entity is organized.
A statement that the conversion has been approved by the number or percentage of the partners, members, shareholders, or other holders of interest of the converting entity that is required by the laws under which that entity is organized, or a greater or lesser percentage as may be set forth in the converting entity’s partnership agreement, articles of organization, operating agreement, articles of incorporation, or other governing document in accordance with applicable laws.
The filing with the Secretary of State of articles of incorporation containing a statement pursuant to subdivision (e) shall have the effect of the filing of a certificate of cancellation by a converting foreign limited liability company or foreign limited partnership, and no converting foreign limited liability company or foreign limited partnership that has made the filing is required to file a certificate of cancellation under Section 17708.06 or 15909.07 as a result of that conversion. If a converting entity is a foreign corporation qualified to transact business in this state, the foreign corporation shall, by virtue of the filing, automatically surrender its right to transact intrastate business.
CHAPTER 10. Reorganizations [3400. - 3401.]
A reorganization or a share exchange tender offer shall be approved by the board of all of the following:
Each constituent social purpose corporation in a merger reorganization.
The acquiring social purpose corporation in an exchange reorganization.
The acquiring social purpose corporation and the social purpose corporation whose property and assets are acquired in a sale-of-assets reorganization.
The acquiring social purpose corporation in a share exchange tender offer.
The social purpose corporation in control of any constituent or acquiring domestic or foreign social purpose corporation or other business entity under subdivision (a), (b), or (c) and whose equity securities are issued, transferred, or exchanged in the reorganization, hereafter a “parent party.”
The principal terms of a reorganization shall be approved by the outstanding shares of each class of each social purpose corporation the approval of whose board is required under Section 3400, except as provided in subdivision (b) and except that, unless otherwise provided in the articles, no approval of any class of outstanding preferred shares of the surviving or acquiring social purpose corporation or parent party shall be required if the rights, preferences, privileges, and restrictions granted to or imposed upon that class of shares remain unchanged, subject to the provisions of subdivision (c). For the purpose of this subdivision, two classes of common shares differing only as to voting rights shall be considered as a single class of shares.
No approval of the outstanding shares is required by subdivision (a) if the social purpose corporation, or its shareholders immediately before the reorganization, or both, shall own, immediately after the reorganization, equity securities, other than any warrant or right to subscribe to or purchase those equity securities, of the surviving or acquiring social purpose corporation or a parent party possessing more than five-sixths of the voting power of the surviving or acquiring social purpose corporation or parent party. In making the determination of ownership by the shareholders of a social purpose corporation, immediately after the reorganization, of equity securities pursuant to the preceding sentence, equity securities that they owned immediately before the reorganization as shareholders of another party to the transaction shall be disregarded. For the purpose of this section, the voting power of a social purpose corporation shall be calculated by assuming the conversion of all equity securities convertible, immediately or at some future time, into shares entitled to vote but not assuming the exercise of any warrant or right to subscribe to or purchase those shares.
Notwithstanding subdivisions (a) and (b), the principal terms of a reorganization shall be approved by the outstanding shares of the surviving social purpose corporation in a merger reorganization, as otherwise required by Chapter 10 (commencing with Section 3400), if any amendment is made to its articles that would otherwise require that approval.
Notwithstanding subdivisions (a) and (b), the principal terms of a reorganization shall be approved by the affirmative vote of at least two-thirds of each class, or a greater vote if required in the articles, of the outstanding shares of any class of a social purpose corporation that is a party to a merger or sale-of-assets reorganization if holders of shares of that class receive shares of the surviving or acquiring social purpose corporation or parent party having different rights, preferences, privileges, or restrictions than those surrendered. Shares in a foreign corporation received in exchange for shares in a domestic social purpose corporation shall be deemed to have different rights, preferences, privileges, and restrictions within the meaning of the preceding sentence.
Notwithstanding subdivisions (a) and (b), the principal terms of a reorganization shall be approved by the affirmative vote of at least two-thirds of each class, or a greater vote if required in the articles, of the outstanding shares of any social purpose corporation that is a close social purpose corporation if the reorganization would result in the holders receiving shares or other interests of a corporation or other business entity that is not a close social purpose corporation. The articles may provide for a lesser vote, but not less than a majority of the outstanding shares of each class.
Notwithstanding subdivisions (a) and (b), the principal terms of a reorganization shall be approved by a vote of at least two-thirds of the outstanding shares of each class, or a greater vote if required in the articles, of a social purpose corporation that is a party to a merger reorganization, regardless of whether that class is entitled to vote thereon by the provisions of the articles, if holders of shares of that class receive interests of a surviving other business entity in the merger that is not a social purpose corporation, or receive interests of a surviving social purpose corporation the articles of incorporation of which specify a materially different purpose as part of the reorganization.
Notwithstanding subdivisions (a) and (b), the principal terms of a reorganization shall be approved by all shareholders of any class or series if, as a result of the reorganization, the holders of that class or series become personally liable for any obligations of a party to the reorganization, unless all holders of that class or series have the dissenters’ rights provided in Chapter 13 (commencing with Section 1300) of Division 1.
Any approval required by this section may be given before or after the approval by the board. Notwithstanding approval required by this section, the board may abandon the proposed reorganization without further action by the shareholders, subject to the contractual rights, if any, of third parties.
CHAPTER 11. Records and Reports [3500. - 3503.]
The board of a social purpose corporation shall cause an annual report to be sent to the shareholders not later than 120 days after the close of the fiscal year. The annual report shall contain (1) a balance sheet as of the end of that fiscal year and an income statement and a statement of cashflows for that fiscal year, accompanied by any report thereon of independent accountants or, if there is no report, the certificate of an authorized officer of the social purpose corporation that the statements were prepared without audit from the books and records of the corporation, and (2) the information required by subdivision (b).
The board shall cause to be provided with the annual report, a management discussion and analysis (special purpose MD&A) concerning the social purpose corporation’s stated purpose or purposes as set forth in its articles pursuant to paragraph (2) of subdivision (b) of Section 2602, and, to the extent consistent with reasonable confidentiality requirements, shall cause the special purpose MD&A to be made publicly available by posting it on the social purpose corporation’s Internet Web site or providing it through similar electronic means. The special purpose MD&A shall include the information specified in this subdivision and any other information that the social purpose corporation’s officers and directors believe to be reasonably necessary or appropriate to an understanding of the social purpose corporation’s efforts in connection with its special purpose or purposes. The special purpose MD&A shall also include the following information:
Identification and discussion of the overall objectives of the social purpose corporation relating to its special purpose or purposes, and an identification and explanation of any changes made in those special purpose objectives during the fiscal year.
Identification and discussion of the material actions taken by the social purpose corporation during the fiscal year to achieve its special purpose objectives, the impact of those actions, including the causal relationships between the actions and the reported outcomes, and the extent to which those actions achieved the special purpose objectives for the fiscal year.
Identification and discussion of material actions, including the intended impact of those actions, that the social purpose corporation expects to take in the short term and long term with respect to achievement of its special purpose objectives.
A description of the process for selecting, and an identification and description of, the financial, operating, and other measures used by the social purpose corporation during the fiscal year for evaluating its performance in achieving its special purpose objectives, including an explanation of why the social purpose corporation selected those measures and identification and discussion of the nature and rationale for any material changes in those measures made during the fiscal year.
Identification and discussion of any material operating and capital expenditures incurred by the social purpose corporation during the fiscal year in furtherance of achieving the special purpose objectives, a good faith estimate of any additional material operating or capital expenditures the social purpose corporation expects to incur over the next three fiscal years in order to achieve its special purpose objectives, and other material expenditures of resources incurred by the social purpose corporation during the fiscal year, including employee time, in furtherance of achieving the special purpose objectives, including a discussion of the extent to which that capital or use of other resources serves purposes other than and in addition to furthering the achievement of the special purpose objectives.
Except as may otherwise be excused pursuant to subdivision (h) of Section 1501.5, the reports specified in subdivisions (a) and (b) shall be sent to the shareholders at least 15 days, or, if sent by bulk mail, 35 days, prior to the annual meeting of shareholders to be held during the next fiscal year. This requirement shall not limit the requirement for holding an annual meeting as required by Section 600.
If no annual report for the last fiscal year has been sent to shareholders, the social purpose corporation shall, upon the written request of any shareholder made more than 120 days after the end of that fiscal year, deliver or mail to the person making the request within 30 days following the request, the statements required by subdivisions (a) and (b) for that fiscal year.
A shareholder or shareholders holding at least 5 percent of the outstanding shares of any class of a social purpose corporation may make a written request to the social purpose corporation for an income statement of the social purpose corporation for the three-month, six-month, or nine-month period of the current fiscal year ended more than 30 days prior to the date of the request and a balance sheet of the social purpose corporation as at the end of that period and, in addition, if no annual report for the most recent fiscal year has been sent to the shareholders, the statements referred to in subdivisions (a) and (b) relating to that fiscal year. The statements shall be delivered or mailed to the person making the request within 30 days following the request. A copy of the statements shall be kept on file in the principal office of the social purpose corporation for 12 months and shall be exhibited at all reasonable times to any shareholder demanding an examination of the statements or a copy shall be mailed to the shareholder. The quarterly income statements and balance sheets referred to in this subdivision shall be accompanied by the report thereon, if any, of any independent accountants engaged by the social purpose corporation or the certificate of an authorized officer of the social purpose corporation that the financial statements were prepared without audit from the books and records of the social purpose corporation.
The board shall cause a special purpose current report to be sent to the shareholders not later than 45 days following the occurrence of any one or more of the events specified in subdivision (b) or (c), and, to the extent consistent with reasonable confidentiality requirements, shall cause the special purpose current report to be made publicly available by posting it on the social purpose corporation’s Internet Web site or providing it through similar electronic means.
Unless previously reported in the most recent annual report, the special purpose current report shall identify and discuss, in reasonable detail, any expenditure or group of related or planned expenditures, excluding compensation of officers and directors, made in furtherance of the special purpose objectives, whether an operating expenditure, a capital expenditure, or some other expenditure of corporate resources, including, but not limited to, employee time, whether the expenditure was direct or indirect, and whether the expenditure was categorized as overhead or otherwise where the expenditure has or is likely to have a material adverse impact on the social purpose corporation’s results of operations or financial condition for a quarterly or annual fiscal period.
Unless previously reported in the most recent annual report, the special purpose current report shall identify and discuss, in reasonable detail, any decision by the board or action by management to do either of the following:
Withhold expenditures or a group of related or planned expenditures, whether temporarily or permanently, that were to have been made in furtherance of the special purpose as contemplated in the most recent annual report, whether those planned expenditures were an operating expenditure, a capital expenditure, or some other expenditure of corporate resources, including, but not limited to, employee time, whether the planned expenditure was direct or indirect, and whether the planned expenditure to be made would have been categorized as overhead or otherwise, in any case, where the planned expenditure was likely to have had a material positive impact on the social purpose corporation’s impact in furtherance of its special purpose objectives, as contemplated in the most recent annual report.
Determine that the special purpose has been satisfied or should no longer be pursued, whether temporarily or permanently.
Nothing contained in subdivision (b) of Section 3500 or Section 3501 shall require a detailing or itemization of every relevant expenditure incurred, or planned or action taken or planned, by the corporation. Management and the board shall use their discretion in providing that information, including the reasonable detail that a reasonable investor would consider important in understanding the corporation’s objectives, actions, impacts, measures, rationale, and results of operations as they relate to the nature and achievement of the special purpose objectives.
Where best practices emerge for providing the information required by subdivision (b) of Section 3500 or Section 3501, use of those best practices shall create a presumption that the social purpose corporation caused all the information required by those provisions to be provided. This presumption can only be rebutted by showing that the reporting contained either a misstatement of a material fact or omission of a material fact.
The social purpose corporation and its officers and directors are expressly excluded from liability for any and all forward looking statements supplied in the report required by subdivision (b) of Section 3500 and Section 3501, so long as those statements are supplied in good faith. Statements are deemed to be forward looking as that term is defined in the federal securities laws.
The special purpose MD&A and any special purpose current report shall be written in plain English and shall be provided in an efficient and understandable manner, avoiding repetition and disclosure of immaterial information.
The financial statements of any social purpose corporation with fewer than 100 holders of record of its shares, determined as provided in Section 605, required to be furnished by Sections 3500 and 3501 are not required to be prepared in conformity with generally accepted accounting principles if they reasonably set forth the assets and liabilities and the income and expense of the social purpose corporation and disclose the accounting basis used in their preparation.
The requirements described in Section 3500 shall be satisfied if a corporation with an outstanding class of securities registered under Section 12 of the Securities Exchange Act of 1934 both complies with Section 240.14a-16 of Title 17 of the Code of Federal Regulations, as amended from time to time, with respect to the obligation of a corporation to furnish an annual report to shareholders pursuant to Section 240.14a-3(b) of Title 17 of the Code of Federal Regulations, and includes the information required by subdivision (b) of Section 3500 in the annual report.
The requirements described in Section 3501 shall be satisfied if a corporation with an outstanding class of securities registered under Section 12 of the Securities Exchange Act of 1934 both complies with Section 240.13a-13 of Title 17 of the Code of Federal Regulations, as amended from time to time, with respect to the obligation of a corporation to furnish a quarterly report to shareholders, and includes the information required by subdivision (b) of Section 3501 in the quarterly report.
In any action or proceeding with respect to Section 3500 or 3501, if the court finds the failure of the social purpose corporation to comply with the requirements of those sections to have been without justification, the court may award an amount sufficient to reimburse the shareholder for the reasonable expenses incurred by the shareholder, including attorney’s fees, in connection with the action or proceeding.
Any officers, directors, employees, or agents of a social purpose corporation who do any of the following shall be liable jointly and severally for all the damages resulting therefrom to the social purpose corporation or any person injured by those actions who relied on those actions or to both:
Make, issue, deliver, or publish any prospectus, report, including the reports required pursuant to Sections 3500 and 3501, circular, certificate, financial statement, balance sheet, public notice, or document respecting the social purpose corporation or its shares, assets, liabilities, capital, dividends, business, earnings, or accounts which is false in any material respect, knowing it to be false, or participate in the making, issuance, delivery, or publication thereof with knowledge that the same is false in a material respect.
Make or cause to be made in the books, minutes, records, or accounts of a social purpose corporation any entry that is false in any material particular knowing it to be false.
Remove, erase, alter, or cancel any entry in any books or records of the social purpose corporation, with intent to deceive.
With respect to the reports required pursuant to subdivision (b) of Section 3500 and Section 3501, omit to state any material fact necessary in order to make the statements contained therein, in light of the circumstances under which those statements were made, not misleading in a material respect, knowing the omission to be misleading.
DIVISION 2. NONPROFIT CORPORATION LAW [5000. - 10841.]
This division shall be known and may be cited as the Nonprofit Corporation Law.
This division of the Nonprofit Corporation Law, or any part, chapter, article or section thereof, may at any time be amended or repealed.
PART 1. GENERAL PROVISIONS AND DEFINITIONS GOVERNING PARTS 1 THROUGH 5 [5002. - 5080.]
Unless the provisions or the context otherwise requires, the general provisions and definitions set forth in this part govern the construction of this part and of Part 2 (commencing with Section 5110), Part 3 (commencing with Section 7110), Part 4 (commencing with Section 9110), and Part 5 (commencing with Section 9910) of this division.
The provisions of this part apply to:
Corporations organized under Part 2, Part 3, and Part 4 of this division;
Corporations expressly subject to Part 2, Part 3 or Part 4 of this division pursuant to a particular provision of this division or Division 3 (commencing with Section 12000) or other specific statutory provision;
Corporations which pursuant to the express provisions of Part 1, Division 2 (commencing with Section 9000) in effect immediately prior to January 1, 1980, are subject to the provisions of Part 1 of Division 2 and which, on or after January 1, 1980, are subject to the Nonprofit Public Benefit Corporation Law, the Nonprofit Mutual Benefit Corporation Law or the Nonprofit Religious Corporation Law, pursuant to Section 9912.
Corporations expressly subject to Part 1, Division 2 (commencing with Section 9000) in effect immediately prior to January 1, 1980, pursuant to a particular provision of this division or Division 3 (commencing with Section 12000) or other specific statutory provision in effect immediately prior to January 1, 1980, and which, on or after January 1, 1980, are subject to the Nonprofit Public Benefit Corporation Law, the Nonprofit Mutual Benefit Corporation Law, or the Nonprofit Religious Corporation Law, pursuant to Section 9912; and
Corporations incorporated as permitted by subdivision (d) of Section 9911.
The existence of corporations formed or existing on the date of enactment or reenactment of this part, Part 2, Part 3, Part 4 or Part 5 shall not be affected by the enactment or reenactment of such parts or by any change in the requirements for the formation of corporations or by the amendment or repeal of the laws under which they were formed or created.
Neither the repeals effected by the enactment or reenactment of this part or of Part 2, Part 3, Part 4 or Part 5, nor the amendment thereof shall impair or take away any existing liability or cause of action against any corporation, its members, directors or officers incurred prior to the time of such enactment, reenactment or amendment.
A corporation may be sued as provided in the Code of Civil Procedure.
Any corporation shall, as a condition of its existence as a corporation, be subject to the provisions of the Code of Civil Procedure authorizing the attachment of corporate property.
Except for a liability that may be insured against pursuant to Division 4 (commencing with Section 3200) of the Labor Code, an authorized corporation may do any of the following:
Insure itself against all or any part of any tort liability.
Insure any employee of the corporation against all or any part of his or her liability for injury resulting from an act or omission in the scope of employment.
Insure any board member, officer, or volunteer of the corporation against any liability that may arise from any act or omission in the scope of participation with the corporation.
Insure itself against any loss arising from physical damage to motor vehicles owned or operated by the corporation.
Insure itself against the loss or damage to property of every kind, including, but not limited to, losses and expenses related to the loss of property.
The arrangement authorized pursuant to this section shall only be available to an authorized corporation where that corporation has joined with two or more other authorized corporations to provide for the pooling of self-insured claims or losses. The pooling arrangement shall be organized as a nonprofit public benefit corporation pursuant to Part 2 (commencing with Section 5110) and shall not be considered insurance nor be subject to regulation under the Insurance Code.
A pooling arrangement shall include in every application form for membership and every risk pooling contract issued or renewed on or after January 1, 2016, and in boldface 10-point type on the front page, the following notice:
“Notice: This risk pooling contract is issued by a pooling arrangement authorized by California Corporations Code Section 5005.1. The pooling arrangement is not subject to all of the insurance laws of the State of California and is not subject to regulation by the Insurance Commissioner. Insurance guaranty funds are not available to pay claims in the event the risk pool becomes insolvent.”
This section does not authorize a corporation organized pursuant to this division to pay for, or to insure, contract, or provide for payment for, any part of a claim or judgment against an employee of the corporation for punitive or exemplary damages.
Be organized for the purpose of providing the coverage described in paragraph (1) of subdivision (a) for a period of no less than five years.
Have accumulated net assets of not less than five million dollars ($5,000,000).
All participating corporations in any pool established pursuant to this section are required to agree to pay premiums or make other mandatory financial contributions or commitments necessary to ensure a financially sound risk pool.
For the purpose of this section, an authorized “corporation” means any corporation that meets all of the following criteria:
Is organized chiefly to provide or fund health or human services, but does not include a hospital.
Is exempt from federal income taxation as an organization described in Section 501(c)(3) of the United States Internal Revenue Code.
The fees of the Secretary of State for filing instruments by or on behalf of corporations are prescribed in Article 3 (commencing with Section 12180) of Chapter 3 of Part 2 of Division 3 of Title 2 of the Government Code.
Any agreement, certificate or other instrument relating to a domestic corporation, a foreign corporation, or a foreign business corporation filed pursuant to the provisions of this part, Part 2, Part 3, Part 4 or Part 5 may be corrected with respect to any misstatement of fact contained therein, any defect in the execution thereof or any other error or defect contained therein, by filing a certificate of correction entitled “Certificate of Correction of _____ (insert here the title of the agreement, certificate or other instrument to be corrected and name(s) of the corporation or corporations)”; provided, however, that no such certificate of correction shall alter the wording of any resolution which was in fact adopted by the board or the members or delegates or effect a corrected amendment of articles which amendment as so corrected would not in all respects have complied with the requirements of this part, Part 2, Part 3, Part 4 or Part 5 at the time of filing of the agreement, certificate or other instrument being corrected. Such certificate of correction shall be signed and verified or acknowledged as provided in this part with respect to the agreement, certificate or other instrument being corrected. It shall set forth the following:
The name or names of the corporation or corporations.
The date the agreement, certificate or other instrument being corrected was filed.
The provision in the agreement, certificate or other instrument as corrected and, if the execution was defective, wherein it was defective.
The filing of the certificate of correction shall not alter the effective time of the agreement, certificate or instrument being corrected, which shall remain as its original effective time, and such filing shall not affect any right or liability accrued or incurred before such filing, except that any right or liability accrued or incurred by reason of the error or defect being corrected shall be extinguished by such filing if the person having such right has not detrimentally relied on the original instrument.
Upon receipt of any instrument by the Secretary of State for filing pursuant to this part, Part 2, Part 3, Part 4, or Part 5, if it conforms to law, it shall be filed by, and in the office of the Secretary of State and the date of filing endorsed thereon. Except for instruments filed pursuant to Section 6210, 8210, or 9660 the date of filing shall be the date the instrument is received by the Secretary of State unless the instrument provides that it is to be withheld from filing until a future date, other than instruments filed pursuant to Section 5017, or, unless in the judgment of the Secretary of State, the filing is intended to be coordinated with the filing of some other corporate document which cannot be filed. The Secretary of State shall file a document as of any requested future date not more than 90 days after its receipt, including a Saturday, Sunday, or legal holiday, if the document is received in the Secretary of State’s office at least one business day prior to the requested date of filing. An instrument does not fail to conform to law because it is not accompanied by the full filing fee if the unpaid portion of the fee does not exceed the limits established by the policy of the Secretary of State for extending credit in these cases.
If the Secretary of State determines that an instrument submitted for filing or otherwise submitted does not conform to law and returns it to the person submitting it, the instrument may be resubmitted accompanied by a written opinion of the member of the State Bar of California submitting the instrument, or representing the person submitting it, to the effect that the specific provision of the instrument objected to by the Secretary of State does conform to law and stating the points and authorities upon which the opinion is based. The Secretary of State shall rely, with respect to any disputed point of law, other than the application of Section 5122, 7122, or 9122, upon that written opinion in determining whether the instrument conforms to law. The date of filing in that case shall be the date the instrument is received on resubmission.
Any instrument filed with respect to a corporation, other than original articles or instruments filed pursuant to Section 5017, may provide that it is to become effective not more than 90 days subsequent to its filing date. In case such a delayed effective date is specified, the instrument may be prevented from becoming effective by a certificate stating that by appropriate corporate action it has been revoked and is null and void, executed in the same manner as the original instrument and filed before the specified effective date. In the case of a merger agreement, the certificate revoking the earlier filing need only be executed on behalf of one of the constituent corporations. If no revocation certificate is filed, the instrument becomes effective on the date specified.
Any instrument submitted to the Secretary of State for filing pursuant to this part, Part 2, Part 3, Part 4, or Part 5 by a domestic corporation or foreign corporation that is qualified to transact business in California under Section 2105 shall include the entity name and number as they exist on the Secretary of State’s records.
The Secretary of State may cancel the filing of articles if a check or other remittance accepted in payment of the filing fee or franchise tax is not paid upon presentation. Within 90 days of receiving written notification that the item presented for payment has not been honored for payment, the Secretary of State shall give written notice of the applicability of this section and the cancellation date, which shall be not less than 20 days from the date of mailing the written notice as certified by the Secretary of State, to the agent for service of process or to the person submitting the instrument. Thereafter, if the amount has not been paid by cashier’s check or equivalent before the date of cancellation as stated in the written notice of cancellation, the cancellation shall thereupon be effective.
A corporation that (1) fails to file a statement pursuant to Section 6210, 8210, or 9660 for an applicable filing period, (2) has not filed a statement pursuant to Section 6210, 8210, or 9660 during the preceding 24 months, and (3) was certified for penalty pursuant to Section 6810, 8810, or 9690 for the same filing period, shall be subject to suspension pursuant to this section rather than to penalty under Section 6810 or 8810.
When subdivision (a) is applicable, the Secretary of State shall provide a notice to the corporation informing the corporation that its corporate powers, rights, and privileges will be suspended 60 days from the date of the notice if the corporation does not file the statement required by Section 6210, 8210, or 9660.
If the 60-day period expires without the delinquent corporation filing the required statement, the Secretary of State shall notify the Franchise Tax Board of the suspension, and provide a notice of the suspension to the corporation. Thereupon, except for the purpose of filing an application for exempt status or amending the articles of incorporation as necessary either to perfect that application or to set forth a new name, the corporate powers, rights, and privileges of the corporation are suspended.
A statement required by Section 6210, 8210, or 9660 may be filed, notwithstanding suspension of the corporate powers, rights, and privileges under this section or under provisions of the Revenue and Taxation Code. Upon the filing of a statement under Section 6210, 8210, or 9660, by a corporation that has suffered suspension under this section, the Secretary of State shall certify that fact to the Franchise Tax Board and the corporation may thereupon be relieved from suspension, unless the corporation is held in suspension by the Franchise Tax Board because of Section 23301, 23301.5, or 23775 of the Revenue and Taxation Code.
A nonprofit corporation described in Section 5059, 5060, or 5061, or a foreign nonprofit corporation, as defined in Section 5053, that has qualified to transact intrastate business, shall be subject to administrative dissolution or administrative surrender in accordance with this section if, as of January 1, 2016, or later, the nonprofit corporation’s or foreign corporation’s corporate powers are, and have been, suspended or forfeited by the Franchise Tax Board for a period of not less than 48 continuous months.
Prior to the administrative dissolution or administrative surrender of the nonprofit corporation or foreign corporation, the corporation shall be notified of the pending administrative dissolution or administrative surrender as follows:
The Franchise Tax Board shall mail written notice to the last known address of a nonprofit corporation or foreign corporation meeting the requirement described in subdivision (a).
If the nonprofit corporation or foreign corporation does not have a valid address in the records of the Franchise Tax Board, the notice provided in subdivision (d) shall be deemed sufficient notice prior to administrative dissolution or administrative surrender.
The Franchise Tax Board shall transmit to the Secretary of State and the Attorney General’s Registry of Charities and Fundraisers the names and Secretary of State file numbers of nonprofit corporations and foreign corporations subject to the administrative dissolution or administrative surrender provisions of this section.
The Secretary of State shall provide 60 calendar days’ notice of the pending administrative dissolution or administrative surrender on its internet website by listing the corporation name and the Secretary of State’s file number for the nonprofit corporation or foreign corporation. The Secretary of State shall also, in conjunction with the information above, provide instructions for a nonprofit corporation or foreign corporation to submit a written objection of the pending administrative dissolution or administrative surrender to the Franchise Tax Board.
A nonprofit corporation or foreign corporation may provide the Franchise Tax Board with a written objection to the administrative dissolution or administrative surrender.
The Franchise Tax Board shall notify the Secretary of State if a written objection has been received.
If no written objection to the administrative dissolution or administrative surrender is received by the Franchise Tax Board during the 60-day period described in subdivision (d), the nonprofit corporation or foreign corporation shall be administratively dissolved or administratively surrendered in accordance with this section. The certificate of the Secretary of State shall be prima facie evidence of the administrative dissolution or administrative surrender.
If the written objection of a nonprofit corporation or foreign corporation to the administrative dissolution or administrative surrender has been received by the Franchise Tax Board before the expiration of the 60-day period described in subdivision (d), that nonprofit corporation or foreign corporation shall have an additional 90 days from the date the written objection is received by the Franchise Tax Board to pay or otherwise satisfy all accrued taxes, penalties, and interest and to file a current Statement of Information with the Secretary of State.
If the conditions in paragraph (1) are satisfied, the administrative dissolution or administrative surrender shall be canceled.
If the conditions in paragraph (1) are not satisfied, the nonprofit corporation or foreign corporation shall be administratively dissolved or administratively surrendered in accordance with this section as of the date that is 90 days after the receipt of the written objection.
The Franchise Tax Board may extend the 90-day period in paragraph (1), but for no more than one period of 90 days.
Upon administrative dissolution or administrative surrender in accordance with this section, the nonprofit corporation’s or the foreign corporation’s liabilities for qualified taxes, interest, and penalties as defined in Section 23156 of the Revenue and Taxation Code, if any, shall be abated. Any actions taken by the Franchise Tax Board to collect that abated liability shall be released, withdrawn, or otherwise terminated by the Franchise Tax Board, and no subsequent administrative or civil action shall be taken or brought to collect all or part of that amount. Any amounts erroneously received by the Franchise Tax Board in contravention of this section may be credited and refunded in accordance with Article 1 (commencing with Section 19301) of Chapter 6 of Part 10.2 of Division 2 of the Revenue and Taxation Code.
If the nonprofit corporation or foreign corporation is administratively dissolved or administratively surrendered under this section, the liability to creditors, if any, is not discharged. The liability of the directors of, or other persons related to, the administratively dissolved or administratively surrendered nonprofit corporation or foreign corporation is not discharged. The administrative dissolution or administrative surrender of a nonprofit corporation or foreign corporation pursuant to this section shall not diminish or adversely affect the ability of the Attorney General to enforce liabilities as otherwise provided by law.
Except as otherwise required, any reference in this part, Part 2, Part 3, Part 4 or Part 5 to mailing means first-, second-, or third-class mail, postage prepaid, unless registered mail is specified. Registered mail includes certified mail.
If the articles or bylaws provide for more or less than one vote for any membership on any matter, the references in Sections 5033 and 5034 to a majority or other proportion of memberships mean, as to those matters, a majority or other proportion of the votes entitled to be cast. Whenever in Part 2 (commencing with Section 5110) or Part 3 (commencing with Section 7110) members are disqualified from voting on any matter, their memberships shall not be counted for the determination of a quorum at any meeting to act upon, or the required vote to approve action upon, that matter under any other provision of Part 2 (commencing with Section 5110) or Part 3 (commencing with Section 7110) or the articles or bylaws.
All references in this part, Part 2 (commencing with Section 5110), Part 3 (commencing with Section 7110), or Part 4 (commencing with Section 9110) to financial statements of a corporation mean statements prepared in conformity with generally accepted accounting principles or some other basis of accounting which reasonably sets forth the assets and liabilities and the income and expenses of the corporation and discloses the accounting basis used in their preparation.
As used in this part, Part 2 (commencing with Section 5110), Part 3 (commencing with Section 7110), or Part 4 (commencing with Section 9110), “independent accountant” means a certified public accountant or public accountant who is independent of the corporation, as determined in accordance with generally accepted auditing standards, and who is engaged to audit financial statements of the corporation or perform other accounting services.
Any requirement in Part 3 (commencing with Section 7110) for a vote of each class of members means such a vote regardless of limitations or restrictions upon the voting rights thereof, unless expressly limited to voting memberships.
Any reference in this part, Part 2 (commencing with Section 5110), Part 3 (commencing with Section 7110), Part 4 (commencing with Section 9110), or Part 5 (commencing with Section 9910) to the time a notice is given or sent means, unless otherwise expressly provided, (a) the time a written notice by mail is deposited in the United States mails, postage prepaid; or (b) the time any other written notice, including facsimile, telegram, or other electronic mail message, is personally delivered to the recipient or is delivered to a common carrier for transmission, or actually transmitted by the person giving the notice by electronic means, to the recipient; or (c) the time any oral notice is communicated, in person or by telephone, including a voice messaging system or other system or technology designed to record and communicate messages, or wireless, to the recipient, including the recipient’s designated voice mailbox or address on such a system, or to a person at the office of the recipient who the person giving the notice has reason to believe will promptly communicate it to the recipient.
A notice or report mailed or delivered as part of a newsletter, magazine or other organ regularly sent to members shall constitute written notice or report pursuant to this division when addressed and mailed or delivered to the member, or in the case of members who are residents of the same household and who have the same address on the books of the corporation, when addressed and mailed or delivered to one of such members, at the address appearing on the books of the corporation.
Otherwise lawful corporate actions not in compliance, or purportedly not in compliance, with this division or the articles, bylaws, or a plan or agreement to which the corporation is a party in effect at the time of the corporate action, may be ratified, or validated by the superior court, in accordance with the provisions of this section.
Except as otherwise determined by the superior court pursuant to subdivision (e), a ratification or validation of a corporate action in accordance with this section is conclusive in the absence of fraud.
This section does not limit the authority of the board, the members, or the corporation to effect any other lawful means of ratification or validation of a corporate action or correction of a record.
No corporate action may be ratified under subdivision (b) by a dissolved corporation or a foreign corporation, and no petition may be filed under subdivision (e) in respect of any corporate action of such a corporation.
This section shall not be used to ratify or validate any corporate action in respect of any of the following:
Transactions covered by Section 5233.
Transactions covered by Section 9243.
A ratification of a corporate action pursuant to this section, other than a ratification relating to the election of the initial directors pursuant to paragraph (2) of this subdivision, shall be approved by the board and, as applicable, approved by the members in accordance with any provision set forth in this division or the articles, bylaws, or a plan or agreement to which the corporation is a party that is applicable to the type of corporate action proposed to be ratified and in effect at the time of the ratification, unless there are no members entitled to vote on the ratification at the time of the ratification, in which case the ratification shall be approved solely by the board, or a higher approval standard that was or would have been applicable to the original taking or purported taking of the corporate action, in which case the ratification shall be approved in accordance with such higher approval standard. In order to approve a ratification of a corporate action pursuant to this paragraph, the board and, as applicable, the members shall adopt resolutions setting forth all of the following:
Each corporate action to be ratified.
The date when each such corporate action was purportedly taken, and the date any such corporate action shall be deemed to have become effective pursuant to this section if different than the date the corporate action was purportedly taken.
The nature of the noncompliance or purported noncompliance of each such corporate action.
A statement that the ratification of each such corporate action is approved.
If the corporate action to be ratified relates to the election of the initial directors pursuant to Section 5134, 7134, or 9134, a majority of the persons who, at the time of the ratification, are exercising the powers of directors may approve that ratification by adopting resolutions setting forth all of the following:
The name of the person or persons who first took action in the name of the corporation as the initial directors of the corporation.
The earlier of the date on which such persons first took such action or were purported to have been elected as the initial directors, and the date on which such person or persons shall be deemed to have become the initial directors of the corporation pursuant to this section if different than the date of such first action or purported election, as applicable.
That the ratification of the election of such person or persons as the initial directors is approved.
Notice of any ratification of a corporate action pursuant to this section shall be given promptly after ratification pursuant to subdivision (b) to each member, regardless of whether approval of the members is required for the ratification. The notice shall be given as provided in subdivision (b) of Section 5511 or 7511 or subdivision (a) of Section 9411, as applicable, and shall include a copy of any resolutions adopted pursuant to subdivision (b) and a copy of this section.
A statement that the certificate of ratification is making, amending, or correcting any such instrument, as applicable, and a copy of any such instrument containing all of the information required to be included under this division for such instrument to be so made, amended, or corrected. An instrument attached to a certificate of ratification pursuant to this subparagraph need not be separately executed and acknowledged and need not include any statement required by any other section of this division that such instrument has been approved and adopted in accordance with the provisions of such other section.
A statement that the ratification has been approved pursuant to subdivision (b), a copy of the resolutions adopted pursuant to subdivision (b) in respect of the ratification.
Upon the filing of a petition by an authorized person, the superior court of the proper county shall have jurisdiction in equity to determine the validity of any corporate action (whether or not such corporate action is a ratification or has been the subject of any ratification), validate and declare effective any such corporate action, and declare the date any such corporate action shall be deemed to have become effective or valid, as applicable, pursuant to this section.
This section does not prescribe or circumscribe the facts and circumstances the superior court may consider or which remedies the superior court may grant in exercising its jurisdiction under this section, except as described in this subdivision. The superior court may make any order concerning the corporate action as justice and equity may require.
Any petition relating to a ratification taken or proposed to be taken pursuant to this section shall be filed not later than 180 days after the notice required by subdivision (c) is given, except this paragraph shall not apply to an action asserting that a ratification was not accomplished in accordance with this section or to any person to whom notice of the ratification was required to have been given pursuant to subdivision (c), but to whom such notice was not given.
For purposes of this subdivision, the proper county shall be the county where the principal office of the corporation is located or, if the principal office is not located in this state, in the county in which the corporation’s agent for service of process is located.
Service of the petition under paragraph (1) upon the registered agent of the corporation shall be deemed to be service upon the corporation, and no other party need be joined in order for the superior court to adjudicate the matter. The superior court may require notice of the action to be provided to other persons specified by the court and permit those other persons to intervene in the action.
For purposes of this subdivision, “authorized person” means the corporation, any successor entity to the corporation, any director, any member, or any other person, so long as the other person claims to be substantially and adversely affected by the ratification of a corporate action pursuant to this section.
Any petition seeking validation of a corporate action shall identify every pending legal proceeding of which the petitioner is aware and in which (A) the validity of the corporate action is being directly challenged or (B) the validation of the corporate action would result in the dismissal of the proceeding in whole or in part. If the petitioner becomes aware of any additional such legal proceeding, the petitioner shall amend, or, to the extent required by applicable rules, move for leave to amend, the petition within 10 court days to identify each such proceeding. Identification of a proceeding shall include the venue or forum in which the proceeding was filed, any case number or other unique identifier assigned to the proceeding in that venue or forum, the names of the parties to the proceeding, and the date on which the proceeding was filed.
If a corporate action validated by the superior court pursuant to this section would have required the filing of an instrument with the Secretary of State pursuant to the provisions of this division, or if such validation would cause any instrument previously filed with the Secretary of State to be inaccurate or incomplete in any material respect after giving effect to the validation, the corporation shall file a certificate of validation to make, amend, or correct each such instrument. The certificate of validation shall have the effect as specified therein, and shall be filed with the Secretary of State. A certificate of validation shall consist of an officers’ certificate setting forth all of the following:
The name of the corporation and the Secretary of State’s file number of the corporation.
The title of any such instrument whose making, amendment, or correction is being effected by the certificate of validation.
The date any such instrument was filed with the Secretary of State, or a statement that any such instrument was not previously filed with the Secretary of State and, as applicable, a statement that the validation ordered pursuant to the superior court order set forth in the certificate of validation would cause any such instrument to be inaccurate or incomplete in any material respect after giving effect to the validation.
The date any such instrument shall be deemed to have become effective pursuant to this section, which may be prior to or after the filing date.
A statement that the certificate of validation is making, amending, or correcting any such instrument, as applicable, and a copy of any such instrument containing all of the information required to be included under this division for such instrument to be so made, amended, or corrected. An instrument attached to a certificate of validation pursuant to this paragraph need not be separately executed and acknowledged and need not include any statement required by any other section of this division that such instrument has been approved and adopted in accordance with the provisions of such other section.
A statement that the validation has been ordered pursuant to subdivision (e), and a copy of the superior court order issued pursuant to subdivision (e) in respect of such validation.
Unless otherwise stated in resolutions adopted pursuant to subdivision (b) or determined by the superior court pursuant to subdivision (e), a corporate action or security of the corporation ratified or validated in accordance with this section relates back to the date of the original corporate action.
As used in this section:
“Corporate action” means any of the following:
Any action or purported action of the board.
Any action or purported action of the members.
Any other action or transaction taken, or purportedly taken, by or on behalf of the corporation.
“Higher approval standard” means any provision set forth in this division or the articles, bylaws, or a plan or agreement to which the corporation was a party in effect at the time of the original taking or purported taking of a corporate action:
Requiring action of the board or members, at a meeting or by written consent, to be taken by a proportion greater than would have been required pursuant to this division or the articles, bylaws, or a plan or agreement to which the corporation is a party in effect at the time of the ratification of the corporate action pursuant to this section.
Requiring a greater proportion of the directors or members to constitute a quorum for the transaction of business at a meeting than would have been required pursuant to this division or the articles, bylaws, or a plan or agreement to which the corporation is a party in effect at the time of the ratification of the corporate action pursuant to this section.
Requiring, prohibiting, or prescribing conditions on action of the board or members at a meeting or by written consent, which would not have been required, prohibited, or prescribed pursuant to this division or the articles, bylaws, or a plan or agreement to which the corporation is a party in effect at the time of the ratification of the corporate action pursuant to this section.
Requiring separate action of any specified person or persons, which would not have been required pursuant to this division or the articles, bylaws, or a plan or agreement to which the corporation is a party in effect at the time of the ratification of the corporate action pursuant to this section.
If the corporation is a party to a pending legal proceeding in which (1) the validity of a corporate action sought to be ratified or validated pursuant to this section is at issue or (2) the ratification or validation of a corporate action pursuant to this section would result in the dismissal in whole or in part of the proceeding, the corporation shall notify the judge, arbitrator, or other person presiding over the proceeding at least 10 court days prior to adopting resolutions pursuant to subdivision (b) or filing a petition pursuant to subdivision (e) with respect to that corporate action. That person shall have power to stay the ratification or validation as justice and equity may require.
“Acknowledged” means that an instrument is either:
Formally acknowledged as provided in Article 3 (commencing with Section 1180) of Chapter 4 of Title 4 of Part 4 of Division 2 of the Civil Code; or
Accompanied by a declaration in writing signed by the persons executing the same that they are such persons and that the instrument is the act and deed of the person or persons executing the same.
Any certificate of acknowledgment taken without this state before a notary public or a judge or clerk of a court of record having an official seal need not be further authenticated.
A corporation is an “affiliate” of, or a corporation is “affiliated” with, another specified corporation if it directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with the other specified corporation.
“Approval by (or approval of) a majority of all members” means approval by an affirmative vote (or written ballot in conformity with Section 5513, Section 7513, or Section 9413) of a majority of the votes entitled to be cast. Such approval shall include the affirmative vote of a majority of the outstanding memberships of each class, unit, or grouping of members entitled, by any provision of the articles or bylaws or of Part 2, Part 3, Part 4 or Part 5 to vote as a class, unit, or grouping of members on the subject matter being voted upon and shall also include the affirmative vote of such greater proportion, including all, of the votes of the memberships of any class, unit, or grouping of members if such greater proportion is required by the bylaws (subdivision (e) of Section 5151, subdivision (e) of Section 7151, or subdivision (e) of Section 9151) or Part 2, Part 3, Part 4 or Part 5.
“Approval by (or approval of) the members” means approved or ratified by the affirmative vote of a majority of the votes represented and voting at a duly held meeting at which a quorum is present (which affirmative votes also constitute a majority of the required quorum) or written ballot in conformity with Section 5513, 7513, or 9413 or by the affirmative vote or written ballot of such greater proportion, including all of the votes of the memberships of any class, unit, or grouping of members as may be provided in the bylaws (subdivision (e) of Section 5151, subdivision (e) of Section 7151, or subdivision (e) of Section 9151) or in Part 2, Part 3, Part 4 or Part 5 for all or any specified member action.
“Articles” includes the articles of incorporation, amendments thereto, amended articles, restated articles, and certificates of incorporation.
Except as provided in subdivision (b) or (c), “authorized number” means 5 percent of the voting power.
Where (disregarding any provision for cumulative voting which would otherwise apply) the total number of votes entitled to be cast for a director is 1,000 or more, but less than 5,000 the authorized number shall be 212 percent of the voting power, but not less than 50.
Where (disregarding any provision for cumulative voting which would otherwise apply) the total number of votes entitled to be cast for a director is 5,000 or more, the authorized number shall be one-twentieth of 1 percent of the voting power, but not less than 125.
Any right under Part 2, Part 3, or Part 4 which may be exercised by the authorized number, or some multiple thereof, may be exercised by a member with written authorizations obtained within any 11-month period from members who, in the aggregate, hold the equivalent voting power. Any such authorization shall specify the right to be exercised thereunder and the duration thereof (which shall not exceed three years).
Where any provision of Part 2, Part 3, or Part 4 specifies twice the authorized number, that means two times the number calculated according to subdivision (a), (b) or (c).
“Bylaws” includes amendments thereto and amended bylaws.
“Board” means the board of directors of the corporation.
“Business corporation” means a corporation as defined in Section 162 of the General Corporation Law.
“Class” refers to those memberships which: (a) are identified in the articles or bylaws as being a different type of membership; or (b) have the same rights with respect to voting, dissolution, redemption and transfer. For the purpose of this section, rights shall be considered the same if they are determined by a formula applied uniformly.
“Common shares,” as used in Part 3 (commencing with Section 7110), means shares which have no preference over any other shares with respect to distribution of assets on liquidation or with respect to payment of dividends.
“Constituent corporation” means a corporation which is merged with one or more other corporations and includes the surviving corporation.
“Control” means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a corporation.
“Corporation” as used in this part and Part 5 (commencing with Section 9910), refers to corporations defined in subdivisions (b), (c), and (d).
Except as otherwise expressly provided, “directors” means natural persons, designated in the articles or bylaws or elected by the incorporators, and their successors and natural persons designated, elected, or appointed by any other name or title to act as members of the governing body of the corporation. If the articles or bylaws designate that a natural person is a director or a member of the governing body of the corporation by reason of occupying a specified position within the corporation or outside the corporation, without limiting that person’s right to vote as a member of the governing body, that person shall be a director for all purposes and shall have the same rights and obligations, including voting rights, as the other directors. A person who does not have authority to vote as a member of the governing body of the corporation, is not a director as that term is used in this division regardless of title.
The Legislature finds and declares that the services of directors and officers of nonprofit corporations who serve without compensation are critical to the efficient conduct and management of the public service and charitable affairs of the people of California. The willingness of volunteers to offer their services has been deterred by a perception that their personal assets are at risk for these activities. The unavailability and unaffordability of appropriate liability insurance makes it difficult for these corporations to protect the personal assets of their volunteer decisionmakers with adequate insurance. It is the public policy of this state to provide incentive and protection to the individuals who perform these important functions.
Except as provided in this section, no cause of action for monetary damages shall arise against any person serving without compensation as a director or officer of a nonprofit corporation subject to Part 2 (commencing with Section 5110), Part 3 (commencing with Section 7110), or Part 4 (commencing with Section 9110) of this division on account of any negligent act or omission occurring (1) within the scope of that person’s duties as a director acting as a board member, or within the scope of that person’s duties as an officer acting in an official capacity; (2) in good faith; (3) in a manner that the person believes to be in the best interest of the corporation; and (4) is in the exercise of his or her policymaking judgment.
This section shall not limit the liability of a director or officer for any of the following:
Conflicts of interest, as described in Section 7233.
In the case of a charitable trust, an action or proceeding against a trustee brought by a beneficiary of that trust.
Any action or proceeding brought by the Attorney General.
Intentional, wanton, or reckless acts, gross negligence, or an action based on fraud, oppression, or malice.
Any action brought under Chapter 2 (commencing with Section 16700) of Part 2 of Division 7 of the Business and Professions Code.
This section only applies to nonprofit corporations organized to provide religious, charitable, literary, educational, scientific, social, or other forms of public service that are exempt from federal income taxation under Section 501(c)(3) or 501(c)(6) of the Internal Revenue Code.
This section applies only if the nonprofit corporation maintains a liability insurance policy with an amount of coverage of at least the following amounts:
If the corporation’s annual budget is less than fifty thousand dollars ($50,000), the minimum required amount is five hundred thousand dollars ($500,000).
If the corporation’s annual budget equals or exceeds fifty thousand dollars ($50,000), the minimum required amount is one million dollars ($1,000,000).
This section applies only if the claim against the director or officer can also be made directly against the corporation and a liability insurance policy is applicable to the claim. If that policy is found to cover the damages caused by the director or officer, no cause of action as provided in this section shall be maintained against the director or officer.
For the purposes of this section, the payment of actual expenses incurred in attending meetings or otherwise in the execution of the duties of a director or officer shall not constitute compensation.
Nothing in this section shall be construed to limit the liability of a nonprofit corporation for any negligent act or omission of a director, officer, employee, agent, or servant occurring within the scope of his or her duties.
This section does not apply to any corporation that unlawfully restricts membership, services, or benefits conferred on the basis of political affiliation, age, or any characteristic listed or defined in subdivision (b) or (e) of Section 51 of the Civil Code.
This section does not apply to any volunteer director or officer who receives compensation from the corporation in any other capacity, including, but not limited to, as an employee.
“Disappearing corporation” means a constituent corporation which is not the surviving corporation.
“Distribution” means the distribution of any gains, profits or dividends to any member as such. As used in this section, “member” means any person who is a member as defined in Section 5056 and any person who is referred to as a member as authorized by subdivision (a) of Sections 5332, 7333 and 9332.
“Domestic corporation” means a corporation formed under the laws of this state.
“Filed,” unless otherwise expressly provided, means filed in the office of the Secretary of State.
“Foreign corporation” means any corporation incorporated in a jurisdiction other than California pursuant to that jurisdiction’s law for the incorporation of nonprofit corporations; except that as used in subdivision (b) of Section 5122, in subdivision (c) of Section 7122, and in subdivision (b) of Section 9122, “foreign corporation” means a corporation described in Section 171.
“Liquidating price” or “liquidation preference,” as used in Part 3 (commencing with Section 7110), means amounts payable on memberships of any class, upon voluntary or involuntary dissolution, winding up or distribution of the entire assets of the corporation, in priority to amounts payable to members of another class or classes.
“Member” means any person who, pursuant to a specific provision of a corporation’s articles or bylaws, has the right to vote for the election of a director or directors or on a disposition of all or substantially all of the assets of a corporation or on a merger or on a dissolution unless the provision granting such right to vote is only effective as a result of paragraph (2) of subdivision (a) of Section 7132. “Member” also means any person who is designated in the articles or bylaws as a member and, pursuant to a specific provision of a corporation’s articles or bylaws, has the right to vote on changes to the articles or bylaws.
The articles or bylaws may confer some or all of the rights of a member, set forth in this part and in Parts 2 through 5 of this division, upon any person or persons who do not have any of the voting rights referred to in subdivision (a).
Where a member of a corporation is not a natural person, such member may authorize in writing one or more natural persons to vote on its behalf on any or all matters which may require a vote of the members.
A person is not a member by virtue of any of the following:
Any rights such person has as a delegate.
Any rights such person has to designate or select a director or directors.
Any rights such person has as a director.
A “membership” refers to the rights a member has pursuant to a corporation’s articles, bylaws and this division.
“Membership certificate,” as used in Part 3 (commencing with Section 7110), means a document evidencing a transferable property interest in a corporation.
“Officer’s certificate” means a certificate signed and verified by the chair of the board, the president or any vice president and by the secretary, the chief financial officer, the treasurer or any assistant secretary or assistant treasurer.
“On the certificate,” as used in Part 3 (commencing with Section 7110), means that a statement appears on the face of a certificate or on the reverse thereof with a reference thereto on the face.
“Other business entity” means a domestic or foreign limited liability company, limited partnership, general partnership, business trust, real estate investment trust, unincorporated association, or a domestic reciprocal insurer organized after 1974 to provide medical malpractice insurance as set forth in Article 16 (commencing with Section 1550) of Chapter 3 of Part 2 of Division 1 of the Insurance Code. As used herein, “general partnership” means a “partnership” as defined in Section 16101; “business trust” means a business organization formed as a trust; “real estate investment trust” means a “real estate investment trust” as defined in subsection (a) of Section 856 of the Internal Revenue Code of 1986, as amended; and “unincorporated association” has the meaning set forth in Section 18035.
A “parent” of a specified corporation is an affiliate controlling such corporation directly or indirectly through one or more intermediaries.
“Person,” in addition to those entities specified in Section 18 and unless otherwise expressly provided, includes any association, business corporation, company, corporation, corporation sole, domestic corporation, estate, foreign corporation, foreign business corporation, individual, joint stock company, joint venture, mutual benefit corporation, public benefit corporation, religious corporation, partnership, government or political subdivision, agency or instrumentality of a government.
“Preferred shares,” as used in Part 3 (commencing with Section 7110), means shares other than common shares.
“Proper county” means the county where the corporation’s principal office in this state is located or, if the corporation has no such office, the County of Sacramento.
“Proxy” means a written authorization signed by a member or the member’s attorney in fact giving another person or persons power to vote on behalf of such member. “Signed” for the purpose of this section means the placing of the member’s name on the proxy (whether by manual signature, typewriting, telegraphic transmission or otherwise) by the member or such member’s attorney in fact.
“Proxyholder” means the person or persons to whom a proxy is given.
“Shareholder,” as used in Part 3 (commencing with Section 7110), means one who is a holder of record of shares.
“Shares,” as used in Part 3 (commencing with Section 7110), means the units into which the proprietary interests in a business corporation or foreign business corporation are divided in the articles.
Except as provided in subdivision (b), “subsidiary” of a specified corporation means a corporation more than 50 percent of the voting power of which is owned directly, or indirectly through one or more subsidiaries, by the specified corporation.
For the purpose of Section 7315, “subsidiary” of a specified corporation means a corporation more than 25 percent of the voting power of which is owned directly, or indirectly through one or more subsidiaries as defined in subdivision (a), by the specified corporation.
“Surviving corporation” means a corporation into which one or more other corporations are merged.
“Vacancy” when used with respect to the board means any authorized position of director which is not then filled, whether the vacancy is caused by death, resignation, removal, change in the number of directors authorized in the articles or bylaws (by the board or the members) or otherwise.
“Verified” means that the statements contained in a certificate or other document are declared to be true of the own knowledge of the persons executing the same in either:
An affidavit signed by them under oath before an officer authorized by the laws of this state or of the place where it is executed to administer oaths; or
A declaration in writing executed by them under penalty of perjury and stating the date and place (whether within or without this state) of execution.
Any affidavit sworn to without this state before a notary public or a judge or clerk of a court of record having an official seal need not be further authenticated.
“Voting power” means the power to vote for the election of directors at the time any determination of voting power is made and does not include the right to vote upon the happening of some condition or event which has not yet occurred. In any case where different classes of memberships are entitled to vote as separate classes for different members of the board, the determination of percentage of voting power shall be made on the basis of the percentage of the total number of authorized directors which the memberships in question (whether of one or more classes) have the power to elect in an election at which all memberships then entitled to vote for the election of any directors are voted.
“Written” or “in writing” includes facsimile, telegraphic, and other electronic communication as authorized by this code, including an electronic transmission by a corporation that satisfies the requirements of Section 20.
“Written ballot” does not include a ballot distributed at a special or regular meeting of members.
PART 2. NONPROFIT PUBLIC BENEFIT CORPORATIONS [5110. - 6910.]
CHAPTER 1. Organization and Bylaws [5110. - 5160.]
ARTICLE 1. Title and Purposes [5110. - 5111.]
This part shall be known and may be cited as the Nonprofit Public Benefit Corporation Law.
Subject to any other provisions of law of this state applying to the particular class of corporation or line of activity, a corporation may be formed under this part for any public or charitable purposes.
ARTICLE 2. Formation [5120. - 5122.5.]
One or more persons may form a corporation under this part by executing and filing articles of incorporation.
If initial directors are named in the articles, each director named in the articles shall sign and acknowledge the articles; if initial directors are not named in the articles, the articles shall be signed by one or more persons who thereupon are the incorporators of the corporation.
The corporate existence begins upon the filing of the articles and continues perpetually, unless otherwise expressly provided by law or in the articles.
At the time of filing pursuant to this section, the Secretary of State shall make available the filed articles of incorporation to the Attorney General.
If the corporation was created by the elected legislative body in order to exercise authority that may lawfully be delegated by the elected governing body to a private corporation or other entity, the Secretary of State shall forward a copy of the filed articles of incorporation to the Controller.
In the case of an existing unincorporated association, the association may change its status to that of a corporation upon a proper authorization for such by the association in accordance with its rules and procedures.
In addition to the matters required to be set forth in the articles pursuant to Section 5130, the articles in the case of an incorporation authorized by subdivision (a) shall set forth that an existing unincorporated association, stating its name, is being incorporated by the filing of the articles.
The articles filed pursuant to this section shall be accompanied by a verified statement of any two officers or governing board members of the association stating that the incorporation of the association by means of the articles to which the verified statement is attached has been approved by the association in accordance with its rules and procedures.
Upon the change of status of an unincorporated association to a corporation pursuant to subdivision (a), the property of the association becomes the property of the corporation and the members of the association who had any voting rights of the type referred to in Section 5056 become members of the corporation.
The filing for record in the office of the county recorder of any county in this state in which any of the real property of the association is located of a copy of the articles of incorporation filed pursuant to this section, certified by the Secretary of State shall evidence record ownership in the corporation of all interests of the association in and to the real property located in that county.
All rights of creditors and all liens upon the property of the association shall be preserved unimpaired. Any action or proceeding pending by or against the unincorporated association may be prosecuted to judgment, which shall bind the corporation, or the corporation may be proceeded against or substituted in its place.
If a corporation is organized by a person who is or was an officer, director or member of an unincorporated association and such corporation is not organized pursuant to subdivision (a), the unincorporated association may continue to use its name and the corporation may not use a name which is the same as or similar to the name of the unincorporated association.
The Secretary of State shall not file articles setting forth a name in which “bank,” “trust,” “trustee,” or related words appear, unless the certificate of approval of the Commissioner of Financial Protection and Innovation is attached thereto.
The name of a corporation shall not be a name that the Secretary of State determines is likely to mislead the public and shall be distinguishable in the records of the Secretary of State from all of the following:
The name of any corporation.
The name of any foreign corporation authorized to transact intrastate business in this state.
Each name that is under reservation pursuant to this title.
The name of a foreign corporation that has registered its name pursuant to Section 2101.
An alternate name of a foreign corporation under subdivision (b) of Section 2106.
A name that will become the record name of a domestic or foreign corporation upon a corporate instrument when there is a delayed effective or file date.
The use by a corporation of a name in violation of this section may be enjoined notwithstanding the filing of its articles by the Secretary of State.
Any applicant may, upon payment of the fee prescribed therefor in the Government Code, obtain from the Secretary of State a certificate of reservation of any name not prohibited by subdivision (b), and upon the issuance of the certificate the name stated therein shall be reserved for a period of 60 days. The Secretary of State shall not, however, issue certificates reserving the same name for two or more consecutive 60-day periods to the same applicant or for the use or benefit of the same person; nor shall consecutive reservations be made by or for the use or benefit of the same person of names so similar as to fall within the prohibitions of subdivision (b).
The Secretary of State shall not reserve a corporate name or file articles using the name Golden State Energy unless those articles are for Golden State Energy, incorporated and operating pursuant to this part and Division 1.7 (commencing with Section 3400) of the Public Utilities Code.
ARTICLE 3. Articles of Incorporation [5130. - 5134.]
The articles of incorporation of a corporation formed under this part shall set forth:
The name of the corporation.
Except as provided in paragraph (2), the following statement:
“This corporation is a nonprofit public benefit corporation and is not organized for the private gain of any person. It is organized under the Nonprofit Public Benefit Corporation Law for (public or charitable [insert one or both]) purposes.”
[If the purposes include “public” purposes, the articles shall, and in all other cases the articles may, include a further description of the corporation’s purposes.]
The name and street address in this state of the corporation’s initial agent for service of process in accordance with subdivision (b) of Section 6210.
The initial street address of the corporation.
The initial mailing address of the corporation, if different from the initial street address.
The articles of incorporation may set forth a further statement limiting the purposes or powers of the corporation.
The articles of incorporation may set forth any or all of the following provisions, which shall not be effective unless expressly provided in the articles:
A provision limiting the duration of the corporation’s existence to a specified date.
In the case of a subordinate corporation instituted or created under the authority of a head organization, a provision setting forth either or both of the following:
That the subordinate corporation shall dissolve whenever its charter is surrendered to, taken away by, or revoked by the head organization granting it.
That in the event of its dissolution pursuant to an article provision allowed by subparagraph (A) or in the event of its dissolution for any reason, any assets of the corporation after compliance with the applicable provisions of Chapters 15 (commencing with Section 6510), 16 (commencing with Section 6610) and 17 (commencing with Section 6710) shall be distributed to the head organization.
Nothing contained in subdivision (a) shall affect the enforceability, as between the parties thereto, of any lawful agreement not otherwise contrary to public policy.
The articles of incorporation may set forth any or all of the following provisions:
The names and addresses of the persons appointed to act as initial directors.
The classes of members, if any, and if there are two or more classes, the rights, privileges, preferences, restrictions and conditions attaching to each class.
A provision that would allow any member to have more or less than one vote in any election or other matter presented to the members for a vote.
A provision that requires an amendment to the articles, as provided in subdivision (a) of Section 5812, or to the bylaws, and any amendment or repeal of that amendment, to be approved in writing by a specified person or persons other than the board or the members. However, this approval requirement, unless the articles specify otherwise, shall not apply if any of the following circumstances exist:
The specified person or persons have died or ceased to exist.
If the right of the specified person or persons to approve is in the capacity of an officer, trustee, or other status and the office, trust, or status has ceased to exist.
If the corporation has a specific proposal for amendment or repeal, and the corporation has provided written notice of that proposal, including a copy of the proposal, to the specified person or persons at the most recent address for each of them, based on the corporation’s records, and the corporation has not received written approval or nonapproval within the period specified in the notice, which shall not be less than 10 nor more than 30 days commencing at least 20 days after the notice has been provided.
Any other provision, not in conflict with law, for the management of the activities and for the conduct of the affairs of the corporation, including any provision that is required or permitted by this part to be stated in the bylaws.
For all purposes other than an action in the nature of quo warranto, a copy of the articles of a corporation duly certified by the Secretary of State is conclusive evidence of the formation of the corporation and prima facie evidence of its corporate existence.
If initial directors have not been named in the articles, the incorporator or incorporators, until the directors are elected, may do whatever is necessary and proper to perfect the organization of the corporation, including the adoption and amendment of bylaws of the corporation and the election of directors and officers.
ARTICLE 4. Powers [5140. - 5142.]
Subject to any limitations contained in the articles or bylaws and to compliance with other provisions of this division and any other applicable laws, a corporation, in carrying out its activities, shall have all of the powers of a natural person, including, without limitation, the power to:
Adopt, use, and at will alter a corporate seal, but failure to affix a seal does not affect the validity of any instrument.
Adopt, amend, and repeal bylaws.
Qualify to conduct its activities in any other state, territory, dependency, or foreign country.
Issue, purchase, redeem, receive, take or otherwise acquire, own, sell, lend, exchange, transfer or otherwise dispose of, pledge, use, and otherwise deal in and with its own bonds, debentures, notes, and debt securities.
Issue memberships.
Pay pensions, and establish and carry out pension, deferred compensation, saving, thrift, and other retirement, incentive, and benefit plans, trusts, and provisions for any or all of its directors, officers, employees, and persons providing services to it or any of its subsidiary or related or associated corporations, and to indemnify and purchase and maintain insurance on behalf of any fiduciary of such plans, trusts, or provisions.
Levy dues, assessments, and admission fees.
Make donations for the public welfare or for community funds, hospital, charitable, educational, scientific, civic, religious, or similar purposes.
Assume obligations, enter into contracts, including contracts of guaranty or suretyship, incur liabilities, borrow or lend money or otherwise use its credit, and secure any of its obligations, contracts, or liabilities by mortgage, pledge, or other encumbrance of all or any part of its property and income.
Participate with others in any partnership, joint venture, or other association, transaction, or arrangement of any kind whether or not such participation involves sharing or delegation of control with or to others.
Act as trustee under any trust incidental to the principal objects of the corporation, and receive, hold, administer, exchange, and expend funds and property subject to such trust.
Carry on a business at a profit and apply any profit that results from the business activity to any activity in which it may lawfully engage.
Pay the reasonable value of services rendered in this state to the corporation before January 1, 1975, and not previously paid, by any person who performed such services on a full-time basis under the direction of a religious organization in connection with the religious tenets of the organization. Such person shall have relied solely on the religious organization for their financial support for a minimum of five years. A payment shall not be made if such person or religious organization waives the payment or receipt of compensation for such services in writing. Payment may be made to such religious organization to reimburse it for maintenance of any person who rendered such services and to assist it in providing future support and maintenance; however, payment shall not be made from any funds or assets acquired with funds donated by or traceable to gifts made to the corporation by any person, organization, or governmental agency other than the members, immediate families of members, and affiliated religious organizations of the religious organization under whose direction the services were performed.
In anticipation of or during an emergency, take either or both of the following actions necessary to conduct the corporation’s business operations and affairs, unless emergency bylaws provide otherwise pursuant to subdivision (g) of Section 5151:
Modify lines of succession to accommodate the incapacity of any director, officer, employee, or agent resulting from the emergency.
Relocate the principal office, designate alternative principal offices or regional offices, or authorize the officers to do so.
During an emergency, take either or both of the following actions necessary to conduct the corporation’s business operations and affairs, unless emergency bylaws provide otherwise pursuant to subdivision (g) of Section 5151:
Give notice to a director or directors in any practicable manner under the circumstances, including, but not limited to, by publication and radio, when notice of a meeting of the board cannot be given to that director or directors in the manner prescribed by the bylaws or Section 5211.
Deem that one or more officers of the corporation present at a board meeting is a director, in order of rank and within the same rank in order of seniority, as necessary to achieve a quorum for that meeting.
In anticipation of or during an emergency, the board may take any action that it determines to be necessary or appropriate to respond to the emergency, mitigate the effects of the emergency, or comply with lawful federal and state government orders, but shall not take any action that requires the vote of the members, unless the required vote of the members was obtained prior to the emergency.
Any actions taken in good faith in anticipation of or during an emergency under this subdivision bind the corporation and shall not be used to impose liability on a corporate director, officer, employee, or agent.
For purposes of this subdivision, “emergency” means any of the following events or circumstances as a result of which, and only so long as, a quorum of the corporation’s board of directors cannot be readily convened for action:
A natural catastrophe, including, but not limited to, a hurricane, tornado, storm, high water, wind-driven water, tidal wave, tsunami, earthquake, volcanic eruption, landslide, mudslide, snowstorm, drought, epidemic, pandemic, or disease outbreak, or, regardless of cause, any fire, flood, or explosion.
An attack on or within this state or on the public security of its residents by an enemy of this state or on the nation by an enemy of the United States of America, or upon receipt by this state of a warning from the federal government indicating that any such enemy attack is probable or imminent.
An act of terrorism or other manmade disaster that results in extraordinary levels of casualties or damage or disruption severely affecting the infrastructure, environment, economy, government functions, or population, including, but not limited to, mass evacuations.
A state of emergency proclaimed by the Governor of this state, including any person serving as Governor in accordance with Section 10 of Article V of the California Constitution and Section 12058 of the Government Code, or by the President of the United States of America.
Subject to Section 5142:
No limitation upon the activities, purposes, or powers of the corporation or upon the powers of the members, officers, or directors, or the manner of exercise of such powers, contained in or implied by the articles or by Chapters 15 (commencing with Section 6510), 16 (commencing with Section 6610), and 17 (commencing with Section 6710) shall be asserted as between the corporation or member, officer or director and any third person, except in a proceeding: (1) by a member or the state to enjoin the doing or continuation of unauthorized activities by the corporation or its officers, or both, in cases where third parties have not acquired rights thereby, (2) to dissolve the corporation, or (3) by the corporation or by a member suing in a representative suit against the officers or directors of the corporation for violation of their authority.
Any contract or conveyance made in the name of a corporation which is authorized or ratified by the board or is done within the scope of authority, actual or apparent, conferred by the board or within the agency power of the officer executing it, except as the board’s authority is limited by law other than this part, binds the corporation, and the corporation acquires rights thereunder whether the contract is executed or wholly or in part executory.
Notwithstanding Section 5141, any of the following may bring an action to enjoin, correct, obtain damages for or to otherwise remedy a breach of a charitable trust:
The corporation, or a member in the name of the corporation pursuant to Section 5710.
An officer of the corporation.
A director of the corporation.
A person with a reversionary, contractual, or property interest in the assets subject to such charitable trust.
The Attorney General, or any person granted relator status by the Attorney General.
The Attorney General shall be given notice of any action brought by the persons specified in paragraphs (1) through (4), and may intervene.
In an action under this section, the court may not rescind or enjoin the performance of a contract unless:
All of the parties to the contract are parties to the action;
No party to the contract has, in good faith, and without actual notice of the trust restriction, parted with value under the contract or in reliance upon it; and
It is equitable to do so.
ARTICLE 5. Bylaws [5150. - 5153.]
Bylaws may be adopted, amended or repealed by approval of members (Section 5034); provided, however, that such adoption, amendment or repeal also requires approval by the members of a class if that action would materially and adversely affect the rights of that class as to voting or transfer in a manner different than that action affects another class.
The articles or bylaws may restrict or eliminate the power of the board to adopt, amend or repeal any or all bylaws, subject to subdivision (e) of Section 5151.
Bylaws may also provide that repeal or amendment of those bylaws, or the repeal or amendment of specified portions of those bylaws, may occur only with the approval in writing of a specified person or persons other than the board or members. However, this approval requirement, unless the bylaws specify otherwise, shall not apply if any of the following circumstances exist:
The specified person or persons have died or ceased to exist.
If the right of the specified person or persons to approve is in the capacity of an officer, trustee, or other status and the office, trust, or status has ceased to exist.
If the corporation has a specific proposal for amendment or repeal, and the corporation has provided written notice of that proposal, including a copy of the proposal, to the specified person or persons at the most recent address for each of them, based on the corporation’s records, and the corporation has not received written approval or nonapproval within the period specified in the notice, which shall not be less than 10 nor more than 30 days commencing at least 20 days after the notice has been provided.
The bylaws shall set forth (unless that provision is contained in the articles, in which case it may only be changed by an amendment of the articles) the number of directors of the corporation, or the method of determining the number of directors of the corporation, or that the number of directors shall be not less than a stated minimum nor more than a stated maximum with the exact number of directors to be fixed, within the limits specified, by approval of the board or the members (Section 5034), in the manner provided in the bylaws, subject to subdivision (e). The number or minimum number of directors may be one or more.
Once members have been admitted, a bylaw specifying or changing a fixed number of directors or the maximum or minimum number or changing from a fixed to a variable board or vice versa may only be adopted by approval of the members (Section 5034).
The bylaws may contain any provision, not in conflict with law or the articles, for the management of the activities and for the conduct of the affairs of the corporation, including, but not limited to:
Any provision referred to in subdivision (c) of Section 5132.
The time, place, and manner of calling, conducting, and giving notice of members’, directors’, and committee meetings, or of conducting mail ballots.
The qualifications, duties, and compensation of directors; the time of their election; and the requirements of a quorum for directors’ and committee meetings.
The appointment and authority of committees.
The appointment, duties, compensation, and tenure of officers.
The mode of determination of members of record.
The making of reports and financial statements to members.
Setting, imposing, and collecting dues, assessments, and admission fees.
The bylaws may provide for the manner of admission, withdrawal, suspension, and expulsion of members, consistent with the requirements of Section 5341.
The bylaws may require, for any or all corporate actions (except as provided in paragraphs (1) and (2) of subdivision (a) of Section 5222, subdivision (c) of Section 5616, and Section 6610), the vote of a larger proportion of, or all of, the members or the members of any class, unit, or grouping of members, or the vote of a larger proportion of, or all of, the directors, than is otherwise required by this part. Such a provision in the bylaws requiring such greater vote shall not be altered, amended, or repealed except by such greater vote, unless otherwise provided in the bylaws.
The bylaws may contain a provision limiting the number of members, in total or of any class, which the corporation is authorized to admit.
The bylaws may contain any provision, not in conflict with the articles, to manage and conduct the business affairs of the corporation effective only in an emergency as defined in Section 5140, including, but not limited to, procedures for calling a board meeting, quorum requirements for a board meeting, and designation of additional or substitute directors.
During an emergency, the board may take any action that it determines to be necessary or appropriate to respond to the emergency, mitigate the effects of the emergency, or comply with lawful federal and state government orders, but shall not take any action that requires the vote of the members, unless the required vote of the members was obtained prior to the emergency.
All provisions of the regular bylaws consistent with the emergency bylaws shall remain effective during the emergency, and the emergency bylaws shall not be effective after the emergency ends.
Corporate action taken in good faith in accordance with the emergency bylaws binds the corporation, and shall not be used to impose liability on a corporate director, officer, employee, or agent.
A corporation may provide in its bylaws for delegates having some or all of the authority of members. Where delegates are provided for, the bylaws shall set forth delegates’ terms of office, any reasonable method for delegates’ selection and removal, and any reasonable method for calling, noticing, and holding meetings of delegates, may set forth the manner in which delegates may act by written ballot similar to Section 5513 for written ballot of members, and may set forth the manner in which delegates may participate in meetings of delegates similar to paragraph (6) of subdivision (a) of Section 5211 for meetings of directors. Each delegate shall have one vote on each matter presented for action. A delegate shall not vote by proxy. Delegates may be given a name other than “delegates.”
A corporation may provide in its bylaws for voting by its members or delegates on the basis of chapter or other organizational unit, or by region or other geographic grouping.
ARTICLE 6. Location and Inspection of Articles and Bylaws [5160. - 5160.]
Every corporation shall keep at its principal office in this state the original or a copy of its articles and bylaws as amended to date, which shall be open to inspection by the members at all reasonable times during office hours. If the corporation has no office in this state, it shall upon the written request of any member furnish to such member a copy of the articles or bylaws as amended to date.
CHAPTER 2. Directors and Management [5210. - 5260.]
ARTICLE 1. General Provisions [5210. - 5215.]
Each corporation shall have a board of directors. Subject to the provisions of this part and any limitations in the articles or bylaws relating to action required to be approved by the members (Section 5034), or by a majority of all members (Section 5033), the activities and affairs of a corporation shall be conducted and all corporate powers shall be exercised by or under the direction of the board. The board may delegate the management of the activities of the corporation to any person or persons, management company, or committee however composed, provided that the activities and affairs of the corporation shall be managed and all corporate powers shall be exercised under the ultimate direction of the board.
Unless otherwise provided in the articles or in the bylaws, all of the following apply:
Meetings of the board may be called by the chair of the board or the president or any vice president or the secretary or any two directors.
Regular meetings of the board may be held without notice if the time and place of the meetings are fixed by the bylaws or the board. Special meetings of the board shall be held upon four days’ notice by first-class mail or 48 hours’ notice delivered personally or by telephone, including a voice messaging system or by electronic transmission by the corporation (Section 20). The articles or bylaws may not dispense with notice of a special meeting. A notice, or waiver of notice, need not specify the purpose of any regular or special meeting of the board.
Notice of a meeting need not be given to a director who provides a waiver of notice or consent to holding the meeting or an approval of the minutes thereof in writing, whether before or after the meeting, or who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to that director. These waivers, consents, and approvals shall be filed with the corporate records or made a part of the minutes of the meetings.
A majority of the directors present, whether or not a quorum is present, may adjourn any meeting to another time and place. If the meeting is adjourned for more than 24 hours, notice of an adjournment to another time or place shall be given prior to the time of the adjourned meeting to the directors who were not present at the time of the adjournment.
Meetings of the board may be held at a place within or without the state that has been designated in the notice of the meeting or, if not stated in the notice or there is no notice, designated in the bylaws or by resolution of the board.
Directors may participate in a meeting through use of conference telephone, electronic video screen communication, or electronic transmission by and to the corporation (Sections 20 and 21). Participation in a meeting through use of conference telephone or electronic video screen communication pursuant to this subdivision constitutes presence in person at that meeting as long as all directors participating in the meeting are able to hear one another. Participation in a meeting through use of electronic transmission by and to the corporation, other than conference telephone and electronic video screen communication, pursuant to this subdivision constitutes presence in person at that meeting if both of the following apply:
Each director participating in the meeting can communicate with all of the other directors concurrently.
Each director is provided the means of participating in all matters before the board, including, without limitation, the capacity to propose, or to interpose an objection to, a specific action to be taken by the corporation.
A majority of the number of directors authorized in or pursuant to the articles or bylaws constitutes a quorum of the board for the transaction of business. The articles or bylaws may require the presence of one or more specified directors in order to constitute a quorum of the board to transact business, as long as the death or nonexistence of a specified director or the death or nonexistence of the person or persons otherwise authorized to appoint or designate that director does not prevent the corporation from transacting business in the normal course of events. The articles or bylaws may not provide that a quorum shall be less than one-fifth the number of directors authorized in or pursuant to the articles or bylaws, or less than two, whichever is larger, unless the number of directors authorized in or pursuant to the articles or bylaws is one, in which case one director constitutes a quorum.
Subject to the provisions of Sections 5212, 5233, 5234, 5235, and subdivision (e) of Section 5238, an act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present is the act of the board. The articles or bylaws may not provide that a lesser vote than a majority of the directors present at a meeting is the act of the board. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting, or a greater number required by this division, the articles, or the bylaws.
An action required or permitted to be taken by the board may be taken without a meeting if all directors individually or collectively consent in writing to that action and if, subject to subdivision (a) of Section 5224, the number of directors then in office constitutes a quorum. The written consent or consents shall be filed with the minutes of the proceedings of the board. The action by written consent shall have the same force and effect as a unanimous vote of the directors. For purposes of this subdivision only, “all directors” does not include an “interested director” as defined in subdivision (a) of Section 5233 or a “common director” as described in Section 5234 who abstains in writing from providing consent, if (1) the facts described in paragraph (2) or (3) of subdivision (d) of Section 5233 are established or the provisions of paragraph (1) or (2) of subdivision (a) of Section 5234 are satisfied, as appropriate, at or prior to execution of the written consent or consents; (2) the establishment of those facts or satisfaction of those provisions, as applicable, is included in the written consent or consents executed by the noninterested or noncommon directors or in other records of the corporation; and (3) the noninterested or noncommon directors, as applicable, approve the action by a vote that is sufficient without counting the votes of the interested directors or common directors.
Each director shall have one vote on each matter presented to the board of directors for action. A director shall not vote by proxy.
The provisions of this section apply also to incorporators, to committees of the board, and to action by those incorporators or committees mutatis mutandis.
The board may, by resolution adopted by a majority of the number of directors then in office, provided that a quorum is present, create one or more committees, each consisting of two or more directors, to serve at the pleasure of the board. Appointments to such committees shall be by a majority vote of the directors then in office, unless the articles or bylaws require a majority vote of the number of directors authorized in or pursuant to the articles or bylaws. The bylaws may authorize one or more such committees, each consisting of two or more directors, and may provide that a specified officer or officers who are also directors of the corporation shall be a member or members of such committee or committees. The board may appoint one or more directors as alternate members of such committee, who may replace any absent member at any meeting of the committee. Such committee, to the extent provided in the resolution of the board or in the bylaws, shall have all the authority of the board, except with respect to:
The filling of vacancies on the board or in any committee which has the authority of the board.
The fixing of compensation of the directors for serving on the board or on any committee.
The amendment or repeal of bylaws or the adoption of new bylaws.
The amendment or repeal of any resolution of the board which by its express terms is not so amendable or repealable.
The appointment of committees of the board or the members thereof.
The expenditure of corporate funds to support a nominee for director after there are more people nominated for director than can be elected.
The approval of any self-dealing transaction except as provided in paragraph (3) of subdivision (d) of Section 5233.
A committee exercising the authority of the board shall not include as members persons who are not directors. However, the board may create other committees that do not exercise the authority of the board and these other committees may include persons regardless of whether they are directors.
Unless the bylaws otherwise provide, the board may delegate to any committee powers as authorized by Section 5210, but may not delegate the powers set forth in paragraphs (1) to (8), inclusive, of subdivision (a).
If required by subdivision (e) of Section 12586 of the Government Code, the board shall appoint an audit committee in accordance with that subdivision and for the purposes set forth therein.
A corporation shall have (1) a chair of the board, who may be given the title chair, chairperson, chair of the board, or chairperson of the board, or a president or both, (2) a secretary, (3) a treasurer or a chief financial officer or both, and (4) any other officers with any titles and duties as shall be stated in the bylaws or determined by the board and as may be necessary to enable it to sign instruments. The president, or if there is no president the chair of the board, is the general manager and chief executive officer of the corporation, unless otherwise provided in the articles or bylaws. Unless otherwise specified in the articles or the bylaws, if there is no chief financial officer, the treasurer is the chief financial officer of the corporation. Any number of offices may be held by the same person unless the articles or bylaws provide otherwise, except that no person serving as the secretary, the treasurer, or the chief financial officer may serve concurrently as the president or chair of the board. Any compensation of the president or chief executive officer and the chief financial officer or treasurer shall be determined in accordance with subdivision (g) of Section 12586 of the Government Code, if applicable.
Except as otherwise provided by the articles or bylaws, officers shall be chosen by the board and serve at the pleasure of the board, subject to the rights, if any, of an officer under any contract of employment. Any officer may resign at any time upon written notice to the corporation without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party.
If the articles or bylaws provide for the election of any officers by the members, the term of office of the elected officer shall be one year unless the articles or bylaws provide for a different term which shall not exceed three years.
Subject to the provisions of subdivision (a) of Section 5141 and Section 5142, any note, mortgage, evidence of indebtedness, contract, conveyance or other instrument in writing, and any assignment or endorsement thereof, executed or entered into between any corporation and any other person, when signed by any one of the chairperson of the board, the president or any vice president and by any one of the secretary, any assistant secretary, the chief financial officer or any assistant treasurer of such corporation, is not invalidated as to the corporation by any lack of authority of the signing officers in the absence of actual knowledge on the part of the other person that the signing officers had no authority to execute the same.
The original or a copy in writing or in any other form capable of being converted into clearly legible tangible form of the bylaws or of the minutes of any incorporators’, members’, directors’, committee or other meeting or of any resolution adopted by the board or a committee thereof, or members, certified to be a true copy by a person purporting to be the secretary or an assistant secretary of the corporation, is prima facie evidence of the adoption of such bylaws or resolution or of the due holding of such meeting and of the matters stated therein.
ARTICLE 2. Selection, Removal and Resignation of Directors [5220. - 5227.]
Except as provided in subdivision (d), (e), or (f), directors shall be elected for terms of not longer than four years, as fixed in the articles or bylaws. However, the terms of directors of a corporation without members may be up to six years. In the absence of any provision in the articles or bylaws, the term shall be one year. The articles or bylaws may provide for staggering the terms of directors by dividing the total number of directors into groups of one or more directors. The terms of office of the several groups and the number of directors in each group need not be uniform. An amendment of the articles or bylaws may not extend the term of a director beyond that for which the director was elected, and any bylaw provision increasing the terms of directors may not be adopted without approval of the members (Section 5034).
Unless otherwise provided in the articles or bylaws, each director, including a director elected to fill a vacancy, shall hold office until the expiration of the term for which elected and until a successor has been elected and qualified, unless the director has been removed from office.
The articles or bylaws may provide for the election of one or more directors by the members of any class voting as a class.
For the purposes of this subdivision, “designator” means one or more designators. Notwithstanding subdivisions (a) to (c), inclusive, all or any portion of the directors authorized in the articles or bylaws of a corporation may hold office by virtue of designation or selection by a specified designator as provided by the articles or bylaws rather than by election. Those directors shall continue in office for the term prescribed by the governing article or bylaw provision, or, if there is no term prescribed, until the governing article or bylaw provision is duly amended or repealed, except as provided in subdivision (e) of Section 5222. A bylaw provision authorized by this subdivision may be adopted, amended, or repealed only by approval of the members (Section 5034) except as provided in subdivision (d) of Section 5150. Unless otherwise provided in the articles or bylaws, the entitlement to designate or select a director or directors shall cease if any of the following circumstances exist:
The specified designator of that director or directors has died or ceased to exist.
If the entitlement of the specified designator of that director or directors to designate is in the capacity of an officer, trustee, or other status and the office, trust, or status has ceased to exist.
If a corporation has not issued memberships and (1) all the directors resign, die, or become incompetent, or (2) a corporation’s initial directors have not been named in the articles and all incorporators resign, die, or become incompetent before the election of the initial directors, the superior court of any county may appoint directors of the corporation upon application by any party in interest.
If authorized in the articles or bylaws of a corporation, all or any portion of the directors may hold office ex officio by virtue of occupying a specified position within the corporation or outside the corporation. The term of office of an ex officio director shall coincide with that director’s respective term of office in the specified position entitling him or her to serve on the board of directors. Upon an ex officio director’s resignation or removal from that position, or resignation or removal from the board for any reason, the term of office as a director of the corporation shall immediately cease. At that time, the successor in office shall become an ex officio director of the corporation, occupying the place of the former director.
The board may declare vacant the office of a director who has been declared of unsound mind by a final order of court, or convicted of a felony, or been found by a final order or judgment of any court to have breached any duty under Article 3 (commencing with Section 5230), or, if at the time a director is elected, the bylaws provide that a director may be removed for missing a specified number of board meetings, fails to attend the specified number of meetings.
As provided in paragraph (3) of subdivision (c) of Section 5151, the articles or bylaws may prescribe the qualifications of directors. The board, by a majority vote of the directors who meet all of the required qualifications to be a director, may declare vacant the office of any director who fails or ceases to meet any required qualification that was in effect at the beginning of that director’s current term of office.
Subject to subdivisions (b) and (f), any or all directors may be removed without cause if:
In a corporation with fewer than 50 members, the removal is approved by a majority of all members (Section 5033).
In a corporation with 50 or more members, the removal is approved by the members (Section 5034).
In a corporation with no members, the removal is approved by a majority of the directors then in office.
Except for a corporation having no members pursuant to Section 5310:
In a corporation in which the articles or bylaws authorize members to cumulate their votes pursuant to subdivision (a) of Section 5616, no director may be removed (unless the entire board is removed) if the votes cast against removal, or not consenting in writing to the removal, would be sufficient to elect the director if voted cumulatively at an election at which the same total number of votes were cast (or, if the action is taken by written ballot, all memberships entitled to vote were voted) and the entire number of directors authorized at the time of the director’s most recent election were then being elected.
If by the provisions of the articles or bylaws the members of any class, voting as a class, are entitled to elect one or more directors, any director so elected may be removed only by the applicable vote of the members of that class.
If by the provisions of the articles or bylaws the members within a chapter or other organizational unit, or region or other geographic grouping, voting as such, are entitled to elect one or more directors, any director so elected may be removed only by the applicable vote of the members within the organizational unit or geographic grouping.
Any reduction of the authorized number of directors or any amendment reducing the number of classes of directors does not remove any director prior to the expiration of the director’s term of office unless the reduction or any amendment also provides for the removal of one or more specified directors.
If a different person may be designated pursuant to a governing article or bylaw provision, the new designation shall be made.
If the governing article or bylaw provision contains no provision under which a different person may be designated, the governing article or bylaw provision shall be deemed repealed.
For the purposes of this subdivision, “designator” means one or more designators. If by the provisions of the articles or bylaws a designator is entitled to designate one or more directors, then:
Unless otherwise provided in the articles or bylaws at the time of designation, any director so designated may be removed without cause by the designator of that director.
Any director so designated may only be removed under subdivision (a) with the written consent of the designator of that director.
Unless otherwise provided in the articles or bylaws, the right to remove shall not apply if any of the following circumstances exist:
The designator entitled to that right has died or ceased to exist.
If that right is in the capacity of an officer, trustee, or other status, and the office, trust, or status has ceased to exist.
The superior court of the proper county may, at the suit of a director, or twice the authorized number (Section 5036) of members or 20 members, whichever is less, remove from office any director in case of fraudulent or dishonest acts or gross abuse of authority or discretion with reference to the corporation or breach of any duty arising under Article 3 (commencing with Section 5230) of this chapter, and may bar from reelection any director so removed for a period prescribed by the court. The corporation shall be made a party to such action.
The Attorney General may bring an action under subdivision (a), may intervene in such an action brought by any other party and shall be given notice of any such action brought by any other party.
Unless otherwise provided in the articles or bylaws and except for a vacancy created by the removal of a director, vacancies on the board may be filled by approval of the board (Section 5032) or, if the number of directors then in office is less than a quorum, by (1) the unanimous written consent of the directors then in office, (2) the affirmative vote of a majority of the directors then in office at a meeting held pursuant to notice or waivers of notice complying with Section 5211, or (3) a sole remaining director. Unless the articles or a bylaw approved by the members (Section 5034) provide that the board may fill vacancies occurring in the board by reason of the removal of directors, or unless the corporation has no members pursuant to Section 5310, such vacancies may be filled only by approval of the members (Section 5034).
The members may elect a director at any time to fill any vacancy not filled by the directors.
Any director may resign effective upon giving written notice to the chairperson of the board, the president, the secretary or the board of directors of the corporation, unless the notice specifies a later time for the effectiveness of such resignation. If the resignation is effective at a future time, a successor may be elected to take office when the resignation becomes effective.
If a corporation has an even number of directors who are equally divided and cannot agree as to the management of its affairs, so that its activities can no longer be conducted to advantage or so that there is danger that its property, activities, or business will be impaired or lost, the superior court of the proper county may, notwithstanding any provisions of the articles or bylaws and whether or not an action is pending for an involuntary winding up or dissolution of the corporation, appoint a provisional director pursuant to this section. Action for such appointment may be brought by any director or by members holding not less than 3313 percent of the voting power.
If the members of a corporation are deadlocked so that they cannot elect the directors to be elected at the time prescribed therefor, the superior court of the proper county may, notwithstanding any provisions of the articles or bylaws, upon petition of members holding 50 percent of the voting power, appoint a provisional director or directors pursuant to this section or order such other equitable relief as the court deems appropriate.
Any person bringing an action under subdivision (a) or (b) shall give notice to the Attorney General, who may intervene.
The Attorney General may bring an action under subdivision (a) or (b).
A provisional director shall be an impartial person, who is neither a member nor a creditor of the corporation, nor related by consanguinity or affinity within the third degree according to the common law to any of the other directors of the corporation or to any judge of the court by which such provisional director is appointed. A provisional director shall have all the rights and powers of a director until the deadlock in the board or among members is broken or until such provisional director is removed by order of the court or by approval of a majority of all members (Section 5033). Such person shall be entitled to such compensation as shall be fixed by the court unless otherwise agreed with the corporation.
Except upon notice to the Attorney General, no director may resign where the corporation would then be left without a duly elected director or directors in charge of its affairs.
Any other provision of this part notwithstanding, not more than 49 percent of the persons serving on the board of any corporation may be interested persons.
For the purpose of this section, “interested persons” means either:
Any person currently being compensated by the corporation for services rendered to it within the previous 12 months, whether as a full- or part-time employee, independent contractor, or otherwise, excluding any reasonable compensation paid to a director as director; or
Any brother, sister, ancestor, descendant, spouse, brother-in-law, sister-in-law, son-in-law, daughter-in-law, mother-in-law, or father-in-law of any such person.
A person with standing under Section 5142 may bring an action to correct any violation of this section. The court may enter any order which shall provide an equitable and fair remedy to the corporation, including, but not limited to, an order for the election of additional directors, an order to enlarge the size of the board, or an order for the removal of directors.
The provisions of this section shall not affect the validity or enforceability of any transaction entered into by a corporation.
ARTICLE 3. Standards of Conduct [5230. - 5239.]
Any duties and liabilities set forth in this article shall apply without regard to whether a director is compensated by the corporation.
Part 4 (commencing with Section 16000) of Division 9 of the Probate Code does not apply to the directors of any corporation.
A director shall perform the duties of a director, including duties as a member of any committee of the board upon which the director may serve, in good faith, in a manner that director believes to be in the best interests of the corporation and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances.
In performing the duties of a director, a director shall be entitled to rely on information, opinions, reports or statements, including financial statements and other financial data, in each case prepared or presented by:
One or more officers or employees of the corporation whom the director believes to be reliable and competent in the matters presented;
Counsel, independent accountants or other persons as to matters which the director believes to be within that person’s professional or expert competence; or
A committee upon which the director does not serve that is composed exclusively of any or any combination of directors, persons described in paragraph (1), or persons described in paragraph (2), as to matters within the committee’s designated authority, which committee the director believes to merit confidence, so long as, in any case, the director acts in good faith, after reasonable inquiry when the need therefor is indicated by the circumstances and without knowledge that would cause that reliance to be unwarranted.
Except as provided in Section 5233, a person who performs the duties of a director in accordance with subdivisions (a) and (b) shall have no liability based upon any alleged failure to discharge the person’s obligations as a director, including, without limiting the generality of the foregoing, any actions or omissions which exceed or defeat a public or charitable purpose to which a corporation, or assets held by it, are dedicated.
Section 5231 governs the duties of directors as to any acts or omissions in connection with the election, selection, or nomination of directors.
This section shall not be construed to limit the generality of Section 5231.
Except as provided in subdivision (b), for the purpose of this section, a self-dealing transaction means a transaction to which the corporation is a party and in which one or more of its directors has a material financial interest and which does not meet the requirements of paragraph (1), (2), or (3) of subdivision (d). Such a director is an “interested director” for the purpose of this section.
The provisions of this section do not apply to any of the following:
An action of the board fixing the compensation of a director as a director or officer of the corporation.
A transaction which is part of a public or charitable program of the corporation if it: (i) is approved or authorized by the corporation in good faith and without unjustified favoritism; and (ii) results in a benefit to one or more directors or their families because they are in the class of persons intended to be benefited by the public or charitable program.
A transaction, of which the interested director or directors have no actual knowledge, and which does not exceed the lesser of 1 percent of the gross receipts of the corporation for the preceding fiscal year or one hundred thousand dollars ($100,000).
The Attorney General or, if the Attorney General is joined as an indispensable party, any of the following may bring an action in the superior court of the proper county for the remedies specified in subdivision (h):
Any person granted relator status by the Attorney General.
In any action brought under subdivision (c) the remedies specified in subdivision (h) shall not be granted if:
The corporation entered into the transaction for its own benefit;
The transaction was fair and reasonable as to the corporation at the time the corporation entered into the transaction;
Prior to consummating the transaction or any part thereof the board authorized or approved the transaction in good faith by a vote of a majority of the directors then in office without counting the vote of the interested director or directors, and with knowledge of the material facts concerning the transaction and the director’s interest in the transaction. Except as provided in paragraph (3) of this subdivision, action by a committee of the board shall not satisfy this paragraph; and
Prior to authorizing or approving the transaction the board considered and in good faith determined after reasonable investigation under the circumstances that the corporation could not have obtained a more advantageous arrangement with reasonable effort under the circumstances or (ii) the corporation in fact could not have obtained a more advantageous arrangement with reasonable effort under the circumstances; or
A committee or person authorized by the board approved the transaction in a manner consistent with the standards set forth in paragraph (2) of this subdivision;
It was not reasonably practicable to obtain approval of the board prior to entering into the transaction; and
The board, after determining in good faith that the conditions of subparagraphs (A) and (B) of this paragraph were satisfied, ratified the transaction at its next meeting by a vote of the majority of the directors then in office without counting the vote of the interested director or directors.
Except as provided in subdivision (f), an action under subdivision (c) must be filed within two years after written notice setting forth the material facts of the transaction and the director’s interest in the transaction is filed with the Attorney General in accordance with such regulations, if any, as the Attorney General may adopt or, if no such notice is filed, within three years after the transaction occurred, except for the Attorney General, who shall have 10 years after the transaction occurred within which to file an action.
In any action for breach of an obligation of the corporation owed to an interested director, where the obligation arises from a self-dealing transaction which has not been approved as provided in subdivision (d), the court may, by way of offset only, make any order authorized by subdivision (h), notwithstanding the expiration of the applicable period specified in subdivision (e).
Interested directors may be counted in determining the presence of a quorum at a meeting of the board which authorizes, approves or ratifies a contract or transaction.
If a self-dealing transaction has taken place, the interested director or directors shall do such things and pay such damages as in the discretion of the court will provide an equitable and fair remedy to the corporation, taking into account any benefit received by the corporation and whether the interested director or directors acted in good faith and with intent to further the best interest of the corporation. Without limiting the generality of the foregoing, the court may order the director to do any or all of the following:
Account for any profits made from such transaction, and pay them to the corporation;
Pay the corporation the value of the use of any of its property used in such transaction; and
Return or replace any property lost to the corporation as a result of such transaction, together with any income or appreciation lost to the corporation by reason of such transaction, or account for any proceeds of sale of such property, and pay the proceeds to the corporation together with interest at the legal rate. The court may award prejudgment interest to the extent allowed in Section 3287 or 3288 of the Civil Code. In addition, the court may, in its discretion, grant exemplary damages for a fraudulent or malicious violation of this section.
No contract or other transaction between a corporation and any domestic or foreign corporation, firm or association of which one or more of its directors are directors is either void or voidable because such director or directors are present at the meeting of the board or a committee thereof which authorizes, approves or ratifies the contract or transaction, if:
The material facts as to the transaction and as to such director’s other directorship are fully disclosed or known to the board or committee, and the board or committee authorizes, approves or ratifies the contract or transaction in good faith by a vote sufficient without counting the vote of the common director or directors; or
As to contracts or transactions not approved as provided in paragraph (1) of this subdivision, the contract or transaction is just and reasonable as to the corporation at the time it is authorized, approved or ratified.
This section does not apply to transactions covered by Section 5233.
The board may fix the compensation of a director, as director or officer, and no obligation, otherwise valid, to pay such compensation shall be voidable merely because the persons receiving the compensation participated in the decision to pay it, unless it was not just and reasonable as to the corporation at the time it was authorized, ratified or approved. The board shall take other actions that are required by subdivision (g) of Section 12586 of the Government Code, if applicable.
In the absence of fraud, any liability under this section shall be limited to the amount by which the compensation exceeded what was just and reasonable, plus interest from the date of payment.
A corporation shall not make any loan of money or property to or guarantee the obligation of any director or officer, unless approved by the Attorney General; provided, however, that a corporation may advance money to a director or officer of the corporation or of its parent or any subsidiary for expenses reasonably anticipated to be incurred in the performance of the duties of such officer or director, provided that in the absence of such advance, such director or officer would be entitled to be reimbursed for such expenses by such corporation, its parent, or any subsidiary.
The provisions of subdivision (a) do not apply to the payment of premiums in whole or in part by a corporation on a life insurance policy on the life of a director or officer so long as repayment to the corporation of the amount paid by it is secured by either the policy’s death benefit proceeds or its cash surrender value, or both.
When repayment of a loan, entered into under subdivision (b), to a corporation is secured by only the policy’s death benefit, the contract between the corporation and director or officer that secures the loan shall include terms sufficient to ensure that any policy fees and charges, withdrawals of the cash value, or loans taken against it do not impair the value of the death benefit to repay the cost of the loan, for the life of the policy.
When repayment of a loan, entered into under subdivision (b), to a corporation is secured by only the policy’s cash surrender value, the contract between the corporation and the director or officer that secures the loan shall include terms sufficient to ensure that the cash surrender value is sufficient to repay the cost of the loan, for the life of the policy.
The provisions of subdivision (a) do not apply to a loan of money to or for the benefit of an officer in circumstances where the loan is necessary, in the judgment of the board, to provide financing for the purchase of the principal residence of the officer in order to secure the services or continued services of the officer and the loan is secured by real property located in the state.
Subject to the provisions of Section 5231, directors of a corporation who approve any of the following corporate actions shall be jointly and severally liable to the corporation for:
The making of any distribution.
The distribution of assets after institution of dissolution proceedings of the corporation, without paying or adequately providing for all known liabilities of the corporation, excluding any claims not filed by creditors within the time limit set by the court in a notice given to creditors under Chapters 15 (commencing with Section 6510), 16 (commencing with Section 6610) and 17 (commencing with Section 6710).
The making of any loan or guaranty contrary to Section 5236.
A director who is present at a meeting of the board, or any committee thereof, at which action specified in subdivision (a) is taken and who abstains from voting shall be considered to have approved the action.
Suit may be brought in the name of the corporation to enforce the liability:
Under paragraph (1) of subdivision (a) against any or all directors liable by the persons entitled to sue under subdivision (b) of Section 5420;
Under paragraph (2) or (3) of subdivision (a) against any or all directors liable by any one or more creditors of the corporation whose debts or claims arose prior to the time of the corporate action who have not consented to the corporate action, whether or not they have reduced their claims to judgment;
Under paragraph (1), (2) or (3) of subdivision (a), by the Attorney General.
The damages recoverable from a director under this section shall be the amount of the illegal distribution, or if the illegal distribution consists of property, the fair market value of that property at the time of the illegal distribution, plus interest thereon from the date of the distribution at the legal rate on judgments until paid, together with all reasonably incurred costs of appraisal or other valuation, if any, of that property, or the loss suffered by the corporation as a result of the illegal loan or guaranty.
Any director sued under this section may implead all other directors liable and may compel contribution, either in that action or in an independent action against directors not joined in that action.
Directors liable under this section shall also be entitled to be subrogated to the rights of the corporation:
With respect to paragraph (1) of subdivision (a), against the persons who received the distribution.
With respect to paragraph (2) of subdivision (a), against the persons who received the distribution.
With respect to paragraph (3) of subdivision (a), against the person who received the loan or guaranty.
Any director sued under this section may file a cross-complaint against the person or persons who are liable to the director as a result of the subrogation provided for in this subdivision or may proceed against them in an independent action.
For the purposes of this section, “agent” means any person who is or was a director, officer, employee or other agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise, or was a director, officer, employee or agent of a foreign or domestic corporation that was a predecessor corporation of the corporation or of another enterprise at the request of the predecessor corporation; “proceeding” means any threatened, pending or completed action or proceeding, whether civil, criminal, administrative or investigative; and “expenses” includes without limitation attorneys’ fees and any expenses of establishing a right to indemnification under subdivision (d) or paragraph (3) of subdivision (e).
A corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to any proceeding (other than an action by or in the right of the corporation to procure a judgment in its favor, an action brought under Section 5233, or an action brought by the Attorney General or a person granted relator status by the Attorney General for any breach of duty relating to assets held in charitable trust) by reason of the fact that the person is or was an agent of the corporation, against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with the proceeding if the person acted in good faith and in a manner the person reasonably believed to be in the best interests of the corporation and, in the case of a criminal proceeding, had no reasonable cause to believe the conduct of the person was unlawful. The termination of any proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent shall not, of itself, create a presumption that the person did not act in good faith and in a manner which the person reasonably believed to be in the best interests of the corporation or that the person had reasonable cause to believe that the person’s conduct was unlawful.
A corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action by or in the right of the corporation, or brought under Section 5233, or brought by the Attorney General or a person granted relator status by the Attorney General for breach of duty relating to assets held in charitable trust, to procure a judgment in its favor by reason of the fact that the person is or was an agent of the corporation, against expenses actually and reasonably incurred by the person in connection with the defense or settlement of the action if the person acted in good faith, in a manner the person believed to be in the best interests of the corporation and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances. No indemnification shall be made under this subdivision:
In respect of any claim, issue or matter as to which the person shall have been adjudged to be liable to the corporation in the performance of the person’s duty to the corporation, unless and only to the extent that the court in which the proceeding is or was pending shall determine upon application that, in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for the expenses which the court shall determine;
Of amounts paid in settling or otherwise disposing of a threatened or pending action, with or without court approval; or
Of expenses incurred in defending a threatened or pending action which is settled or otherwise disposed of without court approval unless it is settled with the approval of the Attorney General.
To the extent that an agent of a corporation has been successful on the merits in defense of any proceeding referred to in subdivision (b) or (c) or in defense of any claim, issue or matter therein, the agent shall be indemnified against expenses actually and reasonably incurred by the agent in connection therewith.
Except as provided in subdivision (d), any indemnification under this section shall be made by the corporation only if authorized in the specific case, upon a determination that indemnification of the agent is proper in the circumstances because the agent has met the applicable standard of conduct set forth in subdivision (b) or (c), by:
A majority vote of a quorum consisting of directors who are not parties to the proceeding;
Approval of the members (Section 5034), with the persons to be indemnified not being entitled to vote thereon; or
The court in which the proceeding is or was pending upon application made by the corporation or the agent or the attorney or other person rendering services in connection with the defense, whether or not the application by the agent, attorney, or other person is opposed by the corporation.
Expenses incurred in defending any proceeding may be advanced by the corporation prior to the final disposition of the proceeding upon receipt of an undertaking by or on behalf of the agent to repay the amount unless it shall be determined ultimately that the agent is entitled to be indemnified as authorized in this section. The provisions of subdivision (a) of Section 5236 do not apply to advances made pursuant to this subdivision.
No provision made by a corporation to indemnify its or its subsidiary’s directors or officers for the defense of any proceeding, whether contained in the articles, bylaws, a resolution of members or directors, an agreement or otherwise, shall be valid unless consistent with this section. Nothing contained in this section shall affect any right to indemnification to which persons other than the directors and officers may be entitled by contract or otherwise.
No indemnification or advance shall be made under this section, except as provided in subdivision (d) or paragraph (3) of subdivision (e), in any circumstance where it appears:
That it would be inconsistent with a provision of the articles, bylaws, a resolution of the members or an agreement in effect at the time of the accrual of the alleged cause of action asserted in the proceeding in which the expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification; or
That it would be inconsistent with any condition expressly imposed by a court in approving a settlement.
A corporation shall have power to purchase and maintain insurance on behalf of any agent of the corporation against any liability asserted against or incurred by the agent in such capacity or arising out of the agent’s status as such whether or not the corporation would have the power to indemnify the agent against that liability under the provisions of this section; provided, however, that a corporation shall have no power to purchase and maintain that insurance to indemnify any agent of the corporation for a violation of Section 5233.
This section does not apply to any proceeding against any trustee, investment manager, or other fiduciary of a pension, deferred compensation, saving, thrift, or other retirement, incentive, or benefit plan, trust, or provision for any or all of the corporation’s directors, officers, employees, and persons providing services to the corporation or any of its subsidiary or related or affiliated corporations, in that person’s capacity as such, even though the person may also be an agent as defined in subdivision (a) of the employer corporation. A corporation shall have power to indemnify the trustee, investment manager or other fiduciary to the extent permitted by subdivision (f) of Section 5140.
There shall be no personal liability to a third party for monetary damages on the part of a volunteer director or volunteer executive officer of a nonprofit corporation subject to this part, caused by the director’s or officer’s negligent act or omission in the performance of that person’s duties as a director or officer, if all of the following conditions are met:
The act or omission was within the scope of the director’s or executive officer’s duties.
The act or omission was performed in good faith.
The act or omission was not reckless, wanton, intentional, or grossly negligent.
Damages caused by the act or omission are covered pursuant to a liability insurance policy issued to the corporation, either in the form of a general liability policy or a director’s and officer’s liability policy, or personally to the director or executive officer. In the event that the damages are not covered by a liability insurance policy, the volunteer director or volunteer executive officer shall not be personally liable for the damages if the board of directors of the corporation and the person had made all reasonable efforts in good faith to obtain available liability insurance.
“Volunteer” means the rendering of services without compensation. “Compensation” means remuneration whether by way of salary, fee, or other consideration for services rendered. However, the payment of per diem, mileage, or other reimbursement expenses to a director or executive officer does not affect that person’s status as a volunteer within the meaning of this section.
“Executive officer” means the president, vice president, secretary, or treasurer of a corporation, or such other individual who serves in like capacity, who assists in establishing the policy of the corporation.
Nothing in this section shall limit the liability of the corporation for any damages caused by acts or omissions of the volunteer director or volunteer executive officer.
This section does not eliminate or limit the liability of a director or officer for any of the following:
In any action or proceeding brought by the Attorney General.
Nothing in this section creates a duty of care or basis of liability for damage or injury caused by the acts or omissions of a director or officer.
This section is only applicable to causes of action based upon acts or omissions occurring on or after January 1, 1988.
As used in this section as applied to nonprofit public benefit corporations which have an annual budget of less than twenty-five thousand dollars ($25,000) and that are exempt from federal income taxation under Section 501(c)(3) of the Internal Revenue Code, the condition of making “all reasonable efforts in good faith to obtain available liability insurance” shall be satisfied by the corporation if it makes at least one inquiry per year to purchase a general liability insurance policy and that insurance was not available at a cost of less than 5 percent of the previous year’s annual budget of the corporation. If the corporation is in its first year of operation, this subdivision shall apply for as long as the budget of the corporation does not exceed twenty-five thousand dollars ($25,000) in its first year of operation.
An inquiry pursuant to this subdivision shall obtain premium costs for a general liability policy with an amount of coverage of at least five hundred thousand dollars ($500,000).
ARTICLE 4. Investments [5240. - 5241.]
This section applies to all assets held by the corporation for investment. Assets which are directly related to the corporation’s public or charitable programs are not subject to this section.
Except as provided in subdivision (c), in investing, reinvesting, purchasing, acquiring, exchanging, selling and managing the corporation’s investments, the board shall do the following:
Avoid speculation, looking instead to the permanent disposition of the funds, considering the probable income, as well as the probable safety of the corporation’s capital.
Comply with additional standards, if any, imposed by the articles, bylaws or express terms of an instrument or agreement pursuant to which the assets were contributed to the corporation.
No investment violates this section where it conforms to provisions authorizing the investment contained in an instrument or agreement pursuant to which the assets were contributed to the corporation. No investment violates this section or Section 5231 where it conforms to provisions requiring the investment contained in an instrument or agreement pursuant to which the assets were contributed to the corporation.
In carrying out duties under this section, each director shall act as required by subdivision (a) of Section 5231, may rely upon others as permitted by subdivision (b) of Section 5231, and shall have the benefit of subdivision (c) of Section 5231, and the board may delegate its investment powers as permitted by Section 5210.
Compliance with the Uniform Prudent Management of Institutional Funds Act (Part 7 (commencing with Section 18501) of Division 9 of the Probate Code), if that act would be applicable, will be deemed to be compliance with subdivision (b).
Nothing in Section 5240 shall abrogate or restrict the power of the appropriate court in proper cases to direct or permit a corporation to deviate from the terms of a trust or agreement regarding the making or retention of investments. Notice of such action or proceeding shall be given to the Attorney General who may intervene.
ARTICLE 5. Examination by Attorney General [5250. - 5250.]
A corporation is subject at all times to examination by the Attorney General, on behalf of the state, to ascertain the condition of its affairs and to what extent, if at all, it fails to comply with trusts which it has assumed or has departed from the purposes for which it is formed. In case of any such failure or departure the Attorney General may institute, in the name of the state, the proceeding necessary to correct the noncompliance or departure.
ARTICLE 6. Compliance With Internal Revenue Code [5260. - 5260.]
Notwithstanding any other law, every corporation, during any period or periods that corporation is deemed to be a “private foundation” as defined in Section 509 of the Internal Revenue Code of 1986, shall distribute its income for each taxable year (and principal, if necessary) at the time and in a manner so as not to subject that corporation to tax under Section 4942 of that code, and the corporation shall not engage in any act of self-dealing as defined in subsection (d) of Section 4941 of that code, retain any excess business holdings as defined in subsection (c) of Section 4943 of that code, make any investments in a manner that subjects the corporation to tax under Section 4944 of that code, or make any taxable expenditure as defined in subsection (d) of Section 4945 of that code.
This section shall apply to any corporation, and any provision contained in its articles of incorporation or other governing instrument inconsistent with, or contrary to, this section shall be without effect.
CHAPTER 3. Members [5310. - 5354.]
ARTICLE 1. Issuance of Memberships [5310. - 5313.]
A corporation may admit persons to membership, as provided in its articles or bylaws, or may provide in its articles or bylaws that it shall have no members. In the absence of any provision in its articles or bylaws providing for members, a corporation shall have no members.
In the case of a corporation which has no members, any action for which there is no specific provision of this part applicable to a corporation which has no members and which would otherwise require approval by a majority of all members (Section 5033) or approval by the members (Section 5034) shall require only approval of the board, any provision of this part or the articles or bylaws to the contrary notwithstanding.
Reference in this part to a corporation which has no members includes a corporation in which the directors are the only members.
Subject to the articles or bylaws, memberships may be issued by a corporation for no consideration or for such consideration as is determined by the board.
No person may hold more than one membership, and no fractional memberships may be held, provided, however, that:
Two or more persons may have an indivisible interest in a single membership when authorized by, and in such manner or under the circumstances prescribed by, the articles or bylaws subject to Section 5612; and
If the articles or bylaws provide for classes of membership and if the articles or bylaws permit a person to be a member of more than one class, a person may hold a membership in one or more classes.
Except as provided in its articles or bylaws, a corporation may admit any person to membership.
ARTICLE 2. Transfer of Memberships [5320. - 5320.]
Subject to Section 5613, and unless otherwise provided in the corporation’s articles or bylaws:
No member may transfer a membership or any right arising therefrom.
All rights of membership cease upon the member’s death or dissolution.
Notwithstanding subdivision (a), no member may transfer for value a membership or any right arising therefrom.
Notwithstanding subdivisions (a) and (b), this section does not prohibit or restrict the transfer, purchase, or sale of a membership in a limited equity housing cooperative, provided that the transfer, purchase, or sale is consistent with Section 33007.5 of the Health and Safety Code.
ARTICLE 3. Types of Memberships [5330. - 5332.]
A corporation may issue memberships having different rights, privileges, preferences, restrictions or conditions, as authorized by its articles or bylaws.
Except as provided in or authorized by the articles or bylaws, all memberships shall have the same rights, privileges, preferences, restrictions and conditions.
A corporation may refer to persons associated with it as “members” even though such persons are not members within the meaning of Section 5056; but references to members in this part mean members as defined in Section 5056.
A corporation may benefit, serve, or assist persons who are not members within the meaning of Section 5056 for such consideration, if any, as the board may determine or as is authorized or provided for in the articles or bylaws.
ARTICLE 4. Termination of Memberships [5340. - 5342.]
A member may resign from membership at any time.
This section shall not relieve the resigning member from any obligation for charges incurred, services or benefits actually rendered, dues, assessments or fees, or arising from contract or otherwise, and this section shall not diminish any right of the corporation to enforce any such obligation or obtain damages for its breach.
A membership issued for a period of time shall expire when such period of time has elapsed unless the membership is renewed.
No member may be expelled or suspended, and no membership or membership rights may be terminated or suspended, except according to procedures satisfying the requirements of this section. An expulsion, termination or suspension not in accord with this section shall be void and without effect.
Any expulsion, suspension or termination must be done in good faith and in a fair and reasonable manner. Any procedure which conforms to the requirements of subdivision (c) is fair and reasonable, but a court may also find other procedures to be fair and reasonable when the full circumstances of the suspension, termination, or expulsion are considered.
A procedure is fair and reasonable when:
The provisions of the procedure have been set forth in the articles or bylaws, or copies of such provisions are sent annually to all the members as required by the articles or bylaws;
It provides the giving of 15 days prior notice of the expulsion, suspension or termination and the reasons therefor; and
It provides an opportunity for the member to be heard, orally or in writing, not less than five days before the effective date of the expulsion, suspension or termination by a person or body authorized to decide that the proposed expulsion, termination or suspension not take place.
Any notice required under this section may be given by any method reasonably calculated to provide actual notice. Any notice given by mail must be given by first-class or registered mail sent to the last address of the member shown on the corporation’s records.
Any action challenging an expulsion, suspension or termination of membership, including any claim alleging defective notice, must be commenced within one year after the date of the expulsion, suspension or termination. In the event such an action is successful the court may order any relief, including reinstatement, it finds equitable under the circumstances, but no vote of the members or of the board may be set aside solely because a person was at the time of the vote wrongfully excluded by virtue of the challenged expulsion, suspension or termination, unless the court finds further that the wrongful expulsion, suspension or termination was in bad faith and for the purpose, and with the effect, of wrongfully excluding the member from the vote or from the meeting at which the vote took place, so as to affect the outcome of the vote.
This section governs only the procedures for expulsion, suspension or termination and not the substantive grounds therefor. An expulsion, suspension or termination based upon substantive grounds which violate contractual or other rights of the member or are otherwise unlawful, is not made valid by compliance with this section.
A member who is expelled or suspended or whose membership is terminated shall be liable for any charges incurred, services or benefits actually rendered, dues, assessments or fees incurred before the expulsion, suspension or termination or arising from contract or otherwise.
An amendment of the articles or bylaws which would terminate all memberships or any class of memberships shall meet the requirements of this part and this section.
Before such an amendment is adopted the corporation shall give written notice to members not less than 45 nor more than 90 days prior to any vote by the members on the amendment. The written notice shall describe the effect of the amendment on the corporation and the members. However, written notice need not be given at least 45 days prior to any vote by the members on the amendment if all members entitled to vote receive a written notice prior to the vote setting forth the information described in the preceding sentence and sign a written waiver of 45 days notice.
Any such amendment shall be approved by the members (Section 5034).
The articles or bylaws may impose additional requirements regarding termination of all memberships or any class of memberships.
Upon request of a member the corporation shall provide at its option the rights set forth in either paragraph (1) or (2) of subdivision (a) of Section 6330 as soon as reasonably possible to allow the member to communicate with other members regarding the proposed amendment.
Any such amendment shall terminate the rights members have pursuant to this part as members (Section 5056).
The provisions of Section 5341 shall not apply to termination of all memberships or any class of memberships pursuant to an amendment of the articles or bylaws.
ARTICLE 5. Rights and Obligations of Members and Creditors [5350. - 5354.]
A member of a corporation is not, as such, personally liable for the debts, liabilities, or obligations of the corporation.
No person is liable for any obligation arising from membership unless the person was admitted to membership upon the person’s application or with the person’s consent.
A corporation may levy dues, assessments or fees upon its members pursuant to its articles or bylaws, but a member upon learning of them may avoid liability for them by promptly resigning from membership, except where the member is, by contract or otherwise, liable for them. Article or bylaw provisions authorizing such dues, assessments or fees do not, of themselves, create such liability.
No action shall be brought by or on behalf of any creditor to reach and apply the liability, if any, of a member to the corporation to pay the amount due on such member’s membership or otherwise due to the corporation unless final judgment has been rendered in favor of the creditor against the corporation and execution has been returned unsatisfied in whole or in part or unless such proceedings would be useless.
All creditors of the corporation, with or without reducing their claims to judgment, may intervene in any such creditor’s action to reach and apply unpaid amounts due the corporation and any or all members who owe amounts to the corporation may be joined in such action. Several judgments may be rendered for and against the parties to the action or in favor of a receiver for the benefit of the respective parties thereto.
All amounts paid by any member in any such action shall be credited on the unpaid balance due the corporation by such member.
Nothing in this part shall be construed as in derogation of any rights or remedies which any creditor or member may have against any promoter, member, director, officer or the corporation because of participation in any fraud or illegality practiced upon such creditor or member by any such person or by the corporation in connection with the issue or sale of memberships or securities or in derogation of any rights which the corporation may have by rescission, cancellation or otherwise because of any fraud or illegality practiced on it by any such person in connection with the issue or sale of memberships or securities.
A person holding a membership as executor, administrator, guardian, trustee, receiver or in any representative or fiduciary capacity is not personally liable for any unpaid balance of the purchase price of the membership, or for any amounts owing to the corporation by the member, because the membership is so held; but the estate and funds in the hands of such fiduciary are liable therefor.
CHAPTER 4. Distributions [5410. - 5420.]
ARTICLE 1. Limitations [5410. - 5410.]
No corporation shall make any distribution. This section shall not apply to the purchase of a membership in a limited-equity housing cooperative, as defined in Section 33007.5 of the Health and Safety Code, which is organized as a public benefit corporation.
ARTICLE 2. Liability of Members [5420. - 5420.]
Any person who receives any distribution is liable to the corporation for the amount so received by such person with interest thereon at the legal rate on judgments until paid.
Suit may be brought in the name of a corporation by a creditor, a director, the Attorney General, or, subject to meeting the requirements of Section 5710, a member. In any such action in addition to the remedy provided in subdivision (a), the court may award punitive damages for the benefit of the corporation against any director, officer, member or other person who with intent to defraud the corporation caused, received or aided and abetted in the making of any distribution.
Any person sued under this section may implead all other persons liable under this section and may in the absence of fraud by a moving party compel contribution, either in that action or in an independent action against persons not joined in the action.
This section shall not affect any liability which any person may have under the Uniform Voidable Transactions Act (Chapter 1 (commencing with Section 3439) of Title 2 of Part 2 of Division 4 of the Civil Code).
CHAPTER 5. Meetings and Voting [5510. - 5527.]
ARTICLE 1. General Provisions [5510. - 5517.]
Meetings of members may be held at a place within or without this state as may be stated in or fixed in accordance with the bylaws. If no other place is stated or so fixed, meetings of members shall be held at the principal office of the corporation. Subject to any limitations in the articles or the bylaws of the corporation, if authorized by the board of directors in its sole discretion, and subject to those guidelines and procedures as the board of directors may adopt, members not physically present in person (or, if proxies are allowed, by proxy) at a meeting of members may, by electronic transmission by and to the corporation (Sections 20 and 21), electronic video screen communication, conference telephone, or other means of remote communication, participate in a meeting of members, be deemed present in person (or, if proxies are allowed, by proxy), and vote at a meeting of members, subject to subdivision (f).
A regular meeting of members shall be held on a date, time, and with the frequency stated in or fixed in accordance with the bylaws, but in any event in each year in which directors are to be elected at that meeting for the purpose of conducting such election, and to transact any other proper business which may be brought before the meeting.
If a corporation with members is required by subdivision (b) to hold a regular meeting and fails to hold the regular meeting for a period of 60 days after the date designated therefor or, if no date has been designated, for a period of 15 months after the formation of the corporation, or after its last regular meeting, or if the corporation fails to hold a written ballot for a period of 60 days after the date designated therefor, then the superior court of the proper county may summarily order the meeting to be held or the ballot to be conducted upon the application of a member or the Attorney General, after notice to the corporation giving it an opportunity to be heard.
The votes represented, either in person (or, if proxies are allowed, by proxy), at a meeting called or by written ballot ordered pursuant to subdivision (c), and entitled to be cast on the business to be transacted shall constitute a quorum, notwithstanding any provision of the articles or bylaws or in this part to the contrary. The court may issue such orders as may be appropriate, including, without limitation, orders designating the time and place of the meeting, the record date for determination of members entitled to vote, and the form of notice of the meeting.
Special meetings of members for any lawful purpose may be called by the board, the chairperson of the board, the president, or such other persons, if any, as are specified in the bylaws. In addition, special meetings of members for any lawful purpose may be called by 5 percent or more of the members.
A meeting of the members may be conducted, in whole or in part, by electronic transmission by and to the corporation, electronic video screen communication, conference telephone, or other means of remote communication if the corporation implements reasonable measures: (1) to provide members and proxyholders, if proxies are allowed, a reasonable opportunity to participate in the meeting and to vote on matters submitted to the members, including an opportunity to read or hear the proceedings of the meeting concurrently with those proceedings, (2) if any member or proxyholder, if proxies are allowed, votes or takes other action at the meeting by means of electronic transmission to the corporation, electronic video screen communication, conference telephone, or other means of remote communication, to maintain a record of that vote or action in its books and records, and (3) to verify that each person who has voted remotely is a member or proxyholder, if proxies are allowed. A corporation shall not conduct a meeting of members solely by electronic transmission by and to the corporation, electronic video screen communication, conference telephone, or other means of remote communication unless one or more of the following conditions apply: (A) all of the members consent; (B) the board determines it is necessary or appropriate because of an emergency, as defined in paragraph (5) of subdivision (n) of Section 5140; or (C) notwithstanding the absence of consent from all members pursuant to (A) or subdivision (b) of Section 20, the meeting includes a live audiovisual feed for the duration of the meeting. A corporation holding a meeting pursuant to (C) may offer, in addition to remote audiovisual feed, an audio-only means by which a member or proxyholder may participate provided that the choice between participating via audiovisual or via audio-only means is made by the member or proxyholder and the corporation does not impose any barriers to either mode of participation. A de minimis disruption of an audio or audiovisual feed does not require a corporation to end a meeting under, or render the corporation out of compliance with, this subdivision.
Whenever members are required or permitted to take any action at a meeting, a written notice of the meeting shall be given not less than 10 nor more than 90 days before the date of the meeting to each member who, on the record date for notice of the meeting, is entitled to vote thereat; provided, however, that if notice is given by mail, and the notice is not mailed by first-class, registered, or certified mail, that notice shall be given not less than 20 days before the meeting. Subject to subdivision (f), and subdivision (b) of Section 5512, that notice shall state the place, date and time of the meeting, the means of electronic transmission by and to the corporation (Sections 20 and 21), electronic video screen communication, conference telephone, or other means of remote communication, if any, by which members may participate in that meeting, and (1) in the case of a special meeting, the general nature of the business to be transacted, and no other business may be transacted, or (2) in the case of the regular meeting, those matters which the board, at the time the notice is given, intends to present for action by the members, but, except as provided in subdivision (b) of Section 5512, any proper matter may be presented at the meeting for such action. The notice of any meeting at which directors are to be elected shall include the names of all those who are nominees at the time the notice is given to members.
Notice of a members’ meeting or any report shall be given personally, by electronic transmission by the corporation, or by mail or other means of written communication, addressed to the member at the address of such member appearing on the books of the corporation or given by the member to the corporation for purpose of notice, or if no such address appears or is given, at the place where the principal office of the corporation is located or by publication at least once in a newspaper of general circulation in the county in which the principal office is located. Notwithstanding the foregoing, the notice of a members’ meeting or any report may be sent by electronic communication or other means of remote communication if the board determines it is necessary or appropriate because of an emergency, as defined in paragraph (5) of subdivision (n) of Section 5140. An affidavit of giving of any notice or report as permitted because of an emergency or otherwise in accordance with the provisions of this part, executed by the secretary, assistant secretary, or any transfer agent, shall be prima facie evidence of the giving of the notice or report.
If any notice or report addressed to a member at the address of such member appearing on the books of the corporation is returned to the corporation by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice or report to the member at such address, all future notices or reports shall be deemed to have been duly given without further mailing if the same shall be available for the member upon written demand of the member at the principal office of the corporation for a period of one year from the date of the giving of the notice or report to all other members.
Notice given by electronic transmission by the corporation under this subdivision shall be valid only if it complies with Section 20. Notwithstanding the foregoing, notice shall not be given by electronic transmission by the corporation under this subdivision after either of the following:
The corporation is unable to deliver two consecutive notices to the member by that means.
The inability to so deliver the notices to the member becomes known to the secretary, any assistant secretary, the transfer agent, or other person responsible for the giving of the notice.
This paragraph shall not apply if notices are provided by electronic communication or other means of remote communication as permitted because of an emergency.
Upon request in writing to the corporation addressed to the attention of the chairperson of the board, president, vice president, or secretary by any person (other than the board) entitled to call a special meeting of members, the officer forthwith shall cause notice to be given to the members entitled to vote that a meeting will be held at a time fixed by the board, not less than 35 nor more than 90 days after the receipt of the request. If the notice is not given within 20 days after receipt of the request, the persons entitled to call the meeting may give the notice or the superior court of the proper county shall summarily order the giving of the notice, after notice to the corporation giving it an opportunity to be heard. The court may issue such orders as may be appropriate, including, without limitation, orders designating the time and place of the meeting, the record date for determination of members entitled to vote, and the form of notice.
When a members’ meeting is adjourned to another time or place, unless the bylaws otherwise require and except as provided in this subdivision, notice need not be given of the adjourned meeting if the time and place thereof (or the means of electronic transmission by and to the corporation, conference telephone, or other means of remote communication, or electronic video screen communication, if any, by which members may participate) are announced at the meeting at which the adjournment is taken. No meeting may be adjourned for more than 45 days. At the adjourned meeting the corporation may transact any business which might have been transacted at the original meeting. If after the adjournment a new record date is fixed for notice or voting, a notice of the adjourned meeting shall be given to each member who, on the record date for notice of the meeting, is entitled to vote at the meeting.
The transactions of any meeting of members, however called and noticed, and wherever held, are as valid as though had at a meeting duly held after regular call and notice, if a quorum is present either in person or by proxy, and if, either before or after the meeting, each of the persons entitled to vote, not present in person or by proxy, provides a waiver of notice or consent to the holding of the meeting, or an approval of the minutes thereof in writing. All such waivers, consents, and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance of a person at a meeting shall constitute a waiver of notice of and presence at such meeting, except when the person objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened and except that attendance at a meeting is not a waiver of any right to object to the consideration of matters required by this part to be included in the notice but not so included, if such objection is expressly made at the meeting. Neither the business to be transacted at nor the purpose of any regular or special meeting of members need be specified in any written waiver of notice, consent to the holding of the meeting, or approval of the minutes thereof, unless otherwise provided in the articles or bylaws, except as provided in subdivision (f).
A court may find that notice not given in conformity with this section is still valid, if it was given in a fair and reasonable manner.
One-third of the voting power, represented in person or by proxy, shall constitute a quorum at a meeting of members, but, subject to subdivisions (b) and (c), a bylaw may set a different quorum. Any bylaw amendment to increase the quorum may be adopted only by approval of the members (Section 5034). If a quorum is present, the affirmative vote of the majority of the voting power represented at the meeting, entitled to vote, and voting on any matter shall be the act of the members, unless the vote of a greater number or voting by classes is required by this part or the articles or bylaws.
Where a bylaw authorizes a corporation to conduct a meeting with a quorum of less than one-third of the voting power, then the only matters that may be voted upon at any regular meeting actually attended, in person or by proxy, by less than one-third of the voting power are matters notice of the general nature of which was given, pursuant to the first sentence of subdivision (a) of Section 5511.
Subject to subdivision (b), the members present at a duly called or held meeting at which a quorum is present may continue to transact business until adjournment notwithstanding the withdrawal of enough members to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the members required to constitute a quorum or, if required by this division or the articles or the bylaws, the vote of a greater number or voting by classes.
In the absence of a quorum, any meeting of members may be adjourned from time to time by the vote of a majority of the votes represented either in person or by proxy, but no other business may be transacted, except as provided in subdivision (c).
Subject to subdivision (e), and unless prohibited in the articles or bylaws, any action which may be taken at any regular or special meeting of members may be taken without a meeting if the corporation distributes a written ballot to every member entitled to vote on the matter. Unless otherwise provided by the articles or bylaws and if approved by the board of directors, that ballot and any related material may be sent by electronic transmission by the corporation (Section 20) and responses may be returned to the corporation by electronic transmission to the corporation (Section 21). That ballot shall set forth the proposed action, provide an opportunity to specify approval or disapproval of any proposal, and provide a reasonable time within which to return the ballot to the corporation.
Approval by written ballot pursuant to this section shall be valid only when the number of votes cast by ballot within the time period specified equals or exceeds the quorum required to be present at a meeting authorizing the action, and the number of approvals equals or exceeds the number of votes that would be required to approve at a meeting at which the total number of votes cast was the same as the number of votes cast by ballot.
Ballots shall be solicited in a manner consistent with the requirements of subdivision (b) of Section 5511, and Section 5514. All such solicitations shall indicate the number of responses needed to meet the quorum requirement and, with respect to ballots other than for the election of directors, shall state the percentage of approvals necessary to pass the measure submitted. The solicitation must specify the time by which the ballot must be received in order to be counted.
Unless otherwise provided in the articles or bylaws, a written ballot may not be revoked.
Directors may be elected by written ballot under this section, where authorized by the articles or bylaws, except that election by written ballot may not be authorized where the directors are elected by cumulative voting pursuant to Section 5616.
When directors are to be elected by written ballot and the articles or bylaws prescribe a nomination procedure, the procedure may provide for a date for the close of nominations prior to the printing and distributing of the written ballots.
Any form of proxy or written ballot distributed to 10 or more members of a corporation with 100 or more members shall afford an opportunity on the proxy or form of written ballot to specify a choice between approval and disapproval of each matter or group of related matters intended, at the time the written ballot or proxy is distributed, to be acted upon at the meeting for which the proxy is solicited or by such written ballot, and shall provide, subject to reasonable specified conditions, that where the person solicited specifies a choice with respect to any such matter the vote shall be cast in accordance therewith.
In any election of directors, any form of proxy or written ballot in which the directors to be voted upon are named therein as candidates and which is marked by a member “withhold” or otherwise marked in a manner indicating that the authority to vote for the election of directors is withheld shall not be voted either for or against the election of a director.
Failure to comply with this section shall not invalidate any corporate action taken, but may be the basis for challenging any proxy at a meeting or written ballot and the superior court may compel compliance therewith at the suit of any member.
If for any reason it is impractical or unduly difficult for any corporation to call or conduct a meeting of its members, delegates, or directors, or otherwise obtain their consent, in the manner prescribed by its articles or bylaws, or this part, then the superior court of the proper county, upon petition of a director, officer, delegate, member or the Attorney General, may order that such a meeting be called or that a written ballot or other form of obtaining the vote of members, delegates, or directors be authorized, in such a manner as the court finds fair and equitable under the circumstances.
The court shall, in an order issued pursuant to this section, provide for a method of notice reasonably designed to give actual notice to all parties who would be entitled to notice of a meeting held pursuant to the articles, bylaws and this part, whether or not the method results in actual notice to every such person, or conforms to the notice requirements that would otherwise apply. In a proceeding under this section the court may determine who the members or directors are.
The order issued pursuant to this section may dispense with any requirement relating to the holding of and voting at meetings or obtaining of votes, including any requirement as to quorums or as to the number or percentage of votes needed for approval, that would otherwise be imposed by the articles, bylaws, or this part.
Wherever practical any order issued pursuant to this section shall limit the subject matter of the meetings or other forms of consent authorized to items, including amendments to the articles or bylaws, the resolution of which will or may enable the corporation to continue managing its affairs without further resort to this section; provided, however, that an order under this section may also authorize the obtaining of whatever votes and approvals are necessary for the dissolution, merger, sale of assets or reorganization of the corporation.
Any meeting or other method of obtaining the vote of members, delegates, or directors conducted pursuant to an order issued under this section, and which complies with all the provisions of such order, is for all purposes a valid meeting or vote, as the case may be, and shall have the same force and effect as if it complied with every requirement imposed by the articles, bylaws and this part.
Any action required or permitted to be taken by the members may be taken without a meeting, if all members shall individually or collectively consent in writing to the action. The written consent or consents shall be filed with the minutes of the proceedings of the members. The action by written consent shall have the same force and effect as the unanimous vote of the members.
If the name signed on a ballot, consent, waiver, or proxy appointment corresponds to the name of a member, the corporation if acting in good faith is entitled to accept the ballot, consent, waiver, or proxy appointment and give it effect as the act of the member.
If the name signed on a ballot, consent, waiver, or proxy appointment does not correspond to the record name of a member, the corporation if acting in good faith is nevertheless entitled to accept the ballot, consent, waiver, or proxy appointment and give it effect as the act of the member if any of the following occur:
The member is an entity and the name signed purports to be that of an officer or agent of the entity.
The name signed purports to be that of an attorney-in-fact of the member and if the corporation requests, evidence acceptable to the corporation of the signatory’s authority to sign for the member has been presented with respect to the ballot, consent, waiver, or proxy appointment.
Two or more persons hold the membership as cotenants or fiduciaries and the name signed purports to be the name of at least one of the coholders and the person signing appears to be acting on behalf of all the coholders.
The corporation is entitled to reject a ballot, consent, waiver, or proxy appointment if the secretary or other officer or agent authorized to tabulate votes, acting in good faith, has a reasonable basis for doubt concerning the validity of the signature or the signatory’s authority to sign for the member.
The corporation and any officer or agent thereof who accepts or rejects a ballot, consent, waiver, or proxy appointment in good faith and in accordance with the standards of this section shall not be liable in damages to the member for the consequences of the acceptance or rejection.
Corporate action based on the acceptance or rejection of a ballot, consent, waiver, or proxy appointment under this section is valid unless a court of competent jurisdiction determines otherwise.
ARTICLE 2. Additional Provisions Relating to Election of Directors [5520. - 5527.]
As to directors elected by members, there shall be available to the members reasonable nomination and election procedures given the nature, size and operations of the corporation.
If a corporation complies with all of the provisions of Sections 5521, 5522, 5523, and 5524 applicable to a corporation with the same number of members, the nomination and election procedures of that corporation shall be deemed reasonable. However, those sections do not prescribe the exclusive means of making available to the members reasonable procedures for nomination and election of directors. A corporation may make available to the members other reasonable nomination and election procedures given the nature, size, and operations of the corporation.
By any method authorized by the bylaws, or if no method is set forth in the bylaws by any method authorized by the board.
By petition delivered to an officer of the corporation, signed within 11 months preceding the next time directors will be elected, by members representing the following number of votes:
If there is a meeting to elect directors, by any member present at the meeting in person or by proxy if proxies are permitted.
The corporation’s articles or bylaws shall set a date for the close of nominations for the board. The date shall not be less than 50 nor more than 120 days before the day directors are to be elected. No nominations for the board can be made after the date set for the close of nominations.
If more people are nominated for the board than can be elected, the election shall take place by means of a procedure which allows all nominees a reasonable opportunity to solicit votes and all members a reasonable opportunity to choose among the nominees.
A nominee shall have a reasonable opportunity to communicate to the members the nominee’s qualifications and the reasons for the nominee’s candidacy.
If after the close of nominations the number of people nominated for the board is not more than the number of directors to be elected, the corporation may without further action declare that those nominated and qualified to be elected have been elected.
A corporation with 500 or more members may provide that where it distributes any written election material soliciting a vote for any nominee for director at the corporation’s expense, it shall make available, at the corporation’s expense to each other nominee, in or with the same material, the same amount of space that is provided any other nominee, with equal prominence, to be used by the nominee for a purpose reasonably related to the election.
A corporation with 500 or more members may provide that upon written request by any nominee for election to the board and the payment with such request of the reasonable costs of mailing (including postage) the corporation shall within 10 business days after such request (provided payment has been made) mail to all members, or such portion of them as the nominee may reasonably specify, any material, which the nominee may furnish and which is reasonably related to the election, unless the corporation within five business days after the request allows the nominee, at the corporation’s option, the rights set forth in either paragraph (1) or (2) of subdivision (a) of Section 6330.
This section shall apply to corporations publishing or mailing materials on behalf of any nominee in connection with procedures for the nomination and election of directors.
Neither the corporation, nor its agents, officers, directors, or employees, may be held criminally liable, liable for any negligence (active or passive) or otherwise liable for damages to any person on account of any material which is supplied by a nominee for director and which it mails or publishes in procedures intended to comply with Section 5520 or pursuant to Section 5523 or 5524, but the nominee on whose behalf such material was published or mailed shall be liable and shall indemnify and hold the corporation, its agents, officers, directors and employees and each of them harmless from all demands, costs, including reasonable legal fees and expenses, claims, damages and causes of action arising out of such material or any such mailing or publication.
Nothing in this section shall prevent a corporation or any of its agents, officers, directors, or employees from seeking a court order providing that the corporation need not mail or publish material tendered by or on behalf of a nominee under this article on the ground the material will expose the moving party to liability.
Without authorization of the board, no corporate funds may be expended to support a nominee for director after there are more people nominated for director than can be elected.
An action challenging the validity of any election, appointment or removal of a director or directors must be commenced within nine months after the election, appointment or removal. If no such action is commenced, in the absence of fraud, any election, appointment or removal of a director is conclusively presumed valid nine months thereafter.
CHAPTER 6. Voting of Memberships [5610. - 5617.]
The bylaws may provide or, in the absence of such provision, the board may fix, in advance, a date as the record date for the purpose of determining the members entitled to notice of any meeting of members. Such record date shall not be more than 90 nor less than 10 days before the date of the meeting. If no record date is fixed, members at the close of business on the business day preceding the day on which notice is given or, if notice is waived, at the close of business on the business day preceding the day on which the meeting is held are entitled to notice of a meeting of members. A determination of members entitled to notice of a meeting of members shall apply to any adjournment of the meeting unless the board fixes a new record date for the adjourned meeting.
The bylaws may provide or, in the absence of such provision, the board may fix, in advance, a date as the record date for the purpose of determining the members entitled to vote at a meeting of members. Such record date shall not be more than 60 days before the date of the meeting. Such record date shall also apply in the case of an adjournment of the meeting unless the board fixes a new record date for the adjourned meeting. If no record date is fixed, members on the day of the meeting who are otherwise eligible to vote are entitled to vote at the meeting of members or, in the case of an adjourned meeting, members on the day of the adjourned meeting who are otherwise eligible to vote are entitled to vote at the adjourned meeting of members.
The bylaws may provide or, in the absence of such provision, the board may fix, in advance, a date as the record date for the purpose of determining the members entitled to cast written ballots (Section 5513). Such record date shall not be more than 60 days before the day on which the first written ballot is mailed or solicited. If no record date is fixed, members on the day the first written ballot is mailed or solicited who are otherwise eligible to vote are entitled to cast written ballots.
The bylaws may provide or, in the absence of such provision, the board may fix, in advance, a date as the record date for the purpose of determining the members entitled to exercise any rights in respect of any other lawful action. Such record date shall not be more than 60 days prior to such other action. If no record date is fixed, members at the close of business on the day on which the board adopts the resolution relating thereto, or the 60th day prior to the date of such other action, whichever is later, are entitled to exercise such rights.
If a membership stands of record in the names of two or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, spouses as community property, tenants by the entirety, or otherwise, or if two or more persons (including proxyholders) have the same fiduciary relationship respecting the same membership, unless the secretary of the corporation is given written notice to the contrary and is furnished with a copy of the instrument or order appointing them or creating the relationship wherein it is so provided, their acts with respect to voting shall have the following effect:
If only one votes, such act binds all;
If more than one vote, the act of the majority so voting binds all.
Any member may authorize another person or persons to act by proxy with respect to such membership, except that this right may be limited or withdrawn by the articles or bylaws, subject to subdivision (e). Any proxy purported to be executed in accordance with the provisions of this part shall be presumptively valid.
No proxy shall be valid after the expiration of 11 months from the date thereof unless otherwise provided in the proxy, except that the maximum term of any proxy shall be three years from the date of execution. Every proxy continues in full force and effect until revoked by the person executing it prior to the vote pursuant thereto. Such revocation may be effected by a writing delivered to the corporation stating that the proxy is revoked or by a subsequent proxy executed by the person executing the prior proxy and presented to the meeting, or as to any meeting by attendance at such meeting and voting in person by the person executing the proxy. The dates contained on the forms of proxy presumptively determine the order of execution, regardless of the postmark dates on the envelopes in which they are mailed.
A proxy is not revoked by the death or incapacity of the maker or the termination of a membership as a result thereof unless, before the vote is counted, written notice of such death or incapacity is received by the corporation.
The proxy of a member may not be irrevocable.
Subdivision (a) notwithstanding, no amendment of the articles or bylaws repealing, restricting, creating or expanding proxy rights may be adopted without approval by the members (Section 5034).
Anything to the contrary notwithstanding, any proxy covering matters requiring a vote of the members pursuant to Section 5222, Section 5224, subdivision (e) of this section, Section 5812, paragraph (2) of subdivision (a) of Section 5911, Section 6012, subdivision (a) of Section 6015, or Section 6610 is not valid as to such matters unless it sets forth the general nature of the matter to be voted on, or, in the event of a vote pursuant to Section 5220, unless the proxy lists those nominated at the time the notice of the vote is given to members.
A voting agreement or voting trust agreement entered into by a member or members of a corporation shall not be enforced.
In advance of any meeting of members the board may appoint inspectors of election to act at the meeting and any adjournment thereof. If inspectors of election are not so appointed, or if any persons so appointed fail to appear or refuse to act, the chairperson of any meeting of members may, and on the request of any member or a member’s proxy shall, appoint inspectors of election (or persons to replace those who so fail or refuse) at the meeting. The number of inspectors shall be either one or three. If appointed at a meeting on the request of one or more members or proxies, the majority of members represented in person or by proxy shall determine whether one or three inspectors are to be appointed. In the case of any action by written ballot (Section 5513), the board may similarly appoint inspectors of election to act with powers and duties as set forth in this section.
The inspectors of election shall determine the number of memberships outstanding and the voting power of each, the number represented at the meeting, the existence of a quorum and the authenticity, validity and effect of proxies, receive votes, ballots or consents, hear and determine all challenges and questions in any way arising in connection with the right to vote, count and tabulate all votes or consents, determine when the polls shall close, determine the result and do such acts as may be proper to conduct the election or vote with fairness to all members.
The inspectors of election shall perform their duties impartially, in good faith, to the best of their ability and as expeditiously as is practical. If there are three inspectors of election, the decision, act or certificate of a majority is effective in all respects as the decision, act or certificate of all. Any report or certificate made by the inspectors of election is prima facie evidence of the facts stated therein.
If the articles or bylaws authorize cumulative voting, but not otherwise, every member entitled to vote at any election of directors may cumulate the member’s votes and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which the member is entitled, or distribute the member’s votes on the same principle among as many candidates as the member thinks fit. An article or bylaw provision authorizing cumulative voting may be repealed or amended only by approval of the members (Section 5034), except that the governing article or bylaw provision may require the vote of a greater proportion of the members, or of the members of any class, for its repeal.
No member shall be entitled to cumulate votes for a candidate or candidates unless the candidate’s name or candidates’ names have been placed in nomination prior to the voting and a member has given notice at the meeting prior to the voting of the member’s intention to cumulate votes. If any one member has given this notice, all members may cumulate their votes for candidates in nomination.
In any election of directors by cumulative voting, the candidates receiving the highest number of votes are elected, subject to any lawful provision specifying election by classes.
In any election of directors not governed by subdivision (c), unless otherwise provided in the articles or bylaws, the candidates receiving the highest number of votes are elected.
Elections for directors need not be by ballot unless a member demands election by ballot at the meeting and before the voting begins or unless the bylaws so require.
Upon the filing of an action therefor by any director or member, or by any person who had the right to vote in the election at issue, the superior court of the proper county shall determine the validity of any election or appointment of any director of any corporation.
Any person bringing an action under this section shall give notice of the action to the Attorney General, who may intervene.
Upon the filing of the complaint, and before any further proceedings are had, the court shall enter an order fixing a date for the hearing, which shall be within five days unless for good cause shown a later date is fixed, and requiring notice of the date for the hearing and a copy of the complaint to be served upon the corporation and upon the person whose purported election or appointment is questioned and upon any person (other than the plaintiff) whom the plaintiff alleges to have been elected or appointed, in the manner in which a summons is required to be served, or, if the court so directs, by registered mail; and the court may make such further requirements as to notice as appear to be proper under the circumstances.
The court, consistent with the provisions of this part and in conformity with the articles and bylaws to the extent feasible, may determine the person entitled to the office of director or may order a new election to be held or appointment to be made, may determine the validity of the issuance of memberships and the right of persons to vote and may direct such other relief as may be just and proper.
CHAPTER 7. Members’ Derivative Actions [5710. - 5710.]
Subdivisions (c) through (f) notwithstanding, no motion to require a bond shall be granted in an action brought by 100 members or the authorized number (Section 5036), whichever is less.
No action may be instituted or maintained in the right of any corporation by any member of such corporation unless both of the following conditions exist:
The plaintiff alleges in the complaint that plaintiff was a member at the time of the transaction or any part thereof of which plaintiff complains; and
The plaintiff alleges in the complaint with particularity plaintiff’s efforts to secure from the board such action as plaintiff desires, or the reasons for not making such effort, and alleges further that plaintiff has either informed the corporation or the board in writing of the ultimate facts of each cause of action against each defendant or delivered to the corporation or the board a true copy of the complaint which plaintiff proposes to file.
Subject to subdivision (a), in any action referred to in subdivision (b), at any time within 30 days after service of summons upon the corporation or upon any defendant who is an officer or director of the corporation, or held such office at the time of the acts complained of, the corporation or such defendant may move the court for an order, upon notice and hearing, requiring the plaintiff to furnish a bond as hereinafter provided. The motion shall be based upon one or both of the following grounds:
At the hearing upon any motion pursuant to subdivision (c), the court shall consider such evidence, written or oral, by witnesses or affidavit, as may be material (1) to the ground or grounds upon which the motion is based, or (2) to a determination of the probable reasonable expenses, including attorneys’ fees, of the corporation and the moving party which will be incurred in the defense of the action. If the court determines, after hearing the evidence adduced by the parties, that the moving party has established a probability in support of any of the grounds upon which the motion is based, the court shall fix the amount of the bond, not to exceed fifty thousand dollars ($50,000), to be furnished by the plaintiff for reasonable expenses, including attorneys’ fees, which may be incurred by the moving party and the corporation in connection with the action, including expenses for which the corporation may become liable pursuant to Section 5238. A ruling by the court on the motion shall not be a determination of any issue in the action or of the merits thereof. If the court, upon the motion, makes a determination that a bond shall be furnished by the plaintiff as to any one or more defendants, the action shall be dismissed as to such defendant or defendants, unless the bond required by the court has been furnished within such reasonable time as may be fixed by the court.
If the plaintiff shall, either before or after a motion is made pursuant to subdivision (c), or any order or determination pursuant to the motion, furnish a bond or bonds in the aggregate amount of fifty thousand dollars ($50,000) to secure the reasonable expenses of the parties entitled to make the motion, the plaintiff has complied with the requirements of this section and with any order for a bond theretofore made, and any such motion then pending shall be dismissed and no further or additional bond shall be required.
If a motion is filed pursuant to subdivision (c), no pleadings need be filed by the corporation or any other defendant and the prosecution of the action shall be stayed until 10 days after the motion has been disposed of.
CHAPTER 8. Amendment of Articles [5810. - 5820.]
By complying with the provisions of this chapter, a corporation may amend its articles from time to time, in any and as many respects as may be desired, so long as its articles as amended contain only such provisions as it would be lawful to insert in original articles filed at the time of the filing of the amendment or as authorized by Section 5813.5 and, if a change in the rights of members or an exchange, reclassification or cancellation of memberships is to be made, such provisions as may be necessary to effect such change, exchange, reclassification or cancellation. It is the intent of the Legislature in adopting this section to exercise to the fullest extent the reserve power of the state over corporations and to authorize any amendment of the articles covered by the preceding sentence regardless of whether any provision contained in the amendment was permissible at the time of the original incorporation of the corporation.
A corporation shall not amend its articles to add any statement or to alter any statement which may appear in the original articles of the initial street address and initial mailing address of the corporation, the names and addresses of the first directors, or the name and address of the initial agent, except to correct an error in the statement or to delete the information after the corporation has filed a statement under Section 6210.
Except as provided in Section 5813.5, any amendment of the articles may be adopted by a writing signed by a majority of the incorporators, so long as:
No directors were named in the original articles;
No directors have been elected; and
The corporation has no members.
Except as provided in this section or Section 5813.5, amendments may be adopted if approved by the board and approved by the members (Section 5034) and approved by such other person or persons, if any, as required by the articles. The approval by the members or other person or persons may be before or after the approval by the board.
Notwithstanding subdivision (a), the following amendments may be adopted by approval of the board alone:
An amendment extending the corporate existence or making the corporate existence perpetual, if the corporation was organized prior to August 14, 1929.
An amendment deleting the initial street address and initial mailing address of the corporation, the names and addresses of the first directors, or the name and address of the initial agent.
Any amendment, at a time the corporation has no members; provided, however, that if the articles require approval by any person for an amendment, that an amendment may not be adopted without such approval.
An amendment adopted pursuant to Section 9913.
Whenever the articles require for corporate action the approval of a particular class of members or of a larger proportion of, or all of, the votes of any class, or of a larger proportion of, or all of, the directors, than is otherwise required by this part, the provision in the articles requiring such greater vote shall not be altered, amended or repealed except by such class or such greater vote, unless otherwise provided in the articles.
An amendment must also be approved by the members (Section 5034) of a class, whether or not such class is entitled to vote thereon by the provisions of the articles or bylaws, if the amendment would materially and adversely affect the rights of that class as to voting or transfer in a manner different than such action affects another class.
A public benefit corporation may amend its articles to change its status to that of a mutual benefit corporation, a social purpose corporation, a religious corporation, a business corporation, or a cooperative corporation by complying with this section and the other sections of this chapter.
The Secretary of State shall notify the Franchise Tax Board, in the manner and at the times agreed upon by the Secretary of State and the Franchise Tax Board, of any amendments to a public benefit corporation’s articles.
If the public benefit corporation has any assets, an amendment to change its status to a mutual benefit corporation, business corporation, social purpose corporation, or cooperative corporation shall be approved in advance in writing by the Attorney General. If the public benefit corporation has no assets, the Attorney General shall be given a copy of the amendment at least 20 days before the amendment is filed.
Amended articles authorized by this section shall include the provisions which would have been required (other than the initial street address and initial mailing address of the corporation and the name of the initial agent for service of process if a statement has been filed pursuant to Section 6210), and may in addition only include those provisions which would have been permitted, in original articles filed by the type of corporation (mutual benefit, religious, business, social purpose, or cooperative) into which the public benefit corporation is changing its status.
In the case of a change of status to a business corporation, social purpose corporation, or cooperative corporation, if the Franchise Tax Board has issued a determination exempting the corporation from tax as provided in Section 23701 of the Revenue and Taxation Code, the corporation shall be subject to Section 23221 of the Revenue and Taxation Code upon filing the certificate of amendment.
Except for amendments adopted by the incorporators pursuant to Section 5811, upon adoption of an amendment, the corporation shall file a certificate of amendment, which shall consist of an officers’ certificate stating:
The wording of the amendment or amended articles in accordance with Section 5816;
That the amendment has been approved by the board;
If the amendment is one for which the approval of the members (Section 5034) is required, that the amendment was approved by the required vote of members; and
If the amendment is one which may be adopted with approval by the board alone, a statement of the facts entitling the board alone to adopt the amendment.
If the amendment is one for which the approval of a person or persons other than the incorporators, directors, or members is required, that the approval of such person or persons has been obtained.
In the event of an amendment of the articles pursuant to a merger, the filing of the officers’ certificate and agreement pursuant to Section 6014 shall be in lieu of any filing required under this chapter.
In the case of amendments adopted by the incorporators under Section 5811, the corporation shall file a certificate of amendment signed and verified by a majority of the incorporators which shall state that the signers thereof constitute at least a majority of the incorporators, that directors were not named in the original articles and have not been elected, that the corporation has no members and that they adopt the amendment or amendments therein set forth.
The certificate of amendment shall establish the wording of the amendment or amended articles by one or more of the following means:
By stating that the articles shall be amended to read as therein set forth in full.
By stating that any provision of the articles, which shall be identified by the numerical or other designation given it in the articles or by stating the wording thereof, shall be stricken from the articles or shall be amended to read as set forth in the certificate.
By stating that the provisions set forth therein shall be added to the articles.
If the purpose of the amendment is to reclassify, cancel, exchange, or otherwise change outstanding memberships, the amended articles shall state the effect thereof on outstanding memberships.
Upon the filing of the certificate of amendment, the articles shall be amended in accordance with the certificate and any change, reclassification, or cancellation of memberships shall be effected, and a copy of the certificate, certified by the Secretary of State, is prima facie evidence of the performance of the conditions necessary to the adoption of the amendment. The Secretary of State shall make available the filed certificate of amendment to the Attorney General.
A corporation formed for a limited period may at any time subsequent to the expiration of the term of its corporate existence, extend the term of its existence by an amendment to its articles removing any provision limiting the term of its existence and providing for perpetual existence. If the filing of the certificate of amendment providing for perpetual existence would be prohibited if it were original articles by the provisions of Section 5122, the Secretary of State shall not file such certificate unless, by the same or a concurrently filed certificate of amendment, the articles of such corporation are amended to adopt a new available name. For the purpose of the adoption of any such amendment, persons who have been functioning as directors of such corporation shall be considered to have been validly elected even though their election may have occurred after the expiration of the original term of the corporate existence.
A corporation may restate in a single certificate the entire text of its articles as amended by filing an officers’ certificate or, in circumstances where incorporators or the board may amend a corporation’s articles pursuant to Sections 5811 and 5815, a certificate signed and verified by a majority of the incorporators or the board, as applicable, entitled “Restated Articles of Incorporation of (insert name of corporation)” that shall set forth the articles as amended to the date of filing of the certificate, except that the signatures and acknowledgments of the articles by the incorporators and any statements regarding the effect of any prior amendment upon memberships and any provisions of agreements of merger (other than amendments to the articles of the surviving corporation), and the initial street address and initial mailing address of the corporation and the names and addresses of the first directors and of the initial agent for service of process shall be omitted (except that the initial street address and initial mailing address of the corporation and the names and addresses of the initial agent for service of process and, if previously set forth in the articles, the initial directors, shall not be omitted prior to the time that the corporation has filed a statement under Section 6210). Those omissions are not alterations or amendments of the articles. The certificate may also itself alter or amend the articles in any respect, in which case the certificate must comply with Section 5814 or 5815, as the case may be, and Section 5816.
If the certificate does not itself alter or amend the articles in any respect, it shall be approved by the board or, prior to the issuance of any memberships and the naming and election of directors, by a majority of the incorporators, and shall be subject to the provisions of this chapter relating to an amendment of the articles not requiring approval of the members (Section 5034). If the certificate does itself alter or amend the articles, it shall be subject to the provisions of this chapter relating to the amendment or amendments so made.
Restated articles of incorporation filed pursuant to this section shall supersede for all purposes the original articles and all amendments filed prior thereto.
Amendment of the articles of a corporation, pursuant to this chapter, does not, of itself, abrogate any requirement or limitation imposed upon the corporation, or any property held by it, by virtue of the trust under which such property is held by the corporation.
The Attorney General may, at the corporation’s request, and pursuant to such regulations as the Attorney General may issue, give rulings as to whether the Attorney General will or may oppose a proposed action, or article amendment, as inconsistent with or proscribed by the requirements of a charitable trust.
CHAPTER 9. Sales of Assets [5910. - 5930.]
ARTICLE 1. General Provisions [5910. - 5913.]
Any mortgage, deed of trust, pledge or other hypothecation of all or any part of the corporation’s property, real or personal, for the purpose of securing the payment or performance of any contract or obligation may be approved by the board. Unless the articles or bylaws otherwise provide, no approval of the members (Section 5034) shall be necessary for such action.
Subject to the provisions of Section 5142, a corporation may sell, lease, convey, exchange, transfer or otherwise dispose of all or substantially all of its assets when the principal terms are:
Approved by the board; and
Unless the transaction is in the usual and regular course of its activities, approved by the members (Section 5034) and by any other person or persons whose approval is required by the articles, either before or after approval by the board and before or after the transaction.
Notwithstanding approval by the members (Section 5034) or such other person, the board may abandon the proposed transaction without further action by the members, subject to the contractual rights, if any, of third parties.
Subject to the provisions of Section 5142, such sale, lease, conveyance, exchange, transfer or other disposition may be made upon such terms and conditions and for such consideration as the board may deem in the best interests of the corporation. The consideration may be money, property, or securities of any domestic corporation, foreign corporation, or foreign business corporation or any of them.
Any deed or instrument conveying or otherwise transferring any assets of a corporation may have annexed to it the certificate of the secretary or an assistant secretary of the corporation, setting forth that the transaction has been validly approved by the board, that the notice, if any, required by Section 5913 has been given and (a) stating that the property described in such deed or instrument is less than substantially all of the assets of the corporation or that the transfer is in the usual and regular course of the business of the corporation, if such be the case, or (b) if such property constitutes all or substantially all of the assets of the corporation and the transfer is not in the usual and regular course of the business of the corporation, stating the fact of approval thereof by the members (Section 5034). Such certificate is prima facie evidence of the existence of the facts authorizing such conveyance or other transfer of the assets and conclusive evidence in favor of any purchaser or encumbrancer for value who, without notice of any trust restriction applicable to the property or any failure to comply therewith, in good faith parted with value.
Except for an agreement or transaction subject to Section 5914 or 5920, a corporation shall give written notice to the Attorney General 20 days before it sells, leases, conveys, exchanges, transfers or otherwise disposes of all or substantially all of its assets unless the transaction is in the usual and regular course of its activities or unless the Attorney General has given the corporation a written waiver of this section as to the proposed transaction. This section shall not apply to a public benefit corporation that is exempt from the supervisory authority of the Attorney General pursuant to Sections 12581 and 12583 of the Government Code by virtue of being a committee, as defined in Section 82013 of the Government Code, that is required to and does file any statement pursuant to the provisions of Article 2 (commencing with Section 84200) of Chapter 4 of Title 9 of the Government Code.
ARTICLE 2. Health Facilities [5914. - 5930.]
Any nonprofit corporation that is defined in Section 5046 and operates or controls a health facility, as defined in Section 1250 of the Health and Safety Code, or operates or controls a facility that provides similar health care, regardless of whether it is currently operating or providing health care services or has a suspended license, shall be required to provide written notice to, and to obtain the written consent of, the Attorney General prior to entering into any agreement or transaction to do either of the following:
Sell, transfer, lease, exchange, option, convey, or otherwise dispose of, its assets to a for-profit corporation or entity or to a mutual benefit corporation or entity when a material amount of the assets of the nonprofit corporation are involved in the agreement or transaction.
Transfer control, responsibility, or governance of a material amount of the assets or operations of the nonprofit corporation to any for-profit corporation or entity or to any mutual benefit corporation or entity.
The substitution of a new corporate member or members that transfers the control of, responsibility for, or governance of the nonprofit corporation shall be deemed a transfer for purposes of this article. The substitution of one or more members of the governing body, or any arrangement, written or oral, that would transfer voting control of the members of the governing body, shall also be deemed a transfer for purposes of this article.
The notice to the Attorney General provided for in this section shall include and contain the information the Attorney General determines is required. The notice, including any other information provided to the Attorney General under this article, and that is in the public file, shall be made available by the Attorney General to the public in written form, as soon as is practicable after it is received by the Attorney General. The notice shall include a list of the primary languages spoken at the facility and the threshold languages for Medi-Cal beneficiaries, as determined by the State Department of Health Care Services for the county in which the facility is located. The Attorney General may require the nonprofit corporation to provide certain components of the notice in any of these languages.
This section shall not apply to a nonprofit corporation if the agreement or transaction is in the usual and regular course of its activities or if the Attorney General has given the corporation a written waiver of this section as to the proposed agreement or transaction.
This section shall apply to any foreign nonprofit corporation that operates or controls a health facility, as defined in Section 1250 of the Health and Safety Code, or a facility that provides similar health care, regardless of whether it is currently operating or providing health care services or has a suspended license.
Within 90 days of the receipt of the written notice required by Section 5914, the Attorney General shall notify the public benefit corporation in writing of the decision to consent to, give conditional consent to, or not consent to the agreement or transaction. The Attorney General may extend this period for one additional 45-day period if any of the following conditions are satisfied:
The extension is necessary to obtain information pursuant to subdivision (a) of Section 5919.
The proposed agreement or transaction is substantially modified after the first public meeting conducted by the Attorney General in accordance with Section 5916.
The proposed agreement or transaction involves a multifacility health system serving multiple communities, rather than a single facility.
Prior to issuing any written decision referred to in Section 5915, or giving a written waiver under subdivision (c) of Section 5914, the Attorney General shall conduct one or more public meetings, one of which shall be in the county in which the facility is located, to hear comments from interested parties. At least 14 days before conducting the public meeting, the Attorney General shall provide written notice of the time and place of the meeting through publication in one or more newspapers of general circulation in the affected community and to the board of supervisors of the county in which the facility is located. This notice shall be provided in English and in the primary languages spoken at the facility and the threshold languages for Medi-Cal beneficiaries, as determined by the State Department of Health Care Services for the county in which the facility is located. If a substantive change in the proposed agreement or transaction is submitted to the Attorney General after the initial public meeting, the Attorney General may conduct an additional public meeting to hear comments from interested parties with respect to that change.
The Attorney General shall have discretion to consent to, give conditional consent to, or not consent to any agreement or transaction described in subdivision (a) of Section 5914. In making the determination, the Attorney General shall consider any factors that the Attorney General deems relevant, including, but not limited to, whether any of the following apply:
The terms and conditions of the agreement or transaction are fair and reasonable to the nonprofit corporation.
The agreement or transaction will result in inurement to any private person or entity.
Any agreement or transaction that is subject to this article is at fair market value. In this regard, “fair market value” means the most likely price that the assets being sold would bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and in their own best interest, and a reasonable time being allowed for exposure in the open market.
The market value has been manipulated by the actions of the parties in a manner that causes the value of the assets to decrease.
The proposed use of the proceeds from the agreement or transaction is consistent with the charitable trust on which the assets are held by the health facility or by the affiliated nonprofit health system.
The agreement or transaction involves or constitutes any breach of trust.
The Attorney General has been provided, pursuant to Section 5250, with sufficient information and data by the nonprofit corporation to evaluate adequately the agreement or transaction or the effects thereof on the public.
The agreement or transaction may create a significant effect on the availability or accessibility of health care services to the affected community.
The proposed agreement or transaction is in the public interest.
The agreement or transaction may create a significant effect on the availability and accessibility of cultural interests provided by the facility in the affected community.
The Attorney General may adopt regulations implementing this article.
Contract with, consult, and receive advice from any state agency on those terms and conditions that the Attorney General deems appropriate.
In his or her sole discretion, contract with experts or consultants to assist in reviewing the proposed agreement or transaction.
Contract costs shall not exceed an amount that is reasonable and necessary to conduct the review and evaluation. Any contract entered into under this section shall be on a noncompetitive bid basis and shall be exempt from Chapter 2 (commencing with Section 10290) of Part 2 of Division 2 of the Public Contract Code. The nonprofit corporation, upon request, shall pay the Attorney General promptly for all contract costs.
The Attorney General shall be entitled to reimbursement from the nonprofit corporation for all actual, reasonable, direct costs incurred in reviewing, evaluating, and making the determination referred to in this article, including administrative costs. The nonprofit corporation shall promptly pay the Attorney General, upon request, for all of those costs.
In order to monitor effectively ongoing compliance with the terms and conditions of any sale or transfer of assets subject to Section 5914, including, but not limited to, the ongoing use of the charitable assets in a manner consistent with the trust pursuant to which they are held, the Attorney General may, in his or her sole discretion, contract with experts and consultants to assist in this regard.
Contract costs shall not exceed an amount that is reasonable and necessary to conduct the review and evaluation. Any contract entered into under this section shall be on a noncompetitive bid basis and shall be exempt from Chapter 2 (commencing with Section 10290) of Part 2 of Division 2 of the Public Contract Code. The nonprofit corporation shall pay the Attorney General promptly for all contract costs.
The Attorney General shall be entitled to reimbursement from either the selling or the acquiring corporation, depending upon which one the burden of compliance falls, for all actual, reasonable, and direct costs incurred in monitoring ongoing compliance with the terms and conditions of the sale or transfer of assets, including contract and administrative costs. The Attorney General may bill either the selling or the acquiring corporation and the corporation billed by the Attorney General shall promptly pay for all of those costs.
Any nonprofit corporation that is defined in Section 5046 and operates or controls a health care facility, as defined in Section 1250 of the Health and Safety Code, or operates or controls a facility that provides similar health care, regardless of whether it is currently operating or providing health care services or has a suspended license, shall be required to provide written notice to, and to obtain the written consent of, the Attorney General prior to entering into any agreement or transaction to do either of the following:
Sell, transfer, lease, exchange, option, convey, or otherwise dispose of, its assets to another nonprofit corporation or entity when a material amount of the assets of the nonprofit corporation are involved in the agreement or transaction.
Transfer control, responsibility, or governance of a material amount of the assets or operations of the nonprofit corporation to another nonprofit corporation or entity.
The substitution of a new corporate member or members that transfers the control of, responsibility for, or governance of the nonprofit corporation, the substitution of one or more members of the governing body that would transfer voting control of the members of the governing body, or any arrangement, written or oral, that would transfer voting control of the entity shall be deemed a transfer for purposes of this article.
The notice to the Attorney General provided for in this section shall contain the information the Attorney General determines is required. The notice, including any other information provided to the Attorney General under this article, and that is the public file, shall be made available by the Attorney General to the public in written form, as soon as is practicable after it is received by the Attorney General. The notice to the Attorney General shall include a list of the primary languages spoken at the facility and the threshold languages for Medi-Cal beneficiaries as determined by the State Department of Health Care Services for the county in which the facility is located. The Attorney General may require the nonprofit corporation to provide certain components of the notice in any of those languages.
This section shall not apply to a nonprofit corporation if the agreement or transaction is in the usual and regular course of its activities or if the Attorney General has given the corporation a written waiver of this section as to the proposed agreement or transaction.
This section shall apply to any foreign nonprofit corporation that operates or controls a health facility, as defined in Section 1250 of the Health and Safety Code, or a facility that provides similar health care, regardless of whether it is currently operating or providing health care services or has a suspended license.
This section shall not apply to an agreement or transaction if the other party to the agreement or transaction is an affiliate, as defined in Section 5031, of the transferring nonprofit corporation or entity, and the corporation or entity has given the Attorney General 20 days advance notice of the agreement or transaction.
Within 90 days of the receipt of the written notice required by Section 5920, the Attorney General shall notify the nonprofit corporation in writing of the decision to consent to, give conditional consent to, or not consent to the agreement or transaction. The Attorney General may extend this period for one additional 45-day period if any of the following conditions are satisfied:
The extension is necessary to obtain relevant information from any state agency, experts, or consultants.
The proposed agreement or transaction is substantially modified after the first public meeting conducted by the Attorney General in accordance with Section 5922.
The proposed agreement or transaction involves a multifacility health system serving multiple communities, rather than a single facility.
Prior to issuing any written decision referred to in Section 5921, or giving a written waiver under subdivision (c) of Section 5920, the Attorney General shall conduct one or more public meetings, one of which shall be in the county in which the facility is located, to hear comments from interested parties. At least 14 days before conducting the public meeting, the Attorney General shall provide written notice of the time and place of the meeting through publication in one or more newspapers of general circulation in the affected community and to the board of supervisors of the county in which the facility is located. This notice shall be provided in English and in the primary languages spoken at the facility and the threshold languages for Medi-Cal beneficiaries as determined by the State Department of Health Care Services for the county in which the facility is located. If a substantive change in the proposed agreement or transaction is submitted to the Attorney General after the initial public meeting, the Attorney General may conduct an additional public meeting to hear comments from interested parties with respect to that change.
The Attorney General shall have discretion to consent to, give conditional consent to, or not consent to any agreement or transaction described in subdivision (a) of Section 5920. In making the determination, the Attorney General shall consider any factors that the Attorney General deems relevant, including, but not limited to, whether any of the following apply:
The terms and conditions of the agreement or transaction are fair and reasonable to the nonprofit corporation.
The agreement or transaction will result in inurement to any private person or entity.
Fair market value of the agreement or transaction, meaning the most likely price that the assets being sold would bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably, and in their own best interest, and a reasonable time being allowed for exposure in the open market.
The market value has been manipulated by the actions of the parties in a manner that causes the value of the assets to decrease.
The proposed use of the proceeds from the agreement or transaction is consistent with the charitable trust on which the assets are held by the health facility or by the affiliated nonprofit health system.
The agreement or transaction involves or constitutes any breach of trust.
The Attorney General has been provided, pursuant to Section 5250, with sufficient information and data by the nonprofit public benefit corporation to evaluate adequately the agreement or transaction or the effects thereof on the public.
The agreement or transaction may create a significant effect on the availability or accessibility of health care services to the affected community.
The proposed agreement or transaction is in the public interest.
The agreement or transaction may create a significant effect on the availability and accessibility of cultural interests provided by the facility in the affected community.
Contract with, consult, and receive advice from any state agency on those terms and conditions that the Attorney General deems appropriate.
In his or her sole discretion, contract with experts or consultants to assist in reviewing the proposed agreement or transaction.
Contract costs shall not exceed an amount that is reasonable and necessary to conduct the review and evaluation. Any contract entered into under this section shall be on a noncompetitive bid basis and shall be exempt from Chapter 2 (commencing with Section 10290) of Part 2 of Division 2 of the Public Contract Code. The selling nonprofit corporation, upon request, shall pay the Attorney General promptly for all contract costs.
The Attorney General shall be entitled to reimbursement from the selling nonprofit corporation for all actual, reasonable, direct costs incurred in reviewing, evaluating, and making the determination referred to in Section 5921, including administrative costs. The selling nonprofit corporation shall promptly pay the Attorney General, upon request, for all of those costs.
In order to effectively monitor ongoing compliance with the terms and conditions of any sale or transfer of assets subject to Section 5920, including, but not limited to, the ongoing use of the charitable assets in a manner consistent with the trust pursuant to which they are held, the Attorney General may, in his or her sole discretion, contract with experts and consultants to assist in this regard.
Contract costs shall not exceed an amount that is reasonable and necessary to conduct the review and evaluation. Any contract entered into under this section shall be on a noncompetitive bid basis and shall be exempt from Chapter 2 (commencing with Section 10290) of Part 2 of Division 2 of the Public Contract Code. The selling nonprofit corporation shall pay the Attorney General promptly for all contract costs.
The Attorney General shall be entitled to reimbursement from either the selling or the acquiring nonprofit corporation, depending upon which one the burden of compliance falls, for all actual, reasonable, and direct costs incurred in monitoring ongoing compliance with the terms and conditions of the sale or transfer of assets, including contract and administrative costs. The Attorney General shall be entitled to this reimbursement for a period of time not to exceed two years after any time period specified in the terms or conditions of sale or transfer of assets. The Attorney General may bill either the selling or the acquiring corporation and the corporation billed by the Attorney General shall promptly pay for all of those costs.
The Attorney General may enforce conditions imposed on the Attorney General’s consent to an agreement or transaction pursuant to Section 5914 or 5920 to the fullest extent provided by law. In addition to any legal remedies the Attorney General may have, the Attorney General shall be entitled to specific performance, injunctive relief, and other equitable remedies a court deems appropriate for breach of any of the conditions and shall be entitled to recover its attorney’s fees and costs incurred in remedying each violation.
The Attorney General shall prepare a plan for an evaluation of whether additional standards for charitable care and community benefits should be established for private, not-for-profit corporations that operate or control a general acute care hospital as defined in Section 1250 of the Health and Safety Code.
In preparing the plan, the Attorney General shall consult with representatives of interested parties, including, but not limited to, all of the following:
Health facility associations.
Physician organizations.
Consumer groups.
Health care employee organizations.
Community groups.
The Office of Statewide Health Planning and Development.
The plan shall provide for the evaluation of all of the following:
The plan shall be submitted to the appropriate policy and fiscal committees of the Legislature by March 1, 2001.
CHAPTER 10. Mergers [6010. - 6022.]
ARTICLE 1. Merger [6010. - 6019.1.]
A public benefit corporation may merge with any domestic corporation, foreign corporation (Section 171), or other business entity (Section 5063.5). However, without the prior written consent of the Attorney General, a public benefit corporation may only merge with another public benefit corporation or a religious corporation or a foreign nonprofit corporation or an unincorporated association the governing documents of which provide that its assets are irrevocably dedicated to charitable, religious, or public purposes. In addition, a public benefit corporation that is exempt from the supervisory authority of the Attorney General pursuant to Sections 12581 and 12583 of the Government Code by virtue of being a committee, as defined in Section 82013 of the Government Code, that is required to and does file any statement pursuant to the provisions of Article 2 (commencing with Section 84200) of Chapter 4 of Title 9 of the Government Code, may merge with another public benefit corporation similarly exempt without having to obtain the Attorney General’s consent.
At least 20 days prior to consummation of any merger allowed by subdivision (a), the Attorney General must be provided with a copy of the proposed agreement of merger.
Without the prior written consent of the Attorney General, when a merger occurs pursuant to subdivision (a), each member of a constituent corporation may only receive or keep a membership in the surviving corporation for or as a result of the member’s membership in the constituent corporation.
The board of each corporation which desires to merge shall approve an agreement of merger. The constituent corporations shall be parties to the agreement of merger and other persons may be parties to the agreement of merger. The agreement shall state:
The terms and conditions of the merger;
The amendments, subject to Sections 5810 and 5816, to the articles of the surviving corporation to be effected by the merger, if any; if any amendment changes the name of the surviving corporation, the new name may be the same as or similar to the name of a disappearing corporation, subject to subdivision (b) of Section 5122;
The amendments to the bylaws of the surviving corporation to be effected by the merger, if any;
The name and place of incorporation of each constituent corporation and which of the constituent corporations is the surviving corporation;
The manner, if any, of converting memberships of the constituent corporations into memberships of the surviving corporation; and
Such other details or provisions as are desired, if any.
The principal terms of the merger shall be approved by the members (Section 5034) of each constituent corporation and by each other person or persons whose approval of an amendment of articles is required by the articles; and the approval by the members (Section 5034) or such other person or persons required by this section may be given before or after the approval by the board.
Each constituent corporation shall sign the agreement by the chairperson of its board, president or a vice president, and secretary or an assistant secretary acting on behalf of their respective corporations.
After approval of a merger by the board and any approval by the members (Section 5034) or other person or persons required by Section 6012, the surviving corporation shall file a copy of the agreement of merger with an officers’ certificate of each constituent corporation attached stating the total number of memberships of each class entitled to vote on the merger, identifying any other person or persons whose approval is required, and stating that the principal terms of the agreement in the form attached were duly approved by the required vote of the members and (if applicable) such other person or persons. The merger and any amendment of the articles of the surviving corporation contained in the merger agreement shall thereupon be effective (subject to subdivision (c) of Section 5008 and subject to the provisions of Section 6018) and the several parties thereto shall be one surviving corporation. The Secretary of State may certify a copy of the merger agreement separate from the officers’ certificates attached thereto.
Any amendment to the agreement may be adopted and the agreement so amended may be approved by the board and, if it changes any of the principal terms of the agreement, by the members (Section 5034) or other person or persons, as required by Section 6012, of any constituent corporation in the same manner as the original agreement.
If the agreement so amended is approved as provided in subdivision (a), the agreement so amended shall then constitute the agreement of merger.
The board may, in its discretion, abandon a merger, subject to the contractual rights, if any, of third parties, including other constituent corporations, without further approval by the members (Section 5034) or other persons entitled to approve the merger at any time before the merger is effective.
A copy of an agreement of merger certified on or after the effective date by an official having custody thereof has the same force in evidence as the original and, except as against the state, is conclusive evidence of the performance of all conditions precedent to the merger, the existence on the effective date of the surviving corporation and the performance of the conditions necessary to the adoption of any amendment to the articles contained in the agreement of merger.
Subject to the provisions of Section 6010, the merger of any number of corporations with any number of foreign corporations may be effected if the foreign corporations are authorized by the laws under which they are formed to effect the merger. The surviving corporation may be any one of the constituent corporations and shall continue to exist under the laws of the state or place of its incorporation.
If the surviving corporation is a public benefit corporation or a religious corporation, the merger proceedings with respect to that corporation and any disappearing corporation shall conform to the provisions of this chapter governing the merger of corporations, but if the surviving corporation is a foreign corporation, then, subject to the requirements of subdivision (d) and Section 6012, the merger proceedings may be in accordance with the laws of the state or place of incorporation of the surviving corporation.
If the surviving corporation is a public benefit corporation or a religious corporation, the agreement and the officers’ certificate of each constituent corporation shall be filed as provided in Section 6014 and thereupon, subject to subdivision (c) of Section 5008, the merger shall be effective as to each corporation; and each foreign disappearing corporation that is qualified for the transaction of intrastate business shall by virtue of the filing automatically surrender its right to transact intrastate business.
If the surviving corporation is a foreign corporation, the merger shall become effective in accordance with the law of the jurisdiction in which it is organized, but shall be effective as to any disappearing corporation as of the time of effectiveness in the foreign jurisdiction upon the filing in this state as required by this subdivision. There shall be filed as to the domestic disappearing corporation or corporations the documents described in any one of the following paragraphs:
A copy of the agreement, certificate, or other document filed by the surviving foreign corporation in the state or place of its incorporation for the purpose of effecting the merger, which copy shall be certified by the public officer having official custody of the original.
An executed counterpart of the agreement, certificate, or other document filed by the surviving corporation in the state or place of its incorporation for the purpose of effecting the merger.
A copy of the agreement of merger with an officers’ certificate of the surviving foreign corporation and of each constituent domestic corporation attached, which officers’ certificates shall conform to the requirements of Section 6014.
If the date of the filing in this state pursuant to subdivision (d) is more than six months after the time of the effectiveness in the foreign jurisdiction, or if the powers of the domestic corporation are suspended at the time of effectiveness in the foreign jurisdiction, the merger shall be effective as to the domestic disappearing corporation or corporations as of the date of filing in this state. Each foreign disappearing corporation that is qualified for the transaction of intrastate business shall automatically by the filing pursuant to subdivision (d) surrender its right to transact intrastate business as of the date of filing in this state regardless of the time of effectiveness as to a domestic disappearing corporation.
If an agreement of merger is entered into between a nonprofit corporation and a business corporation: (i) Sections 6011, 6012, 6014, and 6015 shall apply to any constituent public benefit corporation; (ii) Sections 8011, 8011.5, 8012, 8014, and 8015 shall apply to any constituent mutual benefit corporation; (iii) Sections 6014 and 6015 and subdivisions (c) and (d) of Section 9640 shall apply to any constituent religious corporation; and (iv) Sections 1101, 1101.1, 1103, and 1104 shall apply to any constituent business corporation.
Subject to the provisions of Sections 6010 and 9640, any one or more corporations may merge with one or more other business entities (Section 5063.5). One or more other domestic corporations and foreign corporations (Section 5053) may be parties to the merger. Notwithstanding the provisions of this section, such a merger may be effected only if:
In a merger in which a domestic corporation or domestic other business entity is a party, it is authorized by the laws under which it is organized to effect the merger.
In a merger in which a foreign corporation is a party, it is authorized by the laws under which it is organized to effect the merger.
In a merger in which a foreign other business entity is a party, it is authorized by the laws under which it is organized to effect the merger.
Each corporation and each other party which desires to merge shall approve an agreement of merger. The board and the members (Section 5034) of each corporation which desires to merge, and each other person or persons, if any, whose approval of an amendment of the articles of that corporation is required by the articles or bylaws shall approve the agreement of merger. The agreement of merger shall be approved on behalf of each other party by those persons authorized or required to approve the merger by the laws under which it is organized. The parties desiring to merge shall be parties to the agreement of merger and other persons, including a parent party (Section 5064.5), may be parties to the agreement of merger. The agreement of merger shall state all of the following:
The terms and conditions of the merger.
The name and place of incorporation or organization of each party and the identity of the surviving party.
The amendments, if any, subject to Sections 5810 and 5816, to the articles of the surviving corporation, if applicable, to be effected by the merger. The name of the surviving corporation may be, subject to subdivision (b) of Section 5122 and subdivision (b) of Section 9122, the same as, or similar to, the name of a disappearing party to the merger.
The manner, if any, of converting the memberships of each of the constituent corporations into shares, memberships, interests, or other securities of the surviving party; and, if any memberships of any of the constituent corporations are not to be converted solely into shares, memberships, interests, or other securities of the surviving party, the cash, rights, securities, or other property which the holders of those memberships are to receive in exchange for the memberships, which cash, rights, securities, or other property may be in addition to, or in lieu of, shares, memberships, interests, or other securities of the surviving corporation or surviving other business entity.
Any other details or provisions required by the laws under which any party to the merger is organized, including, if an unincorporated association is a party to the merger, Section 18370, or if a domestic limited partnership is a party to the merger, subdivision (a) of Section 15911.12, if a domestic general partnership is a party to the merger, subdivision (a) of Section 16911, or, if a domestic limited liability company is a party to the merger, subdivision (a) of Section 17710.12.
Any other details or provisions as are desired.
Notwithstanding its prior approval, an agreement of merger may be amended prior to the filing of the agreement of merger if the amendment is approved by each constituent corporation in the same manner as the original agreement of merger. If the agreement of merger as so amended and approved is also approved by each of the other parties to the agreement of merger, as so amended it shall then constitute the agreement of merger.
The board of a constituent corporation may, in its discretion, abandon a merger, subject to the contractual rights, if any, of third parties, including other parties to the agreement of merger, without further approval by the members (Section 5034) or other persons, at any time before the merger is effective.
Each constituent corporation shall sign the agreement of merger by its chairperson of the board, president or a vice president, and also by its secretary or an assistant secretary acting on behalf of their respective corporations.
After required approvals of the merger by each constituent corporation and each other party to the merger, the surviving party shall file a copy of the agreement of merger with an officers’ certificate of each constituent domestic and foreign corporation attached stating the total number of outstanding shares or membership interests of each class, if any, entitled to vote on the merger (and identifying any other person or persons whose approval is required), that the agreement of merger in the form attached or its principal terms, as required, were approved by that corporation by a vote of a number of shares or membership interests of each class entitled to vote, if any, which equaled or exceeded the vote required, specifying each class entitled to vote and the percentage vote required of each class, and, if applicable, by that other person or persons whose approval is required.
If equity securities of a parent party (Section 5064.5) are to be issued in the merger, the officers’ certificate or certificate of merger of the controlled party shall state either that no vote of the shareholders of the parent party was required or that the required vote was obtained. The merger and any amendment of the articles of the surviving corporation, if applicable, contained in the agreement of merger shall be effective upon the filing of the agreement of merger, subject to the provisions of subdivision (h). If a domestic reciprocal insurer organized after 1974 to provide medical malpractice insurance is a party to the merger, the agreement of merger or certificate of merger shall not be filed until there has been filed the certificate issued by the Insurance Commissioner approving the merger pursuant to Section 1555 of the Insurance Code.
In lieu of an officers’ certificate, a certificate of merger, on a form prescribed by the Secretary of State, shall be filed for each constituent other business entity. The certificate of merger shall be executed and acknowledged by each domestic constituent limited liability company by all of the managers of the limited liability company (unless a lesser number is specified in its articles of organization or operating agreement) and by each domestic constituent limited partnership by all general partners (unless a lesser number is provided in its certificate of limited partnership or partnership agreement) and by each domestic constituent general partnership by two partners (unless a lesser number is provided in its partnership agreement) and by each foreign constituent limited liability company by one or more managers and by each foreign constituent general partnership or foreign constituent limited partnership by one or more general partners, and by each constituent reciprocal insurer by the chairperson of the board, president, or vice president, and also by the secretary or assistant secretary, or, if a constituent reciprocal insurer has not appointed such officers, by the chairperson of the board, president, or vice president, and also by the secretary or assistant secretary of the constituent reciprocal insurer’s attorney-in-fact, and by each other party to the merger by those persons required or authorized to execute the certificate of merger by the laws under which that party is organized, specifying for such party the provision of law or other basis for the authority of the signing persons.
The certificate of merger shall set forth, if a vote of the shareholders, members, partners, or other holders of interests of a constituent other business entity was required, a statement setting forth the total number of outstanding interests of each class entitled to vote on the merger and that the agreement of merger or its principal terms, as required, were approved by a vote of the number of interests of each class which equaled or exceeded the vote required, specifying each class entitled to vote and the percentage vote required of each class, and any other information required to be set forth under the laws under which the constituent other business entity is organized, including, if a domestic limited partnership is a party to the merger, subdivision (a) of Section 15911.14, if a domestic general partnership is a party to the merger, subdivision (b) of Section 16915, and, if a domestic limited liability company is a party to the merger, subdivision (a) of Section 17710.14. The certificate of merger for each constituent foreign other business entity, if any, shall also set forth the statutory or other basis under which that foreign other business entity is authorized by the laws under which it is organized to effect the merger.
The Secretary of State may certify a copy of the agreement of merger separate from the officers’ certificates and certificates of merger attached thereto.
A copy of an agreement of merger certified on or after the effective date by an official having custody thereof has the same force in evidence as the original and, except as against the state, is conclusive evidence of the performance of all conditions precedent to the merger, the existence on the effective date of the surviving party to the merger, the performance of the conditions necessary to the adoption of any amendment to the articles, if applicable, contained in the agreement of merger, and the merger of the constituent corporations, either by themselves or together with other constituent parties, into the surviving party to the merger.
The merger of domestic corporations with foreign corporations or foreign other business entities in a merger in which one or more other business entities is a party shall comply with subdivisions (a) and (f) and this subdivision.
Subject to subdivision (c) of Section 5008 and paragraph (3), the merger shall be effective as to each domestic constituent corporation and domestic constituent other business entity upon filing of the agreement of merger with attachments as provided in subdivision (f).
If the surviving party is a foreign corporation or foreign other business entity, except as provided in paragraph (4), the merger shall be effective as to any domestic disappearing corporation as of the time of effectiveness in the foreign jurisdiction upon the filing in this state of a copy of the agreement of merger with an officers’ certificate of the surviving foreign corporation and of each constituent foreign and domestic corporation and a certificate of merger of each constituent other business entity attached, which officers’ certificates and certificates of merger shall conform to the requirements of subdivision (f).
If one or more domestic other business entities is a disappearing party in a merger pursuant to this subdivision in which a foreign other business entity is the surviving entity, a certificate of merger required by the laws under which each domestic other business entity is organized, including subdivision (a) of Section 15911.14, subdivision (b) of Section 16915, or subdivision (a) of Section 17710.14, if applicable, shall also be filed at the same time as the filing of the agreement of merger.
If the date of the filing in this state pursuant to this subdivision is more than six months after the time of the effectiveness in the foreign jurisdiction, or if the powers of a domestic disappearing corporation are suspended at the time of effectiveness in the foreign jurisdiction, the merger shall be effective as to the domestic disappearing corporation as of the date of filing in this state.
Each foreign disappearing corporation that is qualified for the transaction of intrastate business shall automatically by the filing pursuant to subdivision (f) surrender its right to transact intrastate business as of the date of filing in this state or, if later, the effective date of the merger. With respect to each foreign disappearing other business entity previously registered for the transaction of intrastate business in this state, the filing of the agreement of merger pursuant to subdivision (f) automatically has the effect of a cancellation of registration for that foreign other business entity as of the date of filing in this state or, if later, the effective date of the merger, without the necessity of the filing of a certificate of cancellation.
ARTICLE 2. Effect of Merger [6020. - 6022.]
Upon merger pursuant to this chapter the separate existences of the disappearing parties to the merger cease and the surviving party to the merger shall succeed, without other transfer, to all the rights and property of each of the disappearing parties to the merger and shall be subject to all the debts and liabilities of each and trust obligations upon the property of a disappearing party in the same manner as if incurred by the surviving party to the merger.
All rights of creditors and all liens and trusts upon or arising from the property of each of the constituent corporations and other parties to the merger shall be preserved unimpaired, provided that the liens and trust obligations upon property of a disappearing party shall be limited to the property affected thereby immediately prior to the time the merger is effective.
Any action or proceeding pending by or against any disappearing corporation or other party to the merger may be prosecuted to judgment, which shall bind the surviving party to the merger, or the surviving party to the merger may be proceeded against or substituted in its place.
Upon merger pursuant to this chapter, a surviving domestic or foreign corporation or other business entity shall be deemed to have assumed the liability of each disappearing domestic or foreign corporation or other business entity that is taxed under Part 10 (commencing with Section 17001) of, or under Part 11 (commencing with Section 23001) of, Division 2 of the Revenue and Taxation Code for the following:
To prepare and file, or to cause to be prepared and filed, tax and information returns otherwise required of that disappearing entity as specified in Chapter 2 (commencing with Section 18501) of Part 10.2 of Division 2 of the Revenue and Taxation Code.
To pay any tax liability determined to be due.
If the surviving entity is a domestic limited liability company, domestic corporation, or registered limited liability partnership or a foreign limited liability company, foreign limited liability partnership, or foreign corporation that is registered or qualified to do business in California, the Secretary of State shall notify the Franchise Tax Board of the merger.
Whenever a domestic or foreign corporation or other business entity (Section 5063.5) having any real property in this state merges with another domestic or foreign corporation or other business entity pursuant to the laws of this state or of the state or place in which any constituent party to the merger was organized, and the laws of the state or place of organization (including this state) of any disappearing party to the merger provide substantially that the making and filing of the agreement of merger vests in the surviving party to the merger all the real property of any disappearing party to the merger, the filing for record in the office of the county recorder of any county in this state in which any of the real property of the disappearing party to the merger is located of either (a) a certificate prescribed by the Secretary of State, or (b) a copy of the agreement of merger or certificate of merger, certified by the Secretary of State or an authorized public official of the state or place pursuant to the laws of which the merger is effected, shall evidence record ownership in the surviving party to the merger of all interest of that disappearing party to the merger in and to the real property located in that county.
Any bequest, devise, gift, grant, or promise contained in a will or other instrument of donation, subscription, or conveyance, which is made to a constituent corporation and which takes effect or remains payable after the merger, inures to the surviving party to the merger.
CHAPTER 11. Bankruptcy Reorganizations and Arrangements [6110. - 6110.]
Any proceeding, initiated with respect to a corporation, under any applicable statute of the United States, as now existing or hereafter enacted, relating to reorganizations of corporations, shall be governed by the provisions of Chapter 14 (commencing with Section 1400) of Division 1 of Title 1, and for this purpose the reference in Chapter 14 to “shareholders” shall be deemed to be a reference to members and the reference to “this division” shall be deemed to be a reference to this part.
CHAPTER 12. Required Filings by Corporation or Its Agent [6210. - 6216.]
Every corporation shall, within 90 days after the filing of its original articles and biennially thereafter during the applicable filing period, file, on a form prescribed by the Secretary of State, a statement containing: (1) the name of the corporation and the Secretary of State’s file number; (2) the names and complete business or residence addresses of its chief executive officer, secretary, and chief financial officer; (3) the street address of its principal office in California, if any; (4) the mailing address of the corporation, if different from the street address of its principal office or if the corporation has no principal office address in California; and (5) if the corporation chooses to receive renewal notices and any other notifications from the Secretary of State by electronic mail instead of by United States mail, a valid electronic mail address for the corporation or for the corporation’s designee to receive those notices.
The statement required by subdivision (a) shall also designate, as the agent of the corporation for the purpose of service of process, a natural person residing in this state or any domestic or foreign or foreign business corporation that has complied with Section 1505 and whose capacity to act as an agent has not terminated. If a natural person is designated, the statement shall set forth the person’s complete business or residence street address. If a corporate agent is designated, no address for it shall be set forth.
For the purposes of this section, the applicable filing period for a corporation shall be the calendar month during which its original articles were filed and the immediately preceding five calendar months. The Secretary of State shall provide a notice to each corporation to comply with this section approximately three months before the close of the applicable filing period. The notice shall state the due date for compliance and shall be sent to the last address of the corporation according to the records of the Secretary of State or to the last electronic mail address according to the records of the Secretary of State if the corporation has elected to receive notices from the Secretary of State by electronic mail. Neither the failure of the Secretary of State to send the notice nor the failure of the corporation to receive it is an excuse for failure to comply with this section.
Whenever any of the information required by subdivision (a) is changed, the corporation may file a current statement containing all the information required by subdivisions (a) and (b). In order to change its agent for service of process or the address of the agent, the corporation must file a current statement containing all the information required by subdivisions (a) and (b). Whenever any statement is filed pursuant to this section, it supersedes any previously filed statement and the statement in the articles as to the agent for service of process and the address of the agent.
The Secretary of State may destroy or otherwise dispose of any statement filed pursuant to this section after it has been superseded by the filing of a new statement.
This section does not place any person dealing with the corporation on notice of, or under any duty to inquire about, the existence or content of a statement filed pursuant to this section.
An agent designated for service of process pursuant to Section 6210 may deliver to the Secretary of State, on a form prescribed by the Secretary of State for filing, a signed and acknowledged written statement of resignation as an agent for service of process containing the name of the corporation, the Secretary of State’s file number of the corporation, the name of the resigning agent for service of process, and a statement that the agent is resigning. Thereupon the authority of the agent to act in that capacity shall cease and the Secretary of State forthwith shall mail or otherwise provide written notice of the filing of the statement of resignation to the corporation at its principal office.
The resignation of an agent may be effective if, on a form prescribed by the Secretary of State containing the name of the corporation, the Secretary of State’s file number for the corporation, and the name of the agent for service of process, the agent disclaims having been properly appointed as the agent. Similarly, a person named as an officer or director may indicate that the person was never properly appointed as the officer or director.
The Secretary of State may destroy or otherwise dispose of any resignation filed pursuant to this section after a new form is filed pursuant to Section 6210 replacing the agent for service of process that has resigned.
If a natural person who has been designated agent for service of process pursuant to Section 6210 dies or resigns or no longer resides in the state or if the corporate agent for such purpose resigns, dissolves, withdraws from the state, forfeits its right to transact intrastate business, has its corporate rights, powers and privileges suspended or ceases to exist, the corporation shall forthwith file a designation of a new agent conforming to the requirements of Section 6210.
Upon request of an assessor, a corporation owning, claiming, possessing or controlling property in this state subject to local assessment shall make available at the corporation’s principal office in California or at a place mutually acceptable to the assessor and the corporation a true copy of business records relevant to the amount, cost and value of all property that it owns, claims, possesses or controls within the county.
Any officers, directors, employees or agents of a corporation who do any of the following are liable jointly and severally for all the damages resulting therefrom to the corporation or any person injured thereby who relied thereupon or to both:
Make, issue, deliver or publish any report, circular, certificate, financial statement, balance sheet, public notice or document respecting the corporation or its memberships, assets, liabilities, business, earnings or accounts which is false in any material respect, knowing it to be false, or participate in the making, issuance, delivery or publication thereof with knowledge that the same is false in a material respect.
Make or cause to be made in the books, minutes, records or accounts of a corporation any entry which is false in any material particular knowing such entry is false.
Remove, erase, alter or cancel any entry in any books or records of the corporation, with intent to deceive.
The Attorney General, upon complaint of a member, director or officer, that a corporation is failing to comply with the provisions of this chapter, Chapter 5 (commencing with Section 5510), Chapter 6 (commencing with Section 5610) or Chapter 13 (commencing with Section 6310), may, in the name of the people of the State of California, send to the principal office of such corporation, (or, if there is no such office, to the office or residence of the chief executive officer or secretary, of the corporation, as set forth in the most recent statement filed pursuant to Section 6210) notice of the complaint. If the answer is not satisfactory, or if there is no answer within 30 days, the Attorney General may institute, maintain or intervene in such suits, actions, or proceedings of any type in any court or tribunal of competent jurisdiction or before any administrative agency for such relief by way of injunction, the dissolution of entities, the appointment of receivers or any other temporary, preliminary, provisional or final remedies as may be appropriate to protect the rights of members or to undo the consequences of failure to comply with such requirements. In any such action, suit or proceeding there may be joined as parties all persons and entities responsible for or affected by such activity.
The Attorney General may bring an action under subdivision (a) without having received a complaint, and without first giving notice of a complaint.
CHAPTER 13. Records, Reports, and Rights of Inspection [6310. - 6338.]
ARTICLE 1. General Provisions [6310. - 6313.]
If any record subject to inspection pursuant to this chapter is not maintained in written form, a request for inspection is not complied with unless and until the corporation at its expense makes such record available in written form. For the purposes of this chapter “written” or “in writing” also includes cathode ray tube and similar electronic communications methods.
Any inspection under this chapter may be made in person or by agent or attorney and the right of inspection includes the right to copy and make extracts.
Any right of inspection created by this chapter extends to the records of each subsidiary of a corporation.
The rights of members provided in this chapter may not be limited by contract or the articles or bylaws.
ARTICLE 2. Required Records, Reports to Directors and Members [6320. - 6325.]
Each corporation shall keep:
Adequate and correct books and records of account;
Minutes of the proceedings of its members, board and committees of the board; and
A record of its members giving their names and addresses and the class of membership held by each.
Those minutes and other books and records shall be kept either in written form or in any other form capable of being converted into clearly legible tangible form or in any combination of the foregoing. When minutes and other books and records are kept in a form capable of being converted into clearly legible paper form, the clearly legible paper form into which those minutes and other books and records are converted shall be admissible in evidence, and accepted for all other purposes, to the same extent as an original paper record of the same information would have been, provided that the paper form accurately portrays the record.
Except as provided in subdivision (c), (d), or (f), the board shall cause an annual report to be sent to the members not later than 120 days after the close of the corporation’s fiscal year. Unless otherwise provided by the articles or bylaws and if approved by the board of directors, that report and any accompanying material sent pursuant to this section may be sent by electronic transmission by the corporation (Section 20). That report shall contain in appropriate detail the following:
The assets and liabilities, including the trust funds, of the corporation as of the end of the fiscal year.
The principal changes in assets and liabilities, including trust funds, during the fiscal year.
The revenue or receipts of the corporation, both unrestricted and restricted to particular purposes, for the fiscal year.
The expenses or disbursements of the corporation, for both general and restricted purposes, during the fiscal year.
Any information required by Section 6322.
The report required by subdivision (a) shall be accompanied by any report thereon of independent accountants, or, if there is no such report, the certificate of an authorized officer of the corporation that such statements were prepared without audit from the books and records of the corporation. The report shall be prepared, audited, and made available in the manner required by paragraph (1) of subdivision (e) of Section 12586 of the Government Code, if applicable.
Subdivision (a) does not apply to any corporation which receives less than twenty-five thousand dollars ($25,000) in gross revenues or receipts during the fiscal year.
Where a corporation has provided, pursuant to Section 5510, for regular meetings of members less often than annually, then the report required by subdivision (a) need be made to members only with the frequency with which regular membership meetings are required, unless the articles or bylaws require a report more often.
Subdivisions (c) and (d) notwithstanding, a report with the information required by subdivision (a) shall be furnished annually to all of the following:
All directors of the corporation.
Any member who requests it in writing.
A corporation which in writing solicits contributions from 500 or more persons need not send the report otherwise required by subdivision (a) if it does all of the following:
Includes with any written material used to solicit contributions a written statement that its latest annual report will be mailed upon request and that such request may be sent to the corporation at a name and address which is set forth in the statement.
The term “annual report” as used in this subdivision refers to the report required by subdivision (a).
Promptly mails a copy of its latest annual report to any person who requests a copy thereof.
Causes its annual report to be published not later than 120 days after the close of its fiscal year in a newspaper of general circulation in the county in which its principal office is located.
Any provision of the articles or bylaws notwithstanding, every corporation shall furnish annually to its members and directors a statement of any transaction or indemnification of a kind described in subdivision (d) or (e), if any such transaction or indemnification took place. If the corporation issues an annual report to all members, this subdivision shall be satisfied by including the required information in the annual report. A corporation which does not issue an annual report to all members, pursuant to subdivision (c) or (d) of Section 6321, shall satisfy this section by mailing or delivering to its members the required statement within 120 days after the close of the corporation’s fiscal year. Unless otherwise provided by the articles or bylaws and if approved by the board of directors, that statement may be sent by electronic transmission by the corporation (Section 20).
Except as provided in subdivision (c), a covered transaction under this section is a transaction in which the corporation, its parent, or its subsidiary was a party, and in which either of the following had a direct or indirect material financial interest:
Any director or officer of the corporation, or its parent or subsidiary.
Any holder of more than 10 percent of the voting power of the corporation, its parent or its subsidiary.
For the purpose of subdivision (d), an “interested person” is any person described in paragraph (1) or (2) of this subdivision.
For the purpose of subdivision (b), a mere common directorship is not a material financial interest.
The statement required by subdivision (a) shall describe briefly:
The statement required by subdivision (a) shall describe briefly the amount and circumstances of any indemnifications or advances aggregating more than ten thousand dollars ($10,000) paid during the fiscal year to any officer or director of the corporation pursuant to Section 5238; provided that no such report need be made in the case of indemnification approved by the members (Section 5034) under paragraph (2) of subdivision (e) of Section 5238.
The superior court of the proper county shall enforce the duty of making and mailing or delivering the information and financial statements required by this article and, for good cause shown, may extend the time therefor.
In any action or proceeding under this section, if the court finds the failure of the corporation to comply with the requirements of this article to have been without justification, the court may award the member reasonable expenses, including attorneys’ fees, in connection with such action or proceeding.
Nothing in this part relieves a corporation from the requirements of Article 7 (commencing with Section 12580) of Chapter 6 of Part 2 of Division 3 of the Government Code including, without limitation, subdivision (a) of Section 12586. If a report sent to the Attorney General in compliance with the requirements of Article 7 (commencing with Section 12580) of Chapter 6 of Part 2 of Division 3 of the Government Code includes the information required in the annual report, then the corporation may furnish a copy of its report to the Attorney General in lieu of the annual report, whenever it is required to furnish an annual report.
A corporation shall furnish any member who so requests a copy of any report filed by the corporation pursuant to Article 7 (commencing with Section 12580) of Chapter 6 of Part 2 of Division 3 of the Government Code. The corporation may impose reasonable charges for copying and mailing a report furnished under this subdivision.
For a period of 60 days following the conclusion of an annual, regular, or special meeting of members, a corporation shall, upon written request from a member, forthwith inform the member of the result of any particular vote of members taken at the meeting, including the number of memberships voting for, the number of memberships voting against, and the number of memberships abstaining or withheld from voting. If the matter voted on was the election of directors, the corporation shall report the number of memberships, or votes if voted cumulatively, cast for each nominee for director. If more than one class or series of memberships voted, the report shall state the appropriate numbers by class and series of memberships.
ARTICLE 3. Rights of Inspection [6330. - 6338.]
Inspect and copy the record of all the members’ names, addresses and voting rights, at reasonable times, upon five business days’ prior written demand upon the corporation which demand shall state the purpose for which the inspection rights are requested; or
Obtain from the secretary of the corporation, upon written demand and tender of a reasonable charge, an alphabetized list of the names, addresses, and voting rights of those members entitled to vote for the election of directors, as of the most recent record date for which it has been compiled or as of a date specified by the member subsequent to the date of demand. The demand shall state the purpose for which the list is requested. The membership list shall be made available on or before the later of 10 business days after the demand is received or after the date specified therein as the date as of which the list is to be compiled.
The rights set forth in subdivision (a) may be exercised by:
Any member, for a purpose reasonably related to the person’s interest as a member. Where the corporation reasonably believes that the information will be used for another purpose, or where it provides a reasonable alternative pursuant to subdivision (c), it may deny the member access to the list. In any subsequent action brought by the member under Section 6336, the court shall enforce the rights set forth in subdivision (a) unless the corporation proves that the member will allow use of the information for purposes unrelated to the person’s interest as a member or that the alternative method offered reasonably achieves the proper purpose set forth in the demand.
The authorized number of members for a purpose reasonably related to the members’ interest as members.
The corporation may, within 10 business days after receiving a demand under subdivision (a), deliver to the person or persons making the demand a written offer of an alternative method of achieving the purpose identified in the demand without providing access to or a copy of the membership list. An alternative method which reasonably and in a timely manner accomplishes the proper purpose set forth in a demand made under subdivision (a) shall be deemed a reasonable alternative, unless within a reasonable time after acceptance of the offer the corporation fails to do those things which it offered to do. Any rejection of the offer shall be in writing and shall indicate the reasons the alternative proposed by the corporation does not meet the proper purpose of the demand made pursuant to subdivision (a).
Where the corporation, in good faith, and with a substantial basis, believes that the membership list, demanded under Section 6330 by the authorized number (Section 5036), will be used for a purpose not reasonably related to the interests as members of the person or persons making the demand (hereinafter called the requesting parties) as members or provides a reasonable alternative pursuant to subdivision (c) of Section 6330, it may petition the superior court of the proper county for an order setting aside the demand.
Except as provided in subdivision (c), a petition for an order to show cause why a protective order pursuant to subdivision (d) should not issue shall be filed within 10 business days after the demand by the authorized number under Section 6330 or receipt of a written rejection by the authorized number of an offer made pursuant to subdivision (c) of Section 6330, whichever is later. The petition shall be accompanied by an application for a hearing on the petition. Upon the filing of the petition, the court shall issue a protective order staying production of the list demanded until the hearing on the order to show cause. The court shall set the hearing on the order to show cause not more than 20 days from the date of the filing of the petition. The order to show cause shall be granted unless the court finds that there is no reasonable probability that the corporation will make the showing required under subdivision (f).
A corporation may file a petition under this section more than 10 business days after the demand or rejection under Section 6330, but only upon a showing the delay was caused by excusable neglect. In no event, however, may any petition under this section be considered if filed more than 30 days after the requesting parties’ demand or rejection, whichever is later.
Upon the return day of the order to show cause, the court may issue a protective order staying production of the list demanded until final adjudication of the petition filed pursuant to this section. No protective order shall issue under this subdivision unless the court finds that the rights of the requesting parties can reasonably be preserved and that the corporation is likely to make the showing required by subdivision (f) or the court is likely to issue a protective order pursuant to subdivision (g).
If the corporation fails to file a petition within the time allowed by subdivision (b) or (c), whichever is applicable, or fails to obtain a protective order under subdivision (d), then the corporation shall comply with the demand, and no further action may be brought by the corporation under this section.
The court shall issue the final order setting aside the demand only if the corporation proves:
That there is a reasonable probability that the requesting parties will permit use of the membership list for a purpose unrelated to their interests as members; or
That the method offered by the corporation is a reasonable alternative in that it reasonably achieves the proper purpose set forth in the requesting parties’ demand and that the corporation intends and is able to effectuate the reasonable alternative.
The court shall award reasonable costs and expenses, including reasonable attorneys’ fees, to requesting parties who successfully oppose any petition or application filed pursuant to this section.
Where the corporation has neither, within the time allowed, complied with a demand by the authorized number (Section 5036) under Section 6330, nor obtained a protective order staying production of the list, or a final order setting aside the demand, which is then in effect, the requesting parties may petition the superior court of the proper county for a writ of mandamus pursuant to Section 1085 of the Code of Civil Procedure compelling the corporation to comply with the demand. At the hearing, the court shall hear the parties summarily, by affidavit or otherwise, and shall issue a peremptory writ of mandamus unless it appears that the demand was not made by an authorized number (Section 5036), that the demand has been complied with, that the corporation, pursuant to subdivision (c) of Section 6330, made an offer which was not rejected in writing within a reasonable time, or that a protective or final order properly issued under subdivision (d), (f) or (g) is then in effect. No inquiry may be made in such proceeding into the use for which the authorized number seek the list. The court shall award reasonable costs and expenses, including reasonable attorneys’ fees, to persons granted an order under this subdivision.
Nothing in this section shall be construed to limit the right of the corporation to obtain damages for any misuse of a membership list obtained under Section 6330, or otherwise, or to obtain injunctive relief necessary to restrain misuse of a member list. A corporation shall be entitled to recover reasonable costs and expenses, including reasonable attorneys’ fees, incurred in successfully bringing any such action.
Upon petition of the corporation or any member, the superior court of the proper county may limit or restrict the rights set forth in Section 6330 where, and only where such limitation or restriction is necessary to protect the rights of any member under the Constitution of the United States or the Constitution of the State of California. An order issued pursuant to this subdivision shall provide, insofar as possible, for alternative mechanisms by which the persons seeking to exercise rights under Section 6330 may communicate with members for purposes reasonably related to their interests as members.
Upon the filing of a petition under subdivision (a), the court may, if requested by the person making the petition, issue a temporary order suspending the running of any time limit specified in Section 6330 for compliance with that section. Such an order may be extended, after notice and hearing, until final adjudication of the petition, wherever it appears that the petitioner may prevail on the merits, and it is otherwise equitable to do so.
The accounting books and records and minutes of proceedings of the members and the board and committees of the board shall be open to inspection upon the written demand on the corporation of any member at any reasonable time, for a purpose reasonably related to such person’s interests as a member.
Every director shall have the absolute right at any reasonable time to inspect and copy all books, records and documents of every kind and to inspect the physical properties of the corporation of which such person is a director.
Where the proper purpose of the person or persons making a demand pursuant to Section 6330 is frustrated by (1) any delay by the corporation in complying with a demand under Section 6330 beyond the time limits specified therein, or (2) any delay caused by the filing of a petition under Section 6331 or Section 6332, or (3) any delay caused by the alternative proposed under subdivision (c) of Section 6330, the person or persons properly making the demand shall have, in the discretion of the court, a right to obtain from the superior court an order postponing any members’ meeting previously noticed for a period equal to the period of such delay. The members may obtain such an order in a proceeding brought pursuant to Section 6331 upon the filing of a verified complaint in the proper county and after a hearing, notice of which shall be given to such persons and in such manner as the court may direct. Such right shall be in addition to any other legal or equitable remedies to which the member may be entitled.
Upon refusal of a lawful demand for inspection under this chapter, or a lawful demand pursuant to Section 6330 or Section 6333, the superior court of the proper county, or the county where the books or records in question are kept, may enforce the demand or right of inspection with just and proper conditions or may, for good cause shown, appoint one or more competent inspectors or independent accountants to audit the financial statements kept in this state and investigate the property, funds and affairs of any corporation and of any subsidiary corporation thereof, domestic or foreign, keeping records in this state and to report thereon in such manner as the court may direct.
All officers and agents of the corporation shall produce to the inspectors or accountants so appointed all books and documents in their custody or power, under penalty of punishment for contempt of court.
All expenses of the investigation or audit shall be defrayed by the applicant unless the court orders them to be paid or shared by the corporation.
In any action or proceeding under this article, and except as required by Section 6331, if the court finds the failure of the corporation to comply with a proper demand thereunder was without justification, the court may award the member reasonable costs and expenses, including reasonable attorneys’ fees, in connection with such action or proceeding.
A membership list is a corporate asset. Without consent of the board a membership list or any part thereof may not be obtained or used by any person for any purpose not reasonably related to a member’s interest as a member. Without limiting the generality of the foregoing, without the consent of the board a membership list or any part thereof may not be:
Used to solicit money or property unless such money or property will be used solely to solicit the vote of the members in an election to be held by their corporation.
Used for any purpose which the user does not reasonably and in good faith believe will benefit the corporation.
Used for any commercial purpose or purpose in competition with the corporation.
Sold to or purchased by any person.
Any person who violates the provisions of subdivision (a) shall be liable for any damage such violation causes the corporation and shall account for and pay to the corporation any profit derived as a result of such violation. In addition, a court in its discretion may award exemplary damages for a fraudulent or malicious violation of subdivision (a).
Nothing in this article shall be construed to limit the right of a corporation to obtain injunctive relief necessary to restrain misuse of a membership list or any part thereof.
In any action or proceeding under this section, a court may award the corporation reasonable costs and expenses, including reasonable attorneys’ fees, in connection with such action or proceeding.
As used in this section, the term “membership list” means the record of the members’ names and addresses.
CHAPTER 14. Service of Process [6410. - 6410.]
Service of process upon a corporation shall be governed by Chapter 17 (commencing with Section 1700) of Division 1 of Title 1.
CHAPTER 15. Involuntary Dissolution [6510. - 6519.]
A complaint for involuntary dissolution of a corporation on any one or more of the grounds specified in subdivision (b) may be filed in the superior court of the proper county by any of the following persons:
One-half or more of the directors in office.
A person or persons holding or authorized in writing by persons holding not less than 3313 percent of the voting power exclusive of memberships held by persons who have personally participated in any of the transactions enumerated in paragraph (5) of subdivision (b).
Any member if the ground for dissolution is that the period for which the corporation was formed has terminated without extension thereof.
Any other person expressly authorized to do so in the articles.
The Attorney General.
The head organization under whose authority the corporation was created, where the corporation’s articles include the provision authorized by subdivision (a), paragraph (2), clause (i), of Section 5132.
The grounds for involuntary dissolution are that:
The corporation has abandoned its activity for more than one year.
The corporation has an even number of directors who are equally divided and cannot agree as to the management of its affairs, so that its activities can no longer be conducted to advantage or so that there is danger that its property will be impaired or lost or its activities impaired and the members are so divided into factions that they cannot elect a board consisting of an uneven number.
There is internal dissension and two or more factions of members in the corporation are so deadlocked that its activities can no longer be conducted with advantage.
When during any four-year period or when all voting power has been exercised at two consecutive meetings or in two written ballots for the election of directors, whichever period is shorter, the members have failed to elect successors to directors whose terms have expired or would have expired upon election of their successors.
Those in control of the corporation have been guilty of or have knowingly countenanced persistent and pervasive fraud, mismanagement or abuse of authority or the corporation’s property is being misapplied or wasted by its directors or officers.
Liquidation is reasonably necessary as the corporation is failing and has continuously failed to carry out its purposes.
The period for which the corporation was formed has terminated without extension of such period.
The corporation is required to dissolve under the terms of any article provision adopted pursuant to subdivision (a), paragraph (2), clause (i), of Section 5132.
At any time prior to the trial of the action any creditor or the authorized number (Section 5036) of members may intervene therein.
In any action brought pursuant to subdivision (a), the Attorney General shall be an indispensable party.
The Attorney General may bring an action against any corporation or purported corporation in the name of the people of this state, upon the Attorney General’s own information or upon complaint of a private party, to procure a judgment dissolving the corporation and annulling, vacating or forfeiting its corporate existence upon any of the following grounds:
The corporation has seriously offended against any provision of the statutes regulating corporations or charitable organizations.
The corporation has fraudulently abused or usurped corporate privileges or powers.
The corporation has violated any provision of law by any act or default which under the law is a ground for forfeiture of corporate existence.
The corporation has failed to pay to the Franchise Tax Board for a period of five years any tax imposed upon it by the Bank and Corporation Tax Law.
If the ground of the action is a matter or act which the corporation has done or omitted to do that can be corrected by amendment of its articles or by other corporate action, such suit shall not be maintained unless (1) the Attorney General, at least 30 days prior to the institution of suit, has given the corporation written notice of the matter or act done or omitted to be done and (2) the corporation has failed to institute proceedings to correct it within the 30-day period or thereafter fails to duly and properly make such amendment or take the corrective corporate action.
In any such action the court may order dissolution or such other or partial relief as it deems just and expedient. The court also may appoint a receiver for winding up the affairs of the corporation or may order that the corporation be wound up by its board subject to the supervision of the court.
Service of process on the corporation may be made pursuant to Chapter 17 (commencing with Section 1700) of Division 1 or by written notice to the president or secretary of the corporation at the address indicated in the corporation’s last tax return filed pursuant to the Bank and Corporation Tax Law. The Attorney General shall also publish one time in a newspaper of general circulation in the proper county a notice to the members of the corporation.
If the ground for the complaint for involuntary dissolution of the corporation is a deadlock in the board as set forth in paragraph (2) of subdivision (b) of Section 6510, the court may appoint a provisional director. The provisions of subdivision (e) of Section 5225 apply to any such provisional director so appointed.
If, at the time of the filing of a complaint for involuntary dissolution or at any time thereafter, the court has reasonable grounds to believe that unless a receiver of the corporation is appointed the interests of the corporation or the public or charitable purpose of the corporation will suffer pending the hearing and determination of the complaint, upon the application of the plaintiff, and after a hearing upon such notice to the corporation as the court may direct and upon the giving of security pursuant to Sections 566 and 567 of the Code of Civil Procedure, the court may appoint a receiver to take over and manage the affairs of the corporation and to preserve its property pending the hearing and determination of the complaint for dissolution.
After hearing the court may decree a winding up and dissolution of the corporation if cause therefor is shown or, with or without winding up and dissolution, may make such orders and decrees and issue such injunctions in the case as justice and equity require.
Involuntary proceedings for winding up a corporation commence when the order for winding up is entered under Section 6514.
When an involuntary proceeding for winding up has commenced, the board shall conduct the winding up of the affairs of the corporation, subject to the supervision of the court, unless other persons are appointed by the court, on good cause shown, to conduct the winding up. The directors or such other persons may, subject to any restrictions imposed by the court, exercise all their powers through the executive officers without any order of court.
When an involuntary proceeding for winding up has commenced, the corporation shall cease to conduct its activities except to the extent necessary for the beneficial winding up thereof and except during such period as the board may deem necessary to preserve the corporation’s goodwill or going concern value, pending a sale or other disposition of its assets, or both, in whole or in part. The directors shall cause written notice of the commencement of the proceeding for involuntary winding up to be given by mail to all members and to all known creditors and claimants whose addresses appear on the records of the corporation, unless the order for winding up has been stayed by appeal therefrom or otherwise or the proceeding or the execution of the order has been enjoined.
When an involuntary proceeding for winding up has been commenced, the jurisdiction of the court includes:
The requirement of the proof of all claims and demands against the corporation, whether due or not yet due, contingent, unliquidated or sounding only in damages, and the barring from participation of creditors and claimants failing to make and present claims and proof as required by any order.
The determination or compromise of all claims of every nature against the corporation or any of its property, and the determination of the amount of money or assets required to be retained to pay or provide for the payment of claims.
The presentation and filing of intermediate and final accounts of the directors or other persons appointed to conduct the winding up and hearing thereon, the allowance, disallowance or settlement thereof and the discharge of the directors or such other persons from their duties and liabilities.
The appointment of a commissioner to hear and determine any or all matters, with such power or authority as the court may deem proper.
The filling of any vacancies on the board which the directors or members are unable to fill.
The removal of any director if it appears that the director has been guilty of dishonesty, misconduct, neglect or breach of trust in conducting the winding up or if the director is unable to act. The court may order an election to fill the vacancy so caused, and may enjoin, for such time as it considers proper, the reelection of the director so removed; or the court, in lieu of ordering an election, may appoint a director to fill the vacancy caused by such removal. Any director so appointed by the court shall serve until the next regular meeting of members or until a successor is elected or appointed.
The staying of the prosecution of any suit, proceeding or action against the corporation and requiring the parties to present and prove their claims in the manner required of other creditors.
The determination of whether adequate provision has been made for payment or satisfaction of all debts and liabilities not actually paid.
The making of orders for the withdrawal or termination of proceedings, to windup and dissolve, subject to conditions for the protection of creditors.
The making of an order, upon the allowance or settlement of the final accounts of the directors or such other persons, that the corporation has been duly wound up and is dissolved. Upon the making of such order, the corporate existence shall cease except for purposes of further winding up if needed.
The making of orders for the bringing in of new parties as the court deems proper for the determination of all questions and matters.
The disposition of assets held in charitable trust.
All creditors and claimants may be barred from participation in any distribution of the general assets if they fail to make and present claims and proofs within such time as the court may direct, which shall not be less than four nor more than six months after the first publication of notice to creditors unless it appears by affidavit that there are no claims, in which case the time limit may be three months. If it is shown that a claimant did not receive notice because of absence from the state or other cause, the court may allow a claim to be filed or presented at any time before distribution is completed.
Such notice to creditors shall be published not less than once a week for three consecutive weeks in a newspaper of general circulation published in the county in which the proceeding is pending or, if there is no such newspaper published in that county, in such newspaper as may be designated by the court, directing creditors and claimants to make and present claims and proofs to the person, at the place and within the time specified in the notice. A copy of the notice shall be mailed to each person shown as a creditor or claimant on the books of the corporation, at such person’s last known address.
Holders of secured claims may prove for the whole debt in order to realize any deficiency. If such creditors fail to present their claims they shall be barred only as to any right to claim against the general assets for any deficiency in the amount realized on their security.
Before any distribution is made the amount of any unmatured, contingent or disputed claim against the corporation which has been presented and has not been disallowed, or such part of any such claim as the holder would be entitled to if the claim were due, established or absolute, shall be paid into court and there remain to be paid over to the party when the party becomes entitled thereto or, if the party fails to establish a claim, to be paid over or distributed with the other assets of the corporation to those entitled thereto; or such other provision for the full payment of such claim, if and when established, shall be made as the court may deem adequate. A creditor whose claim has been allowed but is not yet due shall be entitled to its present value upon distribution.
Suits against the corporation on claims which have been rejected shall be commenced within 30 days after written notice of rejection thereof is given to the claimant.
Upon the final settlement of the accounts of the directors or other persons appointed pursuant to Section 6515 and the determination that the corporation’s affairs are in condition for it to be dissolved, the court may make an order declaring the corporation duly wound up and dissolved. The order shall declare:
That the corporation has been duly wound up, that a final franchise tax return, as described by Section 23332 of the Revenue and Taxation Code, has been filed with the Franchise Tax Board, as required under Part 10.2 (commencing with Section 18401) of Division 2 of the Revenue and Taxation Code and that its known debts and liabilities have been paid or adequately provided for, or that those debts and liabilities have been paid as far as its assets permitted, as the case may be. If there are known debts or liabilities for payment of which adequate provision has been made, the order shall state what provision has been made, setting forth the name and address of the corporation, person or governmental agency that has assumed or guaranteed the payment, or the name and address of the depositary with which deposit has been made or such other information as may be necessary to enable the creditor or other person to whom payment is to be made to appear and claim payment of the debt or liability.
That its known assets have been distributed to the persons entitled thereto or that it acquired no known assets, as the case may be.
That the accounts of directors or such other persons have been settled and that they are discharged from their duties and liabilities to creditors and members.
That the corporation is dissolved.
In an action brought by, and at the request of, the Attorney General, the court may make an order declaring that a corporation is wound up and dissolved without meeting the requirements in subdivision (a), upon a finding by the court that it is impossible or impracticable to meet some or all of those requirements.
The court may make such additional orders and grant such further relief as it deems proper upon the evidence submitted.
Upon the making of the order declaring the corporation dissolved, corporate existence shall cease except for the purposes of further winding up if needed; and the directors or such other persons shall be discharged from their duties and liabilities, except as otherwise ordered by the court and in respect to completion of the winding up.
Whenever a corporation is dissolved or its existence forfeited by order, decree or judgment of a court, a copy of the order, decree or judgment, certified by the clerk of court, shall forthwith be filed. The Secretary of State shall notify the Franchise Tax Board of the dissolution.
CHAPTER 16. Voluntary Dissolution [6610. - 6618.]
Any corporation which comes within one of the following descriptions may elect by approval of the board to wind up and dissolve:
A corporation which has been the subject of an order for relief in bankruptcy.
A corporation which has disposed of all of its assets and has not conducted any activity for a period of five years immediately preceding the adoption of the resolution electing to dissolve the corporation.
A corporation which has no members.
A corporation which is required to dissolve under provisions of its articles adopted pursuant to subparagraph (A) of paragraph (2) of subdivision (a), of Section 5132.
If a corporation comes within one of the descriptions in subdivision (b) and the number of directors then in office is less than a quorum, the corporation may elect to voluntarily wind up and dissolve by any of the following:
If a corporation elects to voluntarily wind up and dissolve pursuant to subdivision (c), references to the board in this chapter and Chapter 17 (commencing with Section 6710) shall be deemed to be to a board consisting solely of those directors or that sole director and action by the board shall require at least the same consent or vote as would be required under subdivision (c) for an election to wind up and dissolve.
Notwithstanding any other provision of this division, when a corporation has not issued any memberships, a majority of the directors, or, if no directors have been named in the articles or have been elected, the incorporator or a majority of the incorporators, may sign and verify a certificate of dissolution stating all of the following:
That the certificate of dissolution is being filed within 24 months from the date the articles of incorporation were filed.
That the corporation does not have any debts or other liabilities, except as provided in paragraph (3) and subdivision (d).
That the tax liability will be satisfied on a taxes-paid basis or that a person or corporation or other business entity assumes the tax liability, if any, of the dissolving corporation and is responsible for additional corporate taxes, if any, that are assessed and that become due after the date of the assumption of the tax liability.
That a final franchise tax return, as described by Section 23332 of the Revenue and Taxation Code, has been or will be filed with the Franchise Tax Board as required under Part 10.2 (commencing with Section 18401) of Division 2 of the Revenue and Taxation Code.
That the corporation was created in error.
That the known assets of the corporation remaining after payment of, or adequately providing for, known debts and liabilities have been distributed as required by law or that the corporation acquired no known assets, as the case may be.
That a majority of the directors, or, if no directors have been named in the articles or have been elected, the incorporator or a majority of the incorporators authorized the dissolution and elected to dissolve the corporation.
That the corporation has not issued any memberships, and if the corporation has received payments for memberships, those payments have been returned to those making the payments.
That the corporation is dissolved.
A certificate of dissolution signed and verified pursuant to subdivision (a) shall be filed with the Secretary of State. The Secretary of State shall notify the Franchise Tax Board and the Attorney General’s Registry of Charities and Fundraisers of the dissolution.
Upon filing a certificate of dissolution pursuant to subdivision (b), a corporation shall be dissolved and its powers, rights, and privileges shall cease.
Notwithstanding the dissolution of a corporation pursuant to this section, its liability to creditors, if any, is not discharged. The liability of the directors of, or other persons related to, the dissolved corporation is not discharged. The dissolution of a corporation pursuant to this section shall not diminish or adversely affect the ability of the Attorney General to enforce liabilities as otherwise provided by law.
Whenever a corporation has elected to wind up and dissolve a certificate evidencing that election shall forthwith be filed and a copy thereof filed with the Attorney General.
The certificate shall be an officers’ certificate or shall be signed and verified by at least a majority of the directors then in office or by one or more members authorized to do so by approval of a majority of all members (Section 5033) and shall set forth:
That the corporation has elected to wind up and dissolve.
If the election was made by the vote of members alone, the number of votes for the election and that the election was made by a majority of all members (Section 5033).
If the election was made by the board and members pursuant to paragraph (2) of subdivision (a) of Section 6610, or subparagraph (B) of paragraph (1) of subdivision (b) of Section 9680, the certificate shall state that it was made by the board and the members in accordance with Section 5034.
If the certificate is executed by a member or members, that the subscribing person or persons were authorized to execute the certificate by a majority of all members (Section 5033).
If an election to dissolve made pursuant to subdivision (a) of Section 6610 or paragraph (1) of subdivision (b) of Section 9680 is made by the vote of all the members of a corporation with members or by all members of the board of a corporation without members pursuant to subdivision (b) of Section 6610, or paragraph (2) of subdivision (b) of Section 9680 and a statement to that effect is added to the certificate of dissolution pursuant to Section 6615, the separate filing of the certificate of election pursuant to this section is not required.
A voluntary election to wind up and dissolve may be revoked prior to distribution of any assets: (1) if the election was made pursuant to paragraph (1) of subdivision (a) of Section 6610, by the vote of a majority of all members (Section 5033); or (2) if the election was made pursuant to paragraph (2) of subdivision (a) of Section 6610, by the approval of the board and the members (Section 5034); or (3) if the election was by the board pursuant to subdivision (b) of Section 6610, by approval of the board. Thereupon a certificate evidencing the revocation shall be signed, verified and filed in the manner prescribed by Section 6611 and a copy thereof filed with the Attorney General.
The certificate shall set forth:
That the corporation has revoked its election to wind up and dissolve.
That no assets have been distributed pursuant to the election.
If the revocation was made by the vote of members alone, the number of votes for the revocation and that the revocation was made by a majority of all members (Section 5033).
If the revocation was made by the board and members pursuant to paragraph (2) of subdivision (a) of Section 6612, the certificate shall so state.
If the revocation was made by the board alone, the certificate shall so state.
Voluntary proceedings for winding up the corporation commence upon the adoption of the resolution required by Section 6610 by the members, by the board and members, or by the board alone, electing to wind up and dissolve.
When a voluntary proceeding for winding up has commenced, the board shall continue to act as a board and shall have full powers to wind up and settle its affairs, both before and after the filing of the certificate of dissolution.
When a voluntary proceeding for winding up has commenced, the corporation shall cease to conduct its activities except to the extent necessary for the beneficial winding up thereof, to the extent necessary to carry out its purposes and except during such period as the board may deem necessary to preserve the corporation’s goodwill or going-concern value pending a sale or other disposition of its assets, or both, in whole or in part. The board shall cause written notice of the commencement of the proceeding for voluntary winding up to be given by mail to all its members (except no notice need be given to the members who voted in favor of winding up and dissolving the corporation), to all known creditors and claimants whose addresses appear on the records of the corporation, and to the Attorney General.
If a corporation is in the process of voluntary winding up, the superior court of the proper county, upon the petition of (a) the corporation, or (b) the authorized number (Section 5036), or (c) the Attorney General, or (d) three or more creditors, and upon such notice to the corporation and to other persons interested in the corporation as members and creditors as the court may order, may take jurisdiction over such voluntary winding up proceeding if that appears necessary for the protection of any parties in interest or if it appears necessary to protect the purpose or purposes served by the corporation. The court, if it assumes jurisdiction, may make such orders as to any and all matters concerning the winding up of the affairs of the corporation and the protection of its creditors, its assets and its purpose or purposes as justice and equity may require. The provisions of Chapter 15 (commencing with Section 6510) (except Sections 6510 and 6511) shall apply to such court proceedings.
When a corporation has been completely wound up without court proceedings, a majority of the directors then in office shall sign and verify a certificate of dissolution stating:
That the corporation has been completely wound up.
That its known debts and liabilities have been actually paid, or adequately provided for, or paid or adequately provided for as far as its assets permitted, or that it has incurred no known debts or liabilities, as the case may be. If there are known debts or liabilities for payment of which adequate provision has been made, the certificate shall state what provision has been made, setting forth the name and address of the corporation, person or governmental agency that has assumed or guaranteed the payment, or the name and address of the depositary with which deposit has been made or other information as may be necessary to enable the creditor or other person to whom payment is to be made to appear and claim payment of the debt or liability.
That the corporation is dissolved.
That all final returns required under the Revenue and Taxation Code have been or will be filed with the Franchise Tax Board.
That the corporation, if applicable, is a committee, as defined in Section 82013 of the Government Code, that is required to and does file any statement pursuant to the provisions of Article 2 (commencing with Section 84200) of Chapter 4 of Title 9 of the Government Code and is exempt from the supervisory authority of the Attorney General pursuant to Sections 12581 and 12583 of the Government Code and is exempt from and not required to file the attachment specified in subdivision (b).
Except as provided in subdivision (c), one of the following documents issued by the Attorney General shall be attached to the certificate of dissolution:
A written waiver of objections to the distribution of the corporation’s assets pursuant to subdivision (c) of Section 6716.
A written confirmation that the corporation has no assets.
The certificate of dissolution and attachment described in subdivision (b) shall be filed with the Secretary of State. The Secretary of State shall not accept a certificate of dissolution for filing without this attachment unless the attachment is not required as specified in paragraph (5) of subdivision (a). The corporate existence shall cease upon the acceptance of the filing of the certificate of dissolution and, if required, the attachment, by the Secretary of State, except for the purpose of further winding up if needed. The Secretary of State shall notify the Franchise Tax Board of the dissolution.
Except as otherwise provided by law, if the term of existence for which any corporation was organized expires without renewal or extension thereof, the board shall terminate its activities and wind up its affairs; and when the affairs of the corporation have been wound up a majority of the directors shall execute and file a certificate conforming to the requirements of Section 6615.
The board, in lieu of filing the certificate of dissolution, may petition the superior court of the proper county for an order declaring the corporation duly wound up and dissolved. Such petition shall be filed in the name of the corporation.
Upon the filing of the petition, the court shall make an order requiring all persons, including the Attorney General, interested to show cause why an order shall not be made declaring the corporation duly wound up and dissolved and shall direct that the order be served by notice to all creditors, claimants and members in the same manner as the notice given under subdivision (b) of Section 6517. Notice shall be served upon the Attorney General.
Any person claiming to be interested as creditor or otherwise may appear in the proceeding at any time before the expiration of 30 days from the completion of publication of the order to show cause and contest the petition, and upon failure to appear such person’s claim shall be barred.
A corporation in the process of voluntary winding up may dispose of the known claims against it by following the procedure described in this section.
The written notice to known creditors and claimants required by subdivision (c) of Section 6613 shall comply with all of the following requirements:
Describe any information that must be included in a claim.
Provide a mailing address where a claim may be sent.
State the deadline, which may not be fewer than 120 days from the effective date of the written notice, by which the corporation must receive the claim.
State that the claim will be barred if not received by the deadline.
A claim against the corporation is barred if any of the following occur:
For purposes of this section “claim” does not include a contingent liability or a claim based on an event occurring after the effective date of dissolution.
CHAPTER 17. General Provisions Relating to Dissolution [6710. - 6721.]
The powers and duties of the directors (or other persons appointed by the court pursuant to Section 6515) and officers after commencement of a dissolution proceeding include, but are not limited to, the following acts in the name and on behalf of the corporation:
To elect officers and to employ agents and attorneys to liquidate or wind up its affairs.
To continue the conduct of the affairs of the corporation insofar as necessary for the disposal or winding up thereof.
To carry out contracts and collect, pay, compromise and settle debts and claims for or against the corporation.
To defend suits brought against the corporation.
To sue, in the name of the corporation, for all sums due or owing to the corporation or to recover any of its property.
To collect any amounts remaining unpaid on memberships or to recover unlawful distributions.
Subject to the provisions of Section 5142, to sell at public or private sale, exchange, convey or otherwise dispose of all or any part of the assets of the corporation for an amount deemed reasonable by the board without compliance with the provisions of Section 5911, and to execute bills of sale and deeds of conveyance in the name of the corporation.
In general, to make contracts and to do any and all things in the name of the corporation which may be proper or convenient for the purposes of winding up, settling and liquidating the affairs of the corporation.
A vacancy on the board may be filled during a winding up proceeding in the manner provided in Section 5224.
When the identity of the directors or their right to hold office is in doubt, or if they are dead or unable to act, or they fail or refuse to act or their whereabouts cannot be ascertained, any interested person, including the Attorney General, may petition the superior court of the proper county to determine the identity of the directors or, if there are no directors, to appoint directors to wind up the affairs of the corporation, after hearing upon such notice to such persons as the court may direct.
If the winding up is by court proceeding or subject to court supervision, the distribution shall not be made until after the expiration of any period for the presentation of claims that has been prescribed by order of the court.
The payment of a debt or liability, whether the whereabouts of the creditor is known or unknown, has been adequately provided for if the payment has been provided for by either of the following means:
Payment thereof has been assumed or guaranteed in good faith by one or more financially responsible persons or by the United States government or any agency thereof, and the provision (including the financial responsibility of such persons) was determined in good faith and with reasonable care by the board to be adequate at the time of any distribution of the assets by the board pursuant to this chapter.
The amount of the debt or liability has been deposited as provided in Section 6718.
This section does not prescribe the exclusive means of making adequate provision for debts and liabilities.
After complying with the provisions of Section 6713, assets held by a corporation upon a valid condition requiring return, transfer, or conveyance, which condition has occurred or will occur by reason of the dissolution, shall be returned, transferred, or conveyed in accordance with the condition.
After complying with the provisions of Section 6713:
Except as provided in Section 6715, all of a corporation’s assets shall be disposed of on dissolution in conformity with its articles or bylaws subject to complying with the provisions of any trust under which such assets are held.
Except as provided in subdivision (c), the disposition required in subdivision (a) shall be made by decree of the superior court of the proper county in proceedings to which the Attorney General is a party. The decree shall be made upon petition therefor by the Attorney General or, upon 30 days’ notice to the Attorney General, by any person concerned in the dissolution.
The disposition required in subdivision (a) may be made without the decree of the superior court, subject to the rights of persons concerned in the dissolution, if the Attorney General makes a written waiver of objections to the disposition.
Subdivisions (b) and (c) shall not be applicable to any corporation as described in paragraph (5) of subdivision (a) of Section 6615.
Subject to the provisions of any trust under which assets to be distributed are held, distribution may be made either in money or in property or securities and either in installments from time to time or as a whole, if this can be done fairly and ratably and in conformity with the provisions of the articles and bylaws and shall be made as soon as reasonably consistent with the beneficial liquidation of the corporation’s assets.
If any creditors or other persons are unknown or fail or refuse to accept their payment or distribution in cash or property or their whereabouts cannot be ascertained after diligent inquiry, or the existence or amount of a claim of a creditor or other person is contingent, contested, or not determined, the corporation may deposit any such payment, distribution, or the maximum amount of the claim with the Controller in trust for the benefit of those lawfully entitled to the payment, distribution, or the amount of the claim. The payment or distribution shall be paid over by the depositary to the lawful owners, their representatives or assigns, upon satisfactory proof of title.
For the purpose of providing for the transmittal, receipt, accounting for, claiming, management, and investment of all money or other property deposited with the Controller under subdivision (a), the money or other property shall be deemed to be paid or delivered for deposit with the Controller under Chapter 7 (commencing with Section 1500) of Title 10 of Part 3 of the Code of Civil Procedure, and may be recovered in the manner prescribed in that chapter.
Whenever in the process of winding up a corporation any distribution of assets has been made, otherwise than under an order of court, without prior payment or adequate provision for payment of any of the debts and liabilities of the corporation, any amount so improperly distributed to any person may be recovered by the corporation. Any of such persons may be joined as defendants in the same action or be brought in on the motion of any other defendant.
Suit may be brought in the name of the corporation to enforce the liability under subdivision (a) against any or all persons receiving the distribution by the Attorney General or by any one or more creditors of the corporation, whether or not they have reduced their claims to judgment.
A corporation which is dissolved nevertheless continues to exist for the purpose of winding up its affairs, prosecuting and defending actions by or against it and enabling it to collect and discharge obligations, dispose of and convey its property and collect and divide its assets, but not for the purpose of continuing its activities except so far as necessary for the winding up thereof.
No action or proceeding to which a corporation is a party abates by the dissolution of the corporation or by reason of proceedings for winding up and dissolution thereof.
Any assets inadvertently or otherwise omitted from the winding up continue in the dissolved corporation for the benefit of the persons entitled thereto upon dissolution of the corporation and on realization shall be distributed accordingly.
In all cases where a corporation has been dissolved, any person to whom assets were distributed upon dissolution may be sued in the corporate name upon any cause of action against the corporation arising prior to its dissolution. Notice of such action shall be given to the Attorney General who may intervene. This section is procedural in nature and is not intended to determine liability.
Summons or other process against such a corporation may be served by delivering a copy thereof to an officer, director or person having charge of its assets or, if no such person can be found, to any agent upon whom process might be served at the time of dissolution. If none of such persons can be found with due diligence and it is so shown by affidavit to the satisfaction of the court, then the court may make an order that summons or other process be served upon the dissolved corporation by personally delivering a copy thereof, together with a copy of the order, to the Secretary of State or an assistant or deputy secretary of state. Service in this manner is deemed complete on the 10th day after the delivery of process to the Secretary of State. A copy of any summons or other process shall be served on the Attorney General.
Every such corporation shall survive and continue to exist indefinitely for the purpose of being sued in any quiet title action. Any judgment rendered in any such action shall bind each and every person having an interest in such corporation, to the extent of their interest therein, and such action shall have the same force and effect as an action brought under the provisions of Sections 410.50 and 410.60 of the Code of Civil Procedure. Service of summons or other process in any such action may be made as provided in Chapter 4 (commencing with Section 413.10) of Title 5 of Part 2 of the Code of Civil Procedure or as provided in subdivision (b).
Upon receipt of such process and the fee therefor, the Secretary of State forthwith shall give notice to the corporation as provided in Section 1702.
CHAPTER 18. Crimes and Penalties [6810. - 6815.]
Upon the failure of a corporation to file the statement required by Section 6210, the Secretary of State shall provide a notice of that delinquency to the corporation. The notice shall also contain information concerning the application of this section, and advise the corporation of the penalty imposed by Section 19141 of the Revenue and Taxation Code for failure to timely file the required statement after notice of delinquency has been provided by the Secretary of State. If, within 60 days after providing the notice of delinquency, a statement pursuant to Section 6210 has not been filed by the corporation, the Secretary of State shall certify the name of the corporation to the Franchise Tax Board.
Upon certification pursuant to subdivision (a), the Franchise Tax Board shall assess against the corporation a penalty of fifty dollars ($50) pursuant to Section 19141 of the Revenue and Taxation Code.
The penalty herein provided shall not apply to a corporation that on or prior to the date of certification pursuant to subdivision (a) has dissolved, has converted to another type of business entity, or has been merged into another corporation or other business entity.
The penalty herein provided shall not apply and the Secretary of State need not provide a notice of the delinquency to a corporation the corporate powers, rights, and privileges of which have been suspended by the Franchise Tax Board pursuant to Section 23301, 23301.5, or 23775 of the Revenue and Taxation Code on or prior to, and remain suspended on, the last day of the filing period pursuant to Section 6210. The Secretary of State need not provide notice of the filing requirement pursuant to Section 6210 to a corporation the corporate powers, rights, and privileges of which have been so suspended by the Franchise Tax Board on or prior to, and remain suspended on, the day the Secretary of State prepares the notice for sending.
If, after certification pursuant to subdivision (a), the Secretary of State finds the required statement was filed before the expiration of the 60-day period after providing notice of the delinquency, the Secretary of State shall promptly decertify the name of the corporation to the Franchise Tax Board. The Franchise Tax Board shall then promptly abate any penalty assessed against the corporation pursuant to Section 19141 of the Revenue and Taxation Code.
If the Secretary of State determines that the failure of a corporation to file a statement required by Section 6210 is excusable because of reasonable cause or unusual circumstances that justify the failure, the Secretary of State may waive the penalty imposed by this section and by Section 19141 of the Revenue and Taxation Code, in which case the Secretary of State shall not certify the name of the corporation to the Franchise Tax Board, or if already certified, the Secretary of State shall promptly decertify the name of the corporation.
Any director of any corporation who concurs in any vote or act of the directors of the corporation or any of them, knowingly and with dishonest or fraudulent purpose, to make any distribution with the design of defrauding creditors, members, or the corporation, is guilty of a crime. Each such crime is punishable by imprisonment pursuant to subdivision (h) of Section 1170 of the Penal Code or by a fine of not more than one thousand dollars ($1,000) or imprisonment in a county jail for not more than one year, or both that fine and imprisonment.
Every director or officer of any corporation is guilty of a crime if such director or officer knowingly concurs in making or publishing, either generally or privately, to members or other persons (1) any materially false report or statement as to the financial condition of the corporation, or (2) any willfully or fraudulently exaggerated report, account or statement of operations or financial condition, intended to induce and having a tendency to induce, contributions or donations to the corporation by members or other persons.
Every director or officer of any corporation is guilty of a crime who refuses to make or direct to be made any book entry or the posting of any notice required by law in the manner required by law.
A violation of subdivision (a) or (b) of this section shall be punishable by imprisonment in state prison or by a fine of not more than one thousand dollars ($1,000) or imprisonment in the county jail for not more than one year or both such fine and imprisonment.
Every director, officer or agent of any corporation, who knowingly receives or acquires possession of any property of the corporation, otherwise than in payment of a just demand, and, with intent to defraud, omits to make, or to cause or direct to be made, a full and true entry thereof in the books or accounts of the corporation is guilty of a crime.
Every director, officer, agent or member of any corporation who, with intent to defraud, destroys, alters, mutilates or falsifies any of the books, papers, writings or securities belonging to the corporation or makes or concurs in omitting to make any material entry in any book of accounts or other record or document kept by the corporation is guilty of a crime.
Each crime specified in this section is punishable by imprisonment in state prison, or by imprisonment in a county jail for not exceeding one year, or a fine not exceeding one thousand dollars ($1,000), or by both such fine and imprisonment.
Every director, officer or agent of any corporation, or any person proposing to organize such a corporation, who knowingly exhibits any false, forged or altered book, paper, voucher, security or other instrument of evidence to any public officer or board authorized by law to examine the organization of such corporation or to investigate its affairs, with intent to deceive such officer or board in respect thereto, is punishable by imprisonment pursuant to subdivision (h) of Section 1170 of the Penal Code, or by imprisonment in a county jail for not more than one year.
Nothing in this chapter limits the power of the state to punish any person for any conduct which constitutes a crime under any other statute.
CHAPTER 19. Foreign Corporations [6910. - 6910.]
PART 3. NONPROFIT MUTUAL BENEFIT CORPORATIONS [7110. - 8910.]
CHAPTER 1. Organization and Bylaws [7110. - 7160.]
ARTICLE 1. Title and Purposes [7110. - 7111.]
This part shall be known and may be cited as the Nonprofit Mutual Benefit Corporation Law.
Subject to any other provision of law of this state applying to the particular class of corporation or line of activity, a corporation may be formed under this part for any lawful purpose; provided that a corporation all of the assets of which are irrevocably dedicated to charitable, religious, or public purposes and which as a matter of law or according to its articles or bylaws must, upon dissolution, distribute its assets to a person or persons carrying on a charitable, religious, or public purpose or purposes may not be formed under this part.
ARTICLE 2. Formation [7120. - 7122.3.]
One or more persons may form a corporation under this part by executing and filing articles of incorporation.
If initial directors are named in the articles, each director named in the articles shall sign and acknowledge the articles; if initial directors are not named in the articles, the articles shall be signed by one or more persons who thereupon are the incorporators of the corporation.
The corporate existence begins upon the filing of the articles and continues perpetually, unless otherwise expressly provided by law or in the articles.
In the case of an existing unincorporated association, the association may change its status to that of a corporation upon a proper authorization for such by the association in accordance with its rules and procedures.
In addition to the matters required to be set forth in the articles pursuant to Section 7130, the articles in the case of an incorporation authorized by subdivision (a) shall set forth that an existing unincorporated association, stating its name, is being incorporated by the filing of the articles.
The articles filed pursuant to this section shall be accompanied by a verified statement of any two officers or governing board members of the association stating that the incorporation of the association by means of the articles to which the verified statement is attached has been approved by the association in accordance with its rules and procedures.
Upon the change of status of an unincorporated association to a corporation pursuant to subdivision (a), the property of the association becomes the property of the corporation and the members of the association who had any voting rights of the type referred to in Section 5056 become members of the corporation.
The filing for record in the office of the county recorder of any county in this state in which any of the real property of the association is located, of a copy of the articles of incorporation filed pursuant to this section, certified by the Secretary of State, shall evidence record ownership in the corporation of all interests of the association in and to the real property located in that county.
All rights of creditors and all liens upon the property of the association shall be preserved unimpaired. Any action or proceeding pending by or against the unincorporated association may be prosecuted to judgment, which shall bind the corporation, or the corporation may be proceeded against or substituted in its place.
If a corporation is organized by a person who is or was an officer, director or member of an unincorporated association and such corporation is not organized pursuant to subdivision (a), the unincorporated association may continue to use its name and the corporation may not use a name which is the same as or similar to the name of the unincorporated association.
The Secretary of State shall not file articles setting forth a name in which “bank,” “trust,” “trustee,” or related words appear, unless the certificate of approval of the Commissioner of Financial Protection and Innovation is attached thereto.
The Secretary of State shall not file articles pursuant to this part setting forth a name that may create the impression that the purpose of the corporation is public, charitable, or religious or that it is a charitable foundation.
The name of a corporation shall not be a name that the Secretary of State determines is likely to mislead the public and shall be distinguishable in the records of the Secretary of State from all of the following:
The name of any corporation.
The name of any foreign corporation authorized to transact intrastate business in this state.
Each name that is under reservation pursuant to this title.
The name of a foreign corporation that has registered its name pursuant to Section 2101.
An alternate name of a foreign corporation under subdivision (b) of Section 2106.
A name that will become the record name of a domestic or foreign corporation upon a corporate instrument when there is a delayed effective or file date.
The use by a corporation of a name in violation of this section may be enjoined notwithstanding the filing of its articles by the Secretary of State.
Any applicant may, upon payment of the fee prescribed therefor in the Government Code, obtain from the Secretary of State a certificate of reservation of any name not prohibited by subdivision (c), and upon the issuance of the certificate the name stated therein shall be reserved for a period of 60 days. The Secretary of State shall not, however, issue certificates reserving the same name for two or more consecutive 60-day periods to the same applicant or for the use or benefit of the same person; nor shall consecutive reservations be made by or for the use or benefit of the same person of names so similar as to fall within the prohibitions of subdivision (c).
ARTICLE 3. Articles of Incorporation [7130. - 7135.]
The articles of incorporation of a corporation formed under this part shall set forth the following:
The name of the corporation.
Except as provided in paragraph (2) or (3), the following statement:“This corporation is a nonprofit mutual benefit corporation organized under the Nonprofit Mutual Benefit Corporation Law. The purpose of this corporation is to engage in any lawful act or activity, other than credit union business, for which a corporation may be organized under such law.”
In the case of a corporation formed under this part that is subject to the California Credit Union Law (Chapter 1 (commencing with Section 14000) of Division 5 of the Financial Code), the articles shall set forth a statement of purpose that is prescribed in the applicable provisions of the California Credit Union Law.
The articles may include a further definition of the corporation’s purposes.
The name and street address in this state of the corporation’s initial agent for service of process in accordance with subdivision (b) of Section 8210.
The initial street address of the corporation.
The initial mailing address of the corporation, if different from the initial street address.
The articles of incorporation may set forth a further statement limiting the purposes or powers of the corporation.
The articles of incorporation may set forth any or all of the following provisions, which shall not be effective unless expressly provided in the articles:
A provision limiting the duration of the corporation’s existence to a specified date.
A provision conferring upon the holders of any evidences of indebtedness, issued or to be issued by a corporation the right to vote in the election of directors and on any other matters on which members may vote under this part even if the corporation does not have members.
A provision conferring upon members the right to determine the consideration for which memberships shall be issued.
In the case of a subordinate corporation instituted or created under the authority of a head organization, a provision setting forth either or both of the following:
That the subordinate corporation shall dissolve whenever its charter is surrendered to, taken away by, or revoked by the head organization granting it.
That in the event of its dissolution pursuant to an article provision allowed by subparagraph (A) or in the event of its dissolution for any reason, any assets of the corporation after compliance with the applicable provisions of Chapters 15 (commencing with Section 8510), 16 (commencing with Section 8610), and 17 (commencing with Section 8710) shall be distributed to the head organization.
Nothing contained in subdivision (a) shall affect the enforceability, as between the parties thereto, of any lawful agreement not otherwise contrary to public policy.
The articles of incorporation may set forth any or all of the following provisions:
The names and addresses of the persons appointed to act as initial directors.
Provisions concerning the transfer of memberships, in accordance with Section 7320.
The classes of members, if any, and if there are two or more classes, the rights, privileges, preferences, restrictions and conditions attaching to each class.
A provision which would allow any member to have more or less than one vote in any election or other matter presented to the members for a vote.
A provision that requires an amendment to the articles, as provided in subdivision (a) of Section 7812, or to the bylaws, and any amendment or repeal of that amendment, to be approved in writing by a specified person or persons other than the board or the members. However, this approval requirement, unless the articles specify otherwise, shall not apply if any of the following circumstances exist:
The specified person or persons have died or ceased to exist.
If the right of the specified person or persons to approve is in the capacity of an officer, trustee, or other status and the office, trust, or status has ceased to exist.
If the corporation has a specific proposal for amendment or repeal, and the corporation has provided written notice of that proposal, including a copy of the proposal, to the specified person or persons at the most recent address for each of them, based on the corporation’s records, and the corporation has not received written approval or nonapproval within the period specified in the notice, which shall not be less than 10 nor more than 30 days commencing at least 20 days after the notice has been provided.
Any other provision, not in conflict with law, for the management of the activities and for the conduct of the affairs of the corporation, including any provision which is required or permitted by this part to be stated in the bylaws.
For all purposes other than an action in the nature of quo warranto, a copy of the articles of a corporation duly certified by the Secretary of State is conclusive evidence of the formation of the corporation and prima facie evidence of its corporate existence.
If initial directors have not been named in the articles, the incorporator or incorporators, until the directors are elected, may do whatever is necessary and proper to perfect the organization of the corporation, including the adoption and amendment of bylaws of the corporation and the election of directors and officers.
Nothing in Section 7130 or 7131 or in any provision of the articles of a mutual benefit corporation shall be construed to limit the equitable power of a court to impress a charitable trust upon any or all of the assets of a mutual benefit corporation or otherwise treat it as a public benefit corporation.
ARTICLE 4. Powers [7140. - 7142.]
Subject to any limitations contained in the articles or bylaws and to compliance with other provisions of this division and any other applicable laws, a corporation, in carrying out its activities, shall have all of the powers of a natural person, including, without limitation, the power to:
Adopt, use, and at will alter a corporate seal, but failure to affix a seal does not affect the validity of any instrument.
Adopt, amend, and repeal bylaws.
Qualify to conduct its activities in any other state, territory, dependency, or foreign country.
Issue, purchase, redeem, receive, take or otherwise acquire, own, sell, lend, exchange, transfer or otherwise dispose of, pledge, use, and otherwise deal in and with its own memberships, bonds, debentures, notes, and debt securities.
Pay pensions, and establish and carry out pension, deferred compensation, saving, thrift, and other retirement, incentive, and benefit plans, trusts, and provisions for any or all of its directors, officers, employees, and persons providing services to it or any of its subsidiary or related or associated corporations, and to indemnify and purchase and maintain insurance on behalf of any fiduciary of such plans, trusts, or provisions.
Issue certificates evidencing membership in accordance with the provisions of Section 7313 and issue identity cards.
Levy dues, assessments, and admission and transfer fees.
Make donations for the public welfare or for community funds, hospital, charitable, educational, scientific, civic, religious, or similar purposes.
Assume obligations, enter into contracts, including contracts of guarantee or suretyship, incur liabilities, borrow or lend money or otherwise use its credit, and secure any of its obligations, contracts, or liabilities by mortgage, pledge, or other encumbrance of all or any part of its property and income.
Participate with others in any partnership, joint venture, or other association, transaction, or arrangement of any kind whether or not such participation involves sharing or delegation of control with or to others.
Act as trustee under any trust incidental to the principal objects of the corporation, and receive, hold, administer, exchange, and expend funds and property subject to such trust.
Carry on a business at a profit and apply any profit that results from the business activity to any activity in which it may lawfully engage.
In anticipation of or during an emergency, take either or both of the following actions necessary to conduct the corporation’s business operations and affairs, unless emergency bylaws provide otherwise pursuant to subdivision (g) of Section 7151:
Modify lines of succession to accommodate the incapacity of any director, officer, employee, or agent resulting from the emergency.
Relocate the principal office, designate alternative principal offices or regional offices, or authorize the officers to do so.
During an emergency, take either or both of the following actions necessary to conduct the corporation’s business operations and affairs, unless emergency bylaws provide otherwise pursuant to subdivision (g) of Section 7151:
Give notice to a director or directors in any practicable manner under the circumstances, including, but not limited to, by publication and radio, when notice of a meeting of the board cannot be given to that director or directors in the manner prescribed by the bylaws or Section 7211.
Deem that one or more officers of the corporation present at a board meeting is a director, in order of rank and within the same rank in order of seniority, as necessary to achieve a quorum for that meeting.
In anticipation of or during an emergency, the board may take any action that it determines to be necessary or appropriate to respond to the emergency, mitigate the effects of the emergency, or comply with lawful federal and state government orders, but shall not take any action that requires the vote of the members, unless the required vote of the members was obtained prior to the emergency.
Any actions taken in good faith in anticipation of or during an emergency under this subdivision bind the corporation and shall not be used to impose liability on a corporate director, officer, employee, or agent.
For purposes of this subdivision, “emergency” means any of the following events or circumstances as a result of which, and only so long as, a quorum of the corporation’s board of directors cannot be readily convened for action:
A natural catastrophe, including, but not limited to, a hurricane, tornado, storm, high water, wind-driven water, tidal wave, tsunami, earthquake, volcanic eruption, landslide, mudslide, snowstorm, drought, epidemic, pandemic, or disease outbreak, or, regardless of cause, any fire, flood, or explosion.
An attack on or within this state or on the public security of its residents by an enemy of this state or on the nation by an enemy of the United States of America, or upon receipt by this state of a warning from the federal government indicating that any such enemy attack is probable or imminent.
An act of terrorism or other manmade disaster that results in extraordinary levels of casualties or damage or disruption severely affecting the infrastructure, environment, economy, government functions, or population, including, but not limited to, mass evacuations.
A state of emergency proclaimed by the Governor of this state, including any person serving as Governor in accordance with Section 10 of Article V of the California Constitution and Section 12058 of the Government Code, or by the President of the United States of America.
Subject to Section 7142:
No limitation upon the activities, purposes, or powers of the corporation or upon the powers of the members, officers, or directors, or the manner of exercise of such powers, contained in or implied by the articles or by Chapters 15 (commencing with Section 8510), 16 (commencing with Section 8610), and 17 (commencing with Section 8710) shall be asserted as between the corporation or member, officer or director and any third person, except in a proceeding: (1) by a member or the state to enjoin the doing or continuation of unauthorized activities by the corporation or its officers, or both, in cases where third parties have not acquired rights thereby, (2) to dissolve the corporation, or (3) by the corporation or by a member suing in a representative suit against the officers or directors of the corporation for violation of their authority.
Any contract or conveyance made in the name of a corporation which is authorized or ratified by the board, or is done within the scope of authority, actual or apparent, conferred by the board or within the agency power of the officer executing it, except as the board’s authority is limited by law other than this part, binds the corporation, and the corporation acquires rights thereunder whether the contract is executed or wholly or in part executory.
Notwithstanding Section 7141, in the case of a corporation holding assets in charitable trust, any of the following may bring an action to enjoin, correct, obtain damages for or to otherwise remedy a breach of the charitable trust:
The corporation, or a member in the name of the corporation pursuant to Section 7710.
An officer of the corporation.
A director of the corporation.
A person with a reversionary, contractual, or property interest in the assets subject to such charitable trust.
The Attorney General, or any person granted relator status by the Attorney General.
The Attorney General shall be given notice of any action brought by the persons specified in paragraphs (1) through (4), and may intervene.
In an action under this section, the court may not rescind or enjoin the performance of a contract unless:
All of the parties to the contract are parties to the action; or
No party to the contract has, in good faith, and without actual notice of the trust restriction, parted with value, under the contract or in reliance upon it; and
It is equitable to do so.
ARTICLE 5. Bylaws [7150. - 7153.]
Materially and adversely affect the rights of members as to voting, dissolution, redemption, or transfer;
Increase or decrease the number of members authorized in total or for any class;
Effect an exchange, reclassification or cancellation of all or part of the memberships; or
Authorize a new class of membership.
Bylaws may be adopted, amended or repealed by approval of the members (Section 5034); provided, however, that such adoption, amendment or repeal also requires approval by the members of a class if such action would:
Materially and adversely affect the rights, privileges, preferences, restrictions or conditions of that class as to voting, dissolution, redemption, or transfer in a manner different than such action affects another class;
Materially and adversely affect such class as to voting, dissolution, redemption, or transfer by changing the rights, privileges, preferences, restrictions or conditions of another class;
Increase or decrease the number of memberships authorized for such class;
Increase the number of memberships authorized for another class;
Effect an exchange, reclassification or cancellation of all or part of the memberships of such class; or
Authorize a new class of memberships.
The articles or bylaws may restrict or eliminate the power of the board to adopt, amend or repeal any or all bylaws, subject to subdivision (e) of Section 7151.
Bylaws may also provide that the repeal or amendment of those bylaws, or the repeal or amendment of specified portions of those bylaws, may occur only with the approval in writing of a specified person or persons other than the board or members. However, this approval requirement, unless the bylaws specify otherwise, shall not apply if any of the following circumstances exist:
The bylaws shall set forth (unless such provision is contained in the articles, in which case it may only be changed by an amendment of the articles) the number of directors of the corporation, or the method of determining the number of directors of the corporation, or that the number of directors shall be not less than a stated minimum nor more than a stated maximum with the exact number of directors to be fixed, within the limits specified, by approval of the board or the members (Section 5034), in the manner provided in the bylaws, subject to subdivision (e). The number or minimum number of directors may be one or more.
Once members have been admitted, a bylaw specifying or changing a fixed number of directors or the maximum or minimum number or changing from a fixed to a variable board or vice versa may only be adopted by approval of the members (Section 5034).
The bylaws may contain any provision, not in conflict with law or the articles, for the management of the activities and for the conduct of the affairs of the corporation, including but not limited to:
Any provision referred to in subdivision (c) of Section 7132.
The time, place, and manner of calling, conducting, and giving notice of members’, directors’, and committee meetings, or of conducting mail ballots.
The qualifications, duties, and compensation of directors; the time of their election; and the requirements of a quorum for directors’ and committee meetings.
The appointment of committees, composed of directors or nondirectors, or both, by the board or any officer and the authority of any such committees.
The appointment, duties, compensation, and tenure of officers.
The mode of determination of members of record.
The making of reports and financial statements to members.
Setting, imposing, and collecting dues, assessments, and admission and transfer fees.
The bylaws may provide for the manner of admission, withdrawal, suspension, and expulsion of members, consistent with the requirements of Section 7341.
The bylaws may require, for any or all corporate actions (except as provided in paragraphs (1) and (2) of subdivision (a) of Section 7222, subdivision (c) of Section 7615, and Section 8610) the vote of a larger proportion of, or all of, the members or the members of any class, unit, or grouping of members or the vote of a larger proportion of, or all of, the directors, than is otherwise required by this part. Such a provision in the bylaws requiring such greater vote shall not be altered, amended, or repealed except by such greater vote, unless otherwise provided in the bylaws.
The bylaws may contain a provision limiting the number of members, in total or of any class, which the corporation is authorized to admit.
The bylaws may contain any provision, not in conflict with the articles, to manage and conduct the business affairs of the corporation effective only in an emergency as defined in Section 7140, including, but not limited to, procedures for calling a board meeting, quorum requirements for a board meeting, and designation of additional or substitute directors.
During an emergency, the board may take any action that it determines to be necessary or appropriate to respond to the emergency, mitigate the effects of the emergency, or comply with lawful federal and state government orders, but shall not take any action that requires the vote of the members, unless the required vote of the members was obtained prior to the emergency.
All provisions of the regular bylaws consistent with the emergency bylaws shall remain effective during the emergency, and the emergency bylaws shall not be effective after the emergency ends.
Corporate action taken in good faith in accordance with the emergency bylaws binds the corporation, and shall not be used to impose liability on a corporate director, officer, employee, or agent.
A corporation may provide in its bylaws for delegates having some or all of the authority of members. Where delegates are provided for, the bylaws shall set forth delegates’ terms of office, any reasonable method for delegates’ selection and removal, and any reasonable method for calling, noticing, and holding meetings of delegates, may set forth the manner in which delegates may act by written ballot similar to Section 7513 for written ballot of members, and may set forth the manner in which delegates may participate in meetings of delegates similar to paragraph (6) of subdivision (a) of Section 7211. Each delegate shall have one vote on each matter presented for action. A delegate shall not vote by proxy. Delegates may be given a name other than “delegates.”
A corporation may provide in its bylaws for voting by its members or delegates on the basis of chapter or other organizational unit, or by region or other geographic grouping.
ARTICLE 6. Location and Inspection of Articles and Bylaws [7160. - 7160.]
Every corporation shall keep at its principal office in this state the original or a copy of its articles and bylaws as amended to date, which shall be open to inspection by the members at all reasonable times during office hours. If the corporation has no office in this state, it shall upon the written request of any member furnish to such member a copy of the articles or bylaws as amended to date.
CHAPTER 2. Directors and Management [7210. - 7240.]
ARTICLE 1. General Provisions [7210. - 7215.]
Each corporation shall have a board of directors. Subject to the provisions of this part and any limitations in the articles or bylaws relating to action required to be approved by the members (Section 5034), or by a majority of all members (Section 5033), the activities and affairs of a corporation shall be conducted and all corporate powers shall be exercised by or under the direction of the board. The board may delegate the management of the activities of the corporation to any person or persons, management company, or committee however composed, provided that the activities and affairs of the corporation shall be managed and all corporate powers shall be exercised under the ultimate direction of the board.
Unless otherwise provided in the articles or in the bylaws, all of the following apply:
Meetings of the board may be called by the chair of the board or the president or any vice president or the secretary or any two directors.
Regular meetings of the board may be held without notice if the time and place of the meetings are fixed by the bylaws or the board. Special meetings of the board shall be held upon four days’ notice by first-class mail or 48 hours’ notice delivered personally or by telephone, including a voice messaging system or by electronic transmission by the corporation (Section 20). The articles or bylaws may not dispense with notice of a special meeting. A notice, or waiver of notice, need not specify the purpose of any regular or special meeting of the board.
Notice of a meeting need not be given to a director who provided a waiver of notice or consent to holding the meeting or an approval of the minutes thereof in writing, whether before or after the meeting, or who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to that director. These waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meetings.
A majority of the directors present, whether or not a quorum is present, may adjourn any meeting to another time and place. If the meeting is adjourned for more than 24 hours, notice of an adjournment to another time or place shall be given prior to the time of the adjourned meeting to the directors who were not present at the time of the adjournment.
Meetings of the board may be held at a place within or without the state that has been designated in the notice of the meeting or, if not stated in the notice or if there is no notice, designated in the bylaws or by resolution of the board.
Directors may participate in a meeting through use of conference telephone, electronic video screen communication, or electronic transmission by and to the corporation (Sections 20 and 21). Participation in a meeting through use of conference telephone or electronic video screen communication pursuant to this subdivision constitutes presence in person at that meeting as long as all directors participating in the meeting are able to hear one another. Participation in a meeting through use of electronic transmission by and to the corporation, other than conference telephone and electronic video screen communication, pursuant to this subdivision constitutes presence in person at that meeting if both of the following apply:
Each director participating in the meeting can communicate with all of the other directors concurrently.
Each director is provided the means of participating in all matters before the board, including, without limitation, the capacity to propose, or to interpose an objection to, a specific action to be taken by the corporation.
A majority of the number of directors authorized in or pursuant to the articles or bylaws constitutes a quorum of the board for the transaction of business. The articles or bylaws may require the presence of one or more specified directors in order to constitute a quorum of the board to transact business, as long as the death or nonexistence of a specified director or the death or nonexistence of the person or persons otherwise authorized to appoint or designate that director does not prevent the corporation from transacting business in the normal course of events. The articles or bylaws may not provide that a quorum shall be less than one-fifth the number of directors authorized in or pursuant to the articles or bylaws, or less than two, whichever is larger, unless the number of directors authorized in or pursuant to the articles or bylaws is one, in which case one director constitutes a quorum.
Subject to the provisions of Sections 7212, 7233, 7234, and subdivision (e) of Section 7237 and Section 5233, insofar as it is made applicable pursuant to Section 7238, an act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present is the act of the board. The articles or bylaws may not provide that a lesser vote than a majority of the directors present at a meeting is the act of the board. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting, or a greater number required by this division, the articles or the bylaws.
An action required or permitted to be taken by the board may be taken without a meeting if all directors individually or collectively consent in writing to that action and if, subject to subdivision (a) of Section 7224, the number of directors then in office constitutes a quorum. The written consent or consents shall be filed with the minutes of the proceedings of the board. The action by written consent shall have the same force and effect as a unanimous vote of the directors. For purposes of this subdivision only, “all directors” does not include an “interested director” as defined in subdivision (a) of Section 5233, insofar as it is made applicable pursuant to Section 7238 or described in subdivision (a) of Section 7233, or a “common director” as described in subdivision (b) of Section 7233 who abstains in writing from providing consent, where (1) the facts described in paragraph (2) or (3) of subdivision (d) of Section 5233 are established or the provisions of paragraph (1) or (2) of subdivision (a) of Section 7233 or in paragraph (1) or (2) of subdivision (b) of Section 7233 are satisfied, as appropriate, at or prior to execution of the written consent or consents; (2) the establishment of those facts or satisfaction of those provisions, as applicable, is included in the written consent or consents executed by the noninterested directors or noncommon directors or in other records of the corporation; and (3) the noninterested directors or noncommon directors, as applicable, approve the action by a vote that is sufficient without counting the votes of the interested directors or common directors.
Each director shall have one vote on each matter presented to the board of directors for action. A director shall not vote by proxy.
This section applies also to incorporators, to committees of the board, and to action by those incorporators or committees mutatis mutandis.
The board may, by resolution adopted by a majority of the number of directors then in office, provided that a quorum is present, create one or more committees, each consisting of two or more directors, to serve at the pleasure of the board. Appointments to such committees shall be by a majority vote of the directors then in office, unless the articles or bylaws require a majority vote of the number of directors authorized in or pursuant to the articles or bylaws. The bylaws may authorize one or more such committees, each consisting of two or more directors, and may provide that a specified officer or officers who are also directors of the corporation shall be a member or members of such committee or committees. The board may appoint one or more directors as alternate members of such committee, who may replace any absent member at any meeting of the committee. Such committee, to the extent provided in the resolution of the board or in the bylaws, shall have all the authority of the board, except with respect to:
The filling of vacancies on the board or in any committee which has the authority of the board.
The fixing of compensation of the directors for serving on the board or on any committee.
The amendment or repeal of bylaws or the adoption of new bylaws.
The amendment or repeal of any resolution of the board which by its express terms is not so amendable or repealable.
The appointment of committees of the board or the members thereof.
The expenditure of corporate funds to support a nominee for director after there are more people nominated for director than can be elected.
With respect to any assets held in charitable trust, the approval of any self-dealing transaction except as provided in paragraph (3) of subdivision (d) of Section 5233.
A committee exercising the authority of the board shall not include as members persons who are not directors. However, the board may create other committees that do not exercise the authority of the board and these other committees may include persons regardless of whether they are directors.
A corporation shall have (1) a chair of the board, who may be given the title chair, chairperson, chair of the board, or chairperson of the board, or a president or both, (2) a secretary, (3) a treasurer or a chief financial officer or both, and (4) any other officers with any titles and duties as shall be stated in the bylaws or determined by the board and as may be necessary to enable it to sign instruments. The president, or if there is no president the chair of the board, is the general manager and chief executive officer of the corporation, unless otherwise provided in the articles or bylaws. Unless otherwise specified in the articles or the bylaws, if there is no chief financial officer, the treasurer is the chief financial officer of the corporation. Any number of offices may be held by the same person unless the articles or bylaws provide otherwise. Where a corporation holds assets in charitable trust, any compensation of the president or chief executive officer and the chief financial officer or treasurer shall be determined in accordance with subdivision (g) of Section 12586 of the Government Code, if applicable.
Except as otherwise provided by the articles or bylaws, officers shall be chosen by the board and serve at the pleasure of the board, subject to the rights, if any, of an officer under any contract of employment. Any officer may resign at any time upon written notice to the corporation without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party.
Subject to the provisions of subdivision (a) of Section 7141 and Section 7142, any note, mortgage, evidence of indebtedness, contract, conveyance or other instrument in writing, and any assignment or endorsement thereof, executed or entered into between any corporation and any other person, when signed by any one of the chairperson of the board, the president or any vice president and by any one of the secretary, any assistant secretary, the chief financial officer, or any assistant treasurer of such corporation, is not invalidated as to the corporation by any lack of authority of the signing officers in the absence of actual knowledge on the part of the other person that the signing officers had no authority to execute the same.
The original or a copy in writing or in any other form capable of being converted into clearly legible tangible form of the bylaws or of the minutes of any incorporators’, members’, directors’, committee or other meeting or of any resolution adopted by the board or a committee thereof, or members, certified to be a true copy by a person purporting to be the secretary or an assistant secretary of the corporation, is prima facie evidence of the adoption of such bylaws or resolution or of the due holding of such meeting and of the matters stated therein.
ARTICLE 2. Selection, Removal and Resignation of Directors [7220. - 7225.]
Except as provided in subdivision (d), (e), or (f), directors shall be elected for terms of not longer than four years, as fixed in the articles or bylaws. However, the terms of directors of a corporation without members may be up to six years. In the absence of any provision in the articles or bylaws, the term shall be one year. The articles or bylaws may provide for staggering the terms of directors by dividing the total number of directors into groups of one or more directors. The terms of office of the several groups and the number of directors in each group need not be uniform. No amendment of the articles or bylaws may extend the term of a director beyond that for which the director was elected, nor may any bylaw provision increasing the terms of directors be adopted without approval of the members (Section 5034).
Except as otherwise provided in the articles or bylaws, each director, including a director elected to fill a vacancy, shall hold office until the expiration of the term for which elected and until a successor has been elected and qualified, unless the director has been removed from office.
The articles or bylaws may provide for the election of one or more directors by the members of any class voting as a class.
For the purposes of this subdivision, “designator” means one or more designators. Notwithstanding subdivisions (a) to (c), inclusive, all or any portion of the directors authorized in the articles or bylaws of a corporation may hold office by virtue of designation or selection by a specified designator as provided by the articles or bylaws rather than by election. Those directors shall continue in office for the term prescribed by the governing article or bylaw provision, or, if there is no term prescribed, until the governing article or bylaw provision is duly amended or repealed, except as provided in subdivision (e) of Section 7222. A bylaw provision authorized by this subdivision may be adopted, amended, or repealed only by approval of the members (Section 5034), except as provided in subdivision (d) of Section 7150. Unless otherwise provided in the articles or bylaws, the entitlement to designate or select a director or directors shall cease if any of the following circumstances exist:
The specified designator of that director or directors has died or ceased to exist.
If the entitlement of the specified designator of that director or directors to designate is in the capacity of an officer, trustee, or other status and the office, trust, or status has ceased to exist.
If a corporation has not issued memberships and (1) all the directors resign, die, or become incompetent, or (2) a corporation’s initial directors have not been named in the articles and all incorporators resign, die, or become incompetent before the election of the initial directors, the superior court of any county may appoint directors of the corporation upon application by any party in interest.
If authorized in the articles or bylaws of a corporation, all or any portion of the directors may hold office ex officio by virtue of occupying a specified position within the corporation or outside the corporation. The term of office of an ex officio director shall coincide with that director’s respective term of office in the specified position entitling him or her to serve on the board of directors. Upon an ex officio director’s resignation or removal from that position, or resignation or removal from the board for any reason, the term of office as a director of the corporation shall immediately cease. At that time, the successor in office shall become an ex officio director of the corporation, occupying the place of the former director.
The board may declare vacant the office of a director who has been declared of unsound mind by a final order of court, or convicted of a felony, or, in the case of a corporation holding assets in charitable trust, has been found by a final order or judgment of any court to have breached any duty arising as a result of Section 7238, or, if at the time a director is elected, the bylaws provide that a director may be removed for missing a specified number of board meetings, fails to attend the specified number of meetings.
As provided in paragraph (3) of subdivision (c) of Section 7151, the articles or bylaws may prescribe the qualifications of the directors. The board, by a majority vote of the directors who meet all of the required qualifications to be a director, may declare vacant the office of any director who fails or ceases to meet any required qualification that was in effect at the beginning of that director’s current term of office.
Subject to subdivisions (b) and (f), any or all directors may be removed without cause if:
In a corporation with fewer than 50 members, the removal is approved by a majority of all members (Section 5033).
In a corporation with 50 or more members, the removal is approved by the members (Section 5034).
In a corporation with no members, the removal is approved by a majority of the directors then in office.
Except for a corporation having no members, pursuant to Section 7310:
In a corporation in which the articles or bylaws authorize members to cumulate their votes pursuant to subdivision (a) of Section 7615, no director may be removed (unless the entire board is removed) when the votes cast against removal, or not consenting in writing to the removal, would be sufficient to elect the director if voted cumulatively at an election at which the same total number of votes were cast (or, if the action is taken by written ballot, all memberships entitled to vote were voted) and the entire number of directors authorized at the time of the director’s most recent election were then being elected.
When by the provisions of the articles or bylaws the members of any class, voting as a class, are entitled to elect one or more directors, any director so elected may be removed only by the applicable vote of the members of that class.
When by the provisions of the articles or bylaws the members within a chapter or other organizational unit, or region or other geographic grouping, voting as such, are entitled to elect one or more directors, any director so elected may be removed only by the applicable vote of the members within the organizational unit or geographic grouping.
Any reduction of the authorized number of directors or any amendment reducing the number of classes of directors does not remove any director prior to the expiration of the director’s term of office unless the reduction or amendment also provides for the removal of one or more specified directors.
Where a different person may be designated pursuant to the governing article or bylaw provision, the new designation shall be made.
Where the governing article or bylaw provision contains no provision under which a different person may be designated, the governing article or bylaw provision shall be deemed repealed.
For the purposes of this subdivision, “designator” means one or more designators. If by the provisions of the articles or bylaws a designator is entitled to designate one or more directors, then:
Unless otherwise provided in the articles or bylaws at the time of designation, any director so designated may be removed without cause by the designator of that director.
Any director so designated may only be removed under subdivision (a) with the written consent of the designator of that director.
Unless otherwise provided in the articles or bylaws, the right to remove shall not apply if any of the following circumstances exist:
The designator entitled to that right has died or ceased to exist.
If that right is in the capacity of an officer, trustee, or other status, and the office, trust, or status has ceased to exist.
The superior court of the proper county may, at the suit of one of the parties specified in subdivision (b), remove from office any director in case of fraudulent or dishonest acts or gross abuse of authority or discretion with reference to the corporation or breach of any duty arising as a result of Section 7238 and may bar from reelection any director so removed for a period prescribed by the court. The corporation shall be made a party to such action.
An action under subdivision (a) may be instituted by any of the following:
A director.
In the case of a corporation where the total number of votes entitled to be cast for a director is less than 5,000, twice the authorized number (Section 5036) of members, or 20 members, whichever is less.
In the case of a corporation where the total number of votes entitled to be cast for a director is 5,000 or more, twice the authorized number (Section 5036) of members, or 100 members, whichever is less.
In the case of a corporation holding assets in charitable trust, the Attorney General may bring an action under subdivision (a), may intervene in such an action brought by any other party and shall be given notice of any such action brought by any other party.
Unless otherwise provided in the articles or bylaws and except for a vacancy created by the removal of a director, vacancies on the board may be filled by approval of the board (Section 5032) or, if the number of directors then in office is less than a quorum, by (1) the unanimous written consent of the directors then in office, (2) the affirmative vote of a majority of the directors then in office at a meeting held pursuant to notice or waivers of notice complying with Section 7211, or (3) a sole remaining director. Unless the articles or a bylaw approved by the members (Section 5034) provide that the board may fill vacancies occurring in the board by reason of the removal of directors, or unless the corporation has no members pursuant to Section 7310, such vacancies may be filled only by approval of the members (Section 5034).
The members may elect a director at any time to fill any vacancy not filled by the directors.
Any director may resign effective upon giving written notice to the chairperson of the board, the president, the secretary, or the board of directors of the corporation, unless the notice specifies a later time for the effectiveness of such resignation. If the resignation is effective at a future time, a successor may be elected to take office when the resignation becomes effective.
If a corporation has an even number of directors who are equally divided and cannot agree as to the management of its affairs, so that its activities can no longer be conducted to advantage or so that there is danger that its property, activities, or business will be impaired or lost, the superior court of the proper county may, notwithstanding any provisions of the articles or bylaws and whether or not an action is pending for an involuntary winding up or dissolution of the corporation, appoint a provisional director pursuant to this section. Action for such appointment may be brought by any director or by members holding not less than 3313 percent of the voting power.
If the members of a corporation are deadlocked so that they cannot elect the directors to be elected at the time prescribed therefor, the superior court of the proper county may, notwithstanding any provisions of the articles or bylaws, upon petition of members holding 50 percent of the voting power, appoint a provisional director or directors pursuant to this section or order such other equitable relief as the court deems appropriate.
In the case of a corporation holding assets in charitable trust:
Any person bringing an action under subdivision (a) or (b) shall give notice to the Attorney General, who may intervene; and
The Attorney General may bring an action under subdivision (a) or (b).
A provisional director shall be an impartial person, who is neither a member nor a creditor of the corporation, nor related by consanguinity or affinity within the third degree according to the common law to any of the other directors of the corporation or to any judge of the court by which such provisional director is appointed. A provisional director shall have all the rights and powers of a director until the deadlock in the board or among members is broken or until such provisional director is removed by order of the court or by approval of a majority of all members (Section 5033). Such person shall be entitled to such compensation as shall be fixed by the court unless otherwise agreed with the corporation.
ARTICLE 3. Standards of Conduct [7230. - 7238.]
Any duties and liabilities set forth in this article shall apply without regard to whether a director is compensated by the corporation.
Part 4 (commencing with Section 16000) of Division 9 of the Probate Code does not apply to the directors of any corporation.
A director shall perform the duties of a director, including duties as a member of any committee of the board upon which the director may serve, in good faith, in a manner such director believes to be in the best interests of the corporation and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances.
In performing the duties of a director, a director shall be entitled to rely on information, opinions, reports or statements, including financial statements and other financial data, in each case prepared or presented by:
One or more officers or employees of the corporation whom the director believes to be reliable and competent in the matters presented;
Counsel, independent accountants or other persons as to matters which the director believes to be within such person’s professional or expert competence; or
A committee upon which the director does not serve that is composed exclusively of any or any combination of directors, persons described in paragraph (1), or persons described in paragraph (2), as to matters within the committee’s designated authority, which committee the director believes to merit confidence, so long as, in any case, the director acts in good faith, after reasonable inquiry when the need therefor is indicated by the circumstances and without knowledge that would cause such reliance to be unwarranted.
A person who performs the duties of a director in accordance with subdivisions (a) and (b) shall have no liability based upon any alleged failure to discharge the person’s obligations as a director, including, without limiting the generality of the foregoing, any actions or omissions which exceed or defeat a public or charitable purpose to which assets held by a corporation are dedicated.
Except as provided in Section 7233 or 7236, there is no monetary liability on the part of, and no cause of action for damages shall arise against, any volunteer director or volunteer executive officer of a nonprofit corporation subject to this part based upon any alleged failure to discharge the person’s duties as a director or officer if the duties are performed in a manner that meets all of the following criteria:
The duties are performed in good faith.
The duties are performed in a manner such director or officer believes to be in the best interests of the corporation.
The duties are performed with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances.
“Volunteer” means the rendering of services without compensation. “Compensation” means remuneration whether by way of salary, fee, or other consideration for services rendered. However, the payment of per diem, mileage, or other reimbursement expenses to a director or executive officer does not affect that person’s status as a volunteer within the meaning of this section.
“Executive officer” means the president, vice president, secretary, or treasurer of a corporation or other individual serving in like capacity who assists in establishing the policy of the corporation.
This section shall apply only to trade, professional, and labor organizations incorporated pursuant to this part which operate exclusively for fraternal, educational, and other nonprofit purposes, and under the provisions of Section 501(c) of the United States Internal Revenue Code.
This section shall not be construed to limit the provisions of Section 7231.
Section 7231 governs the duties of directors as to any acts or omissions in connection with the election, selection, or nomination of directors.
This section shall not be construed to limit the generality of Section 7231.
No contract or other transaction between a corporation and one or more of its directors, or between a corporation and any domestic or foreign corporation, firm or association in which one or more of its directors has a material financial interest, is either void or voidable because such director or directors or such other corporation, business corporation, firm or association are parties or because such director or directors are present at the meeting of the board or a committee thereof which authorizes, approves or ratifies the contract or transaction, if:
The material facts as to the transaction and as to such director’s interest are fully disclosed or known to the members and such contract or transaction is approved by the members (Section 5034) in good faith, with any membership owned by any interested director not being entitled to vote thereon;
The material facts as to the transaction and as to such director’s interest are fully disclosed or known to the board or committee, and the board or committee authorizes, approves or ratifies the contract or transaction in good faith by a vote sufficient without counting the vote of the interested director or directors and the contract or transaction is just and reasonable as to the corporation at the time it is authorized, approved or ratified; or
As to contracts or transactions not approved as provided in paragraph (1) or (2) of this subdivision, the person asserting the validity of the contract or transaction sustains the burden of proving that the contract or transaction was just and reasonable as to the corporation at the time it was authorized, approved or ratified.
A mere common directorship does not constitute a material financial interest within the meaning of this subdivision. A director is not interested within the meaning of this subdivision in a resolution fixing the compensation of another director as a director, officer or employee of the corporation, notwithstanding the fact that the first director is also receiving compensation from the corporation.
No contract or other transaction between a corporation and any corporation, business corporation or association of which one or more of its directors are directors is either void or voidable because such director or directors are present at the meeting of the board or a committee thereof which authorizes, approves or ratifies the contract or transaction, if:
The material facts as to the transaction and as to such director’s other directorship are fully disclosed or known to the board or committee, and the board or committee authorizes, approves or ratifies the contract or transaction in good faith by a vote sufficient without counting the vote of the common director or directors or the contract or transaction is approved by the members (Section 5034) in good faith; or
As to contracts or transactions not approved as provided in paragraph (1) of this subdivision, the contract or transaction is just and reasonable as to the corporation at the time it is authorized, approved or ratified.
This subdivision does not apply to contracts or transactions covered by subdivision (a).
Interested or common directors may be counted in determining the presence of a quorum at a meeting of the board or a committee thereof which authorizes, approves or ratifies a contract or transaction as provided in Section 7233.
Unless prohibited by the articles or bylaws, a corporation may loan money or property to, or guarantee the obligation of, any director or officer of the corporation or of its parent, affiliate or subsidiary, provided:
The board determines the loan or guaranty may reasonably be expected to benefit the corporation.
Prior to consummating the transaction or any part thereof, the loan or guaranty is either:
Approved by the members (Section 5034), without counting the vote of the director or officer, if a member, or
Approved by the vote of a majority of the directors then in office, without counting the vote of the director who is to receive the loan or the benefit of the guaranty.
Notwithstanding subdivision (a), a corporation may advance money to a director or officer of the corporation or of its parent, affiliate or subsidiary, for any expenses reasonably anticipated to be incurred in the performance of the duties of the director or officer of the corporation or of its parent, affiliate or subsidiary, provided that in the absence of such an advance the director or officer would be entitled to be reimbursed for these expenses by the corporation, its parent, affiliate, or subsidiary.
The provisions of subdivisions (a) and (b) do not apply to credit unions, or to the payment of premiums in whole or in part by a corporation on a life insurance policy on the life of a director or officer so long as repayment to the corporation of the amount paid by it is secured by the proceeds of the policy and its cash surrender value, or to loans permitted under any statute regulating any special class of corporations.
Subject to the provisions of Section 7231, directors of a corporation who approve any of the following corporate actions shall be jointly and severally liable to the corporation for the benefit of all of the creditors entitled to institute an action under paragraph (1) or (2) of subdivision (c) or to the corporation in an action by the head organization or members under paragraph (1) or (3) of subdivision (c):
The making of any distribution contrary to Chapter 4 (commencing with Section 7410).
The distribution of assets after institution of dissolution proceedings of the corporation, without paying or adequately providing for all known liabilities of the corporation, excluding any claims not filed by creditors within the time limit set by the court in a notice given to creditors under Chapter 15 (commencing with Section 8510), Chapter 16 (commencing with Section 8610), and Chapter 17 (commencing with Section 8710).
The making of any loan or guaranty contrary to Section 7235.
A director who is present at a meeting of the board, or any committee thereof, at which an action specified in subdivision (a) is taken and who abstains from voting shall be considered to have approved the action.
Suit may be brought in the name of the corporation to enforce the liability:
Under paragraph (1) of subdivision (a), against any or all directors liable by the persons entitled to sue under subdivision (c) of Section 7420.
Under paragraph (2) or (3) of subdivision (a), against any or all directors liable by any one or more creditors of the corporation whose debts or claims arose prior to the time of the corporate action who have not consented to the corporate action, whether or not they have reduced their claims to judgment.
Under paragraph (3) of subdivision (a), against any or all directors liable by any one or more members at the time of any corporate action specified in paragraph (3) of subdivision (a) who have not consented to the corporate action, without regard to the provisions of Section 7710.
The damages recoverable from a director under this section shall be the amount of the illegal distribution, or if the illegal distribution consists of property, the fair market value of that property at the time of the illegal distribution, plus interest thereon from the date of the distribution at the legal rate on judgments until paid, together with all reasonably incurred costs of appraisal or other valuation, if any, of that property, or the loss suffered by the corporation as a result of the illegal loan or guaranty, but not exceeding, in the case of an action for the benefit of creditors, the liabilities of the corporation owed to nonconsenting creditors at the time of the violation.
Any director sued under this section may implead all other directors liable and may compel contribution, either in that action or in an independent action against directors not joined in that action.
Directors liable under this section shall also be entitled to be subrogated to the rights of the corporation:
With respect to paragraph (1) of subdivision (a), against the persons who received the distribution.
With respect to paragraph (2) of subdivision (a), against the persons who received the distribution.
With respect to paragraph (3) of subdivision (a), against the person who received the loan or guaranty.
Any director sued under this section may file a cross-complaint against the person or persons who are liable to the director as a result of the subrogation provided for in this subdivision or may proceed against them in an independent action.
For purposes of this section, “agent” means a person who is or was a director, officer, employee, or other agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise, or was a director, officer, employee, or agent of a foreign or domestic corporation that was a predecessor corporation of the corporation or of another enterprise at the request of the predecessor corporation; “proceeding” means any threatened, pending, or completed action or proceeding, whether civil, criminal, administrative, or investigative; and “expenses” includes, without limitation, attorneys’ fees and any expenses of establishing a right to indemnification under subdivision (d) or paragraph (3) of subdivision (e).
A corporation shall have power to indemnify a person who was or is a party or is threatened to be made a party to any proceeding (other than an action by or in the right of the corporation to procure a judgment in its favor, an action brought under Section 5233 of Part 2 (commencing with Section 5110) made applicable pursuant to Section 7238, or an action brought by the Attorney General or a person granted relator status by the Attorney General for any breach of duty relating to assets held in charitable trust) by reason of the fact that the person is or was an agent of the corporation, against expenses, judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with the proceeding if the person acted in good faith and in a manner the person reasonably believed to be in the best interests of the corporation and, in the case of a criminal proceeding, had no reasonable cause to believe the conduct of the person was unlawful. The termination of any proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent shall not, of itself, create a presumption that the person did not act in good faith and in a manner which the person reasonably believed to be in the best interests of the corporation or that the person had reasonable cause to believe that the person’s conduct was unlawful.
A corporation shall have power to indemnify a person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action by or in the right of the corporation, or brought under Section 5233 of Part 2 (commencing with Section 5110) made applicable pursuant to Section 7238, or brought by the Attorney General or a person granted relator status by the Attorney General for breach of duty relating to assets held in charitable trust, to procure a judgment in its favor by reason of the fact that the person is or was an agent of the corporation, against expenses actually and reasonably incurred by the person in connection with the defense or settlement of the action if the person acted in good faith, in a manner the person believed to be in the best interests of the corporation and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances. No indemnification shall be made under this subdivision:
With respect to any claim, issue, or matter as to which the person shall have been adjudged to be liable to the corporation in the performance of the person’s duty to the corporation, unless and only to the extent that the court in which the proceeding is or was pending shall determine upon application that, in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for the expenses which the court shall determine;
Of amounts paid in settling or otherwise disposing of a threatened or pending action, with or without court approval; or
Of expenses incurred in defending a threatened or pending action that is settled or otherwise disposed of without court approval unless the action concerns assets held in charitable trust and is settled with the approval of the Attorney General.
To the extent that an agent of a corporation has been successful on the merits in defense of any proceeding referred to in subdivision (b) or (c) or in defense of any claim, issue, or matter therein, the agent shall be indemnified against expenses actually and reasonably incurred by the agent in connection therewith.
Except as provided in subdivision (d), any indemnification under this section shall be made by the corporation only if authorized in the specific case, upon a determination that indemnification of the agent is proper in the circumstances because the agent has met the applicable standard of conduct set forth in subdivision (b) or (c), by:
A majority vote of a quorum consisting of directors who are not parties to the proceeding;
Approval of the members (Section 5034), with the persons to be indemnified not being entitled to vote thereon; or
The court in which the proceeding is or was pending upon application made by the corporation or the agent or the attorney, or other person rendering services in connection with the defense, whether or not the application by the agent, attorney or other person is opposed by the corporation.
Expenses incurred in defending any proceeding may be advanced by the corporation before the final disposition of the proceeding upon receipt of an undertaking by or on behalf of the agent to repay the amount unless it shall be determined ultimately that the agent is entitled to be indemnified as authorized in this section. The provisions of subdivision (a) of Section 7235 do not apply to advances made pursuant to this subdivision.
A provision made by a corporation to indemnify its or its subsidiary’s directors or officers for the defense of any proceeding, whether contained in the articles, bylaws, a resolution of members or directors, an agreement, or otherwise, shall not be valid unless consistent with this section. Nothing contained in this section shall affect any right to indemnification to which persons other than the directors and officers may be entitled by contract or otherwise.
No indemnification or advance shall be made under this section, except as provided in subdivision (d) or paragraph (3) of subdivision (e), in any circumstance where it appears:
That it would be inconsistent with a provision of the articles, bylaws, a resolution of the members, or an agreement in effect at the time of the accrual of the alleged cause of action asserted in the proceeding in which the expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification; or
That it would be inconsistent with any condition expressly imposed by a court in approving a settlement.
A corporation shall have power to purchase and maintain insurance on behalf of an agent of the corporation against any liability asserted against or incurred by the agent in that capacity or arising out of the agent’s status as such whether or not the corporation would have the power to indemnify the agent against that liability under the provisions of this section.
This section does not apply to any proceeding against a trustee, investment manager, or other fiduciary of a pension, deferred compensation, saving, thrift, or other retirement, incentive, or benefit plan, trust, or provision for any or all of the corporation’s directors, officers, employees, and persons providing services to the corporation or any of its subsidiary or related or affiliated corporations, in that person’s capacity as such, even though the person may also be an agent as defined in subdivision (a) of the employer corporation. A corporation shall have power to indemnify the trustee, investment manager, or other fiduciary to the extent permitted by subdivision (e) of Section 7140.
Where a corporation holds assets in charitable trust, the conduct of its directors or of any person performing functions similar to those performed by a director, shall, in respect to the assets held in charitable trust, be governed by the standards of conduct set forth in Article 3 (commencing with Section 5230) of Chapter 2 of Part 2 for directors of nonprofit public benefit corporations. This does not limit any additional requirements which may be specifically set forth in this part regarding corporations holding assets in charitable trust.
ARTICLE 4. Examination by Attorney General [7240. - 7240.]
A corporation holding assets in charitable trust is subject at all times to examination by the Attorney General, on behalf of the state, to ascertain to what extent, if at all, it has failed or is failing to comply with trusts it has assumed. In case of any such failure the Attorney General, in the name of the state, may institute against any person or persons the proceedings necessary to correct the failure.
CHAPTER 3. Members [7310. - 7354.]
ARTICLE 1. Issuance of Memberships [7310. - 7315.]
A corporation may admit persons to membership, as provided in its articles or bylaws, or may provide in its articles or bylaws that it shall have no members. In the absence of any provision in its articles or bylaws providing for members, a corporation shall have no members.
In the case of a corporation which has no members:
Any action for which there is no specific provision of this part applicable to a corporation which has no members and which would otherwise require approval by a majority of all members (Section 5033) or approval by the members (Section 5034) shall require only approval of the board, any provision of this part or the articles or bylaws to the contrary notwithstanding.
All rights which would otherwise vest in the members to share in a distribution upon dissolution shall vest in the directors.
Reference in this part to a corporation which has no members includes a corporation in which the directors are the only members.
Subject to the articles or bylaws, memberships may be issued by a corporation for no consideration or for such consideration as is determined by the board.
No person may hold more than one membership, and no fractional memberships may be held, except as follows:
Two or more persons may have an indivisible interest in a single membership when authorized by, and in a manner or under the circumstances prescribed by, the articles or bylaws subject to Section 7612.
If the articles or bylaws provide for classes of membership and if the articles or bylaws permit a person to be a member of more than one class, a person may hold a membership in one or more classes.
Any branch, division, or office of any person, which is not formed primarily to be a member, may hold a separate membership.
In the case of membership in an owners’ association, created in connection with any of the forms of development referred to in Section 11004.5 of the Business and Professions Code, the articles or bylaws may permit a person who owns an interest, or who has a right of exclusive occupancy, in more than one lot, parcel, area, apartment, or unit to hold a separate membership in the owners’ association for each lot, parcel, area, apartment, or unit.
In the case of membership in a mutual water company, as defined in Section 14300, the articles or bylaws may permit a person entitled to membership by reason of the ownership, lease, or right of occupancy of more than one lot, parcel, or other service unit to hold a separate membership in the mutual water company for each lot, parcel, or other service unit.
In the case of membership in a mobilehome park acquisition corporation, as described in Section 11010.8 of the Business and Professions Code, a bona fide secured party who has, pursuant to a security interest in a membership, taken title to the membership by way of foreclosure, repossession, or voluntary repossession, and who is actively attempting to resell the membership to a prospective homeowner or resident of the mobilehome park, may own more than one membership.
A corporation may, but is not required to, issue membership certificates. Nothing in this section shall restrict a corporation from issuing identity cards or similar devices to members which serve to identify members qualifying to use facilities or services of the corporation.
Membership certificates issued by corporations shall state the following on the certificate:
The corporation is a nonprofit mutual benefit corporation which may not make distributions to its members except upon dissolution, or, if the articles or bylaws so provide, that it may not make distributions to its members during its life or upon dissolution.
If there are restrictions upon the transferability, a statement that a copy of the restrictions are on file with the secretary of the corporation and are open for inspection by a member on the same basis as the records of the corporation.
If the membership certificates are transferable only with consent of the corporation, or if there are no membership certificates, then instead of complying with paragraph (2) of subdivision (b) the corporation may, or if there are no membership certificates, shall, give notice to the transferee, within a reasonable time after the corporation is first notified of the proposed transfer, and before the membership is transferred on the books and records of the corporation, of the information that would otherwise be provided by the legends required by paragraph (2) of subdivision (b).
If the articles or bylaws are amended so that any statement required by subdivision (b) upon outstanding membership certificates is no longer accurate, then the board may cancel the outstanding certificates and issue in their place new certificates conforming to the articles or bylaw amendments.
Where new membership certificates are issued in accordance with subdivision (d), the board may order holders of outstanding certificates to surrender and exchange them for new certificates within a reasonable time fixed by the board. The board may further provide that the holder of a certificate so ordered to be surrendered shall not be entitled to exercise any of the rights of membership until the certificate is surrendered and exchanged, but rights shall be suspended only after notice of such order is given to the holder of the certificate and only until the certificate is exchanged. The duty of surrender of any outstanding certificates may also be enforced by civil action.
A corporation may issue a new membership certificate or a new certificate for any security in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the corporation may require the owner of the lost, stolen or destroyed certificate or the owner’s legal representative to give the corporation a bond (or other adequate security) sufficient to indemnify it against any claim that may be made against it (including any expense or liability) on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate.
If a corporation refuses to issue a new membership certificate or other certificate in place of one theretofore issued by it, or by any corporation of which it is the lawful successor, alleged to have been lost, stolen or destroyed, the owner of the lost, stolen or destroyed certificate or the owner’s legal representative may bring an action in the superior court of the proper county for an order requiring the corporation to issue a new certificate in place of the one lost, stolen or destroyed.
Except as provided in subdivision (b), or in its articles or bylaws, a corporation may admit any person to membership.
A corporation may not admit its subsidiary (Section 5073) to membership.
ARTICLE 2. Transfer of Memberships [7320. - 7320.]
Subject to Section 7613:
Unless the articles or bylaws otherwise provide:
No member may transfer a membership or any right arising therefrom; and
Subject to the provisions of subdivision (b), all rights as a member of the corporation cease upon the member’s death or dissolution.
The articles or bylaws may provide for, or may authorize the board to provide for, the transfer of memberships, or of memberships within any class or classes, with or without restriction or limitation, including transfer upon the death, dissolution, merger, or reorganization of a member.
Where transfer rights have been provided, no restriction of them shall be binding with respect to memberships issued prior to the adoption of the restriction, unless the holders of such memberships voted in favor of the restriction.
ARTICLE 3. Types of Memberships [7330. - 7333.]
A corporation may issue memberships having different rights, privileges, preferences, restrictions, or conditions, as authorized by its articles or bylaws.
Except as provided in or authorized by the articles or bylaws, all memberships shall have the same rights, privileges, preferences, restrictions and conditions.
A corporation may provide in its articles for one or more classes of memberships which are redeemable, in whole or in part, at the option of the corporation, or the member for such consideration within such time or upon the happening of one or more specified events and upon such terms and conditions as are stated in the articles. However, no membership shall actually be redeemed if prohibited by Chapter 4 (commencing with Section 7410).
Nothing in this section shall prevent a corporation from creating a sinking fund or similar provision for, or entering into an agreement for, the redemption or purchase of its memberships to the extent permitted by Chapter 4 (commencing with Section 7410).
A corporation may refer to persons associated with it as “members” even though such persons are not members within the meaning of Section 5056; but references to members in this part mean members as defined in Section 5056.
A corporation may benefit, serve, or assist persons who are not members within the meaning of Section 5056 for such consideration, if any, as the board may determine or as is authorized or provided for in the articles or bylaws.
ARTICLE 4. Termination of Memberships [7340. - 7341.]
A member may resign from membership at any time, although the articles or bylaws may require reasonable notice before the resignation is effective.
This section shall not relieve the resigning member from any obligation for charges incurred, services or benefits actually rendered, dues, assessments or fees, or arising from contract, a condition to ownership of land, an obligation arising out of the ownership of land, or otherwise, and this section shall not diminish any right of the corporation to enforce any such obligation or obtain damages for its breach.
A membership issued for a period of time shall expire when such period of time has elapsed unless the membership is renewed.
No member may be expelled or suspended, and no membership or memberships may be terminated or suspended, except according to procedures satisfying the requirements of this section. An expulsion, termination or suspension not in accord with this section shall be void and without effect.
Any expulsion, suspension, or termination must be done in good faith and in a fair and reasonable manner. Any procedure which conforms to the requirements of subdivision (c) is fair and reasonable, but a court may also find other procedures to be fair and reasonable when the full circumstances of the suspension, termination, or expulsion are considered.
A procedure is fair and reasonable when:
The provisions of the procedure have been set forth in the articles or bylaws, or copies of such provisions are sent annually to all the members as required by the articles or bylaws;
It provides the giving of 15 days’ prior notice of the expulsion, suspension or termination and the reasons therefor; and
It provides an opportunity for the member to be heard, orally or in writing, not less than five days before the effective date of the expulsion, suspension or termination by a person or body authorized to decide that the proposed expulsion, termination or suspension not take place.
Any notice required under this section may be given by any method reasonably calculated to provide actual notice. Any notice given by mail must be given by first-class or registered mail sent to the last address of the members shown on the corporation’s records.
Any action challenging an expulsion, suspension or termination of membership, including any claim alleging defective notice, must be commenced within one year after the date of the expulsion, suspension or termination. In the event such an action is successful the court may order any relief, including reinstatement, it finds equitable under the circumstances, but no vote of the members or of the board may be set aside solely because a person was at the time of the vote wrongfully excluded by virtue of the challenged expulsion, suspension or termination, unless the court finds further that the wrongful expulsion, suspension or termination was in bad faith and for the purpose, and with the effect, of wrongfully excluding the member from the vote or from the meeting at which the vote took place, so as to affect the outcome of the vote.
This section governs only the procedures for expulsion, suspension or termination and not the substantive grounds therefor. An expulsion, suspension or termination based upon substantive grounds which violate contractual or other rights of the member or are otherwise unlawful is not made valid by compliance with this section.
A member who is expelled or suspended or whose membership is terminated shall be liable for any charges incurred, services or benefits actually rendered, dues, assessments or fees incurred before the expulsion, suspension or termination or arising from contract or otherwise.
ARTICLE 5. Rights and Obligations of Members and Creditors [7350. - 7354.]
A member of a corporation is not, as such, personally liable for the debts, liabilities, or obligations of the corporation.
No person is liable for any obligation arising from membership unless the person was admitted to membership upon the person’s application or with the person’s consent.
The ownership of an interest in real property, when a condition of its ownership is membership in a corporation, shall be considered consent to such membership for the purpose of this section.
A corporation may levy dues, assessments, or fees upon its members pursuant to its articles or bylaws, but a member upon learning of them may avoid liability for them by promptly resigning from membership, except where the member is liable for them by contract, as a condition to ownership of an interest in real property, as an obligation arising out of the ownership of an interest in real property, or otherwise. Article or bylaw provisions authorizing such dues, assessments or fees do not, of themselves, create such liability.
A person holding a membership as pledgee or a membership as executor, administrator, guardian, trustee, receiver or in any representative or fiduciary capacity is not personally liable for any unpaid balance of the purchase price of the membership, or for any amount owing to the corporation by the member, because the membership is so held, but the estate and funds in the hands of such fiduciary or representative are liable and the membership subject to sale therefor.
No action shall be brought by or on behalf of any creditor to reach and apply the liability, if any, of a member to the corporation to pay the amount due on such member’s membership or otherwise due to the corporation unless final judgment has been rendered in favor of the creditor against the corporation and execution has been returned unsatisfied in whole or in part or unless such proceedings would be useless.
All creditors of the corporation, with or without reducing their claims to judgment, may intervene in any such creditor’s action to reach and apply unpaid amounts due the corporation and any or all members who owe amounts to the corporation may be joined in such action. Several judgments may be rendered for and against the parties to the action or in favor of a receiver for the benefit of the respective parties thereto.
All amounts paid by any member in any such action shall be credited on the unpaid balance due the corporation by such member.
Nothing in this part shall be construed as in derogation of any rights or remedies which any creditor or member may have against any promoter, member, director, officer or the corporation because of participation in any fraud or illegality practiced upon such creditor or member by any such person or by the corporation in connection with the issue or sale of memberships or securities or in derogation of any rights which the corporation may have by rescission, cancellation or otherwise because of any fraud or illegality practiced on it by any such person in connection with the issue or sale of memberships or securities.
CHAPTER 4. Distributions [7410. - 7420.]
ARTICLE 1. Limitations [7410. - 7414.]
Except as provided in subdivision (b), no corporation shall make any distribution except upon dissolution.
Neither a corporation nor any of its subsidiaries shall make a distribution if the corporation or the subsidiary making the distribution is, or as a result thereof would be, likely to be unable to meet its liabilities (except those whose payment is otherwise adequately provided for) as they mature.
Neither a corporation nor any of its subsidiaries shall purchase or redeem a membership of the parent or subsidiary if the articles of the corporation contain a provision authorized by subparagraph (B) of paragraph (4) of subdivision (a) of Section 7132 and such corporation or the subsidiary making the purchase or redemption is, or as a result thereof would be, likely to be unable to meet the obligations resulting from such article provision.
Nothing in this chapter prohibits additional restrictions upon the purchase or redemption of a membership by provision in a corporation’s articles or bylaws or agreement entered into by the corporation.
ARTICLE 2. Liability of Members [7420. - 7420.]
Any person who with knowledge of facts indicating the impropriety thereof receives any distribution, including a payment in redemption of a membership, prohibited by this chapter is liable to the corporation for the amount so received by the person with interest thereon at the legal rate on judgments until paid.
Any person who with knowledge of facts indicating the impropriety thereof receives any distribution, including a payment in redemption of a membership, prohibited by this chapter is liable to the corporation for the benefit of the head organization, or of all of the creditors entitled to institute an action under subdivision (c), for the amount so received by the person with interest thereon at the legal rate on judgments until paid, but not exceeding the obligations of the corporation owed to the head organization at the time of the violation, or the liabilities of the corporation owed to nonconsenting creditors at the time of the violation, as the case may be.
Suit may be brought in the name of the corporation to enforce the liability (1) to creditors arising under subdivision (b) for a violation of Section 7411 or 7412 against any or all persons liable by any one or more creditors of the corporation whose debts or claims arose prior to the time of the distribution and who have not consented thereto, whether or not they have reduced their claims to judgment, or (2) to the head organization arising under subdivision (b) for a violation of Section 7413 against any or all persons liable by any head organization which pursuant to the corporation’s articles is entitled to a distribution of assets upon dissolution.
Any person sued under subdivision (b) may implead all other persons liable under subdivision (b) and may in the absence of fraud by the moving party compel contribution, either in that action or in an independent action against persons not joined in that action.
Nothing contained in this section affects any liability which any person may have under the Uniform Voidable Transactions Act (Chapter 1 (commencing with Section 3439) of Title 2 of Part 2 of Division 4 of the Civil Code).
CHAPTER 5. Meetings and Voting [7510. - 7527.]
ARTICLE 1. General Provisions [7510. - 7517.]
Meetings of members may be held at a place within or without this state as may be stated in or fixed in accordance with the bylaws. If no other place is stated or so fixed, meetings of members shall be held at the principal office of the corporation. Subject to any limitations in the articles or bylaws of the corporation, if authorized by the board of directors in its sole discretion, and subject to those guidelines and procedures as the board of directors may adopt, members not physically present in person (or, if proxies are allowed, by proxy) at a meeting of members may, by electronic transmission by and to the corporation (Sections 20 and 21), electronic video screen communication, conference telephone, or other means of remote communication, participate in a meeting of members, be deemed present in person (or, if proxies are allowed, by proxy), and vote at a meeting of members, subject to subdivision (f).
A regular meeting of members shall be held on a date and time, and with the frequency stated in or fixed in accordance with the bylaws, but in any event in each year in which directors are to be elected at that meeting for the purpose of conducting such election, and to transact any other proper business which may be brought before the meeting.
If a corporation with members is required by subdivision (b) to hold a regular meeting and fails to hold the regular meeting for a period of 60 days after the date designated therefor or, if no date has been designated, for a period of 15 months after the formation of the corporation or after its last regular meeting, or if the corporation fails to hold a written ballot for a period of 60 days after the date designated therefor, then the superior court of the proper county may summarily order the meeting to be held or the ballot to be conducted upon the application of a member or the Attorney General, after notice to the corporation giving it an opportunity to be heard.
The votes represented, either in person (or, if proxies are allowed, by proxy), at a meeting called or by written ballot ordered pursuant to subdivision (c), and entitled to be cast on the business to be transacted shall constitute a quorum, notwithstanding any provision of the articles or bylaws or in this part to the contrary. The court may issue such orders as may be appropriate, including, without limitation, orders designating the time and place of the meeting, the record date for determination of members entitled to vote, and the form of notice of the meeting.
Special meetings of members for any lawful purpose may be called by the board, the chairperson of the board, the president, or such other persons, if any, as are specified in the bylaws. In addition, special meetings of members for any lawful purpose may be called by 5 percent or more of the members.
A meeting of the members may be conducted, in whole or in part, by electronic transmission by and to the corporation, electronic video screen communication, conference telephone, or other means of remote communication if the corporation implements reasonable measures: (1) to provide members and proxyholders, if proxies are allowed, a reasonable opportunity to participate in the meeting and to vote on matters submitted to the members, including an opportunity to read or hear the proceedings of the meeting concurrently with those proceedings, (2) if any member or proxyholder, if proxies are allowed, votes or takes other action at the meeting by means of electronic transmission to the corporation, electronic video screen communication, conference telephone, or other means of remote communication, to maintain a record of that vote or action in its books and records, and (3) to verify that each person who has voted remotely is a member or proxyholder, if proxies are allowed. A corporation shall not conduct a meeting of members solely by electronic transmission by and to the corporation, electronic video screen communication, conference telephone, or other means of remote communication unless one or more of the following conditions apply: (A) all of the members consent; (B) the board determines it is necessary or appropriate because of an emergency, as defined in paragraph (5) of subdivision (m) of Section 7140; or (C) notwithstanding the absence of consent from all members pursuant to (A) or subdivision (b) of Section 20, the meeting includes a live audiovisual feed for the duration of the meeting. A corporation holding a meeting pursuant to (C) may offer, in addition to remote audiovisual feed, an audio-only means by which a member or proxyholder may participate provided that the choice between participating via audiovisual or via audio-only means is made by the member or proxyholder and the corporation does not impose any barriers to either mode of participation. A de minimis disruption of an audio or audiovisual feed does not require a corporation to end a meeting under, or render the corporation out of compliance with, this subdivision.
Whenever members are required or permitted to take any action at a meeting, a written notice of the meeting shall be given not less than 10 nor more than 90 days before the date of the meeting to each member who, on the record date for notice of the meeting, is entitled to vote thereat; provided, however, that if notice is given by mail, and the notice is not mailed by first-class, registered, or certified mail, that notice shall be given not less than 20 days before the meeting. Subject to subdivision (f), and subdivision (b) of Section 7512, the notice shall state the place, date and time of the meeting, the means of electronic transmission by and to the corporation (Sections 20 and 21), electronic video screen communication, conference telephone, or other means of remote communication, if any, by which members may participate in that meeting, and (1) in the case of a special meeting, the general nature of the business to be transacted, and no other business may be transacted, or (2) in the case of the regular meeting, those matters which the board, at the time the notice is given, intends to present for action by the members, but, except as provided in subdivision (b) of Section 7512, any proper matter may be presented at the meeting for the action. The notice of any meeting at which directors are to be elected shall include the names of all those who are nominees at the time the notice is given to members.
Notice of a members’ meeting or any report shall be given personally, by electronic transmission by a corporation, or by mail or other means of written communication, addressed to a member at the address of the member appearing on the books of the corporation or given by the member to the corporation for purpose of notice, or if no such address appears or is given, at the place where the principal office of the corporation is located or by publication at least once in a newspaper of general circulation in the county in which the principal office is located. Notwithstanding the foregoing, the notice of a members’ meeting or any report may be sent by electronic communication or other means of remote communication if the board determines it is necessary or appropriate because of an emergency, as defined in paragraph (5) of subdivision (m) of Section 7140. An affidavit of giving of any notice or report as permitted because of an emergency or otherwise in accordance with the provisions of this part, executed by the secretary, assistant secretary, or any transfer agent, shall be prima facie evidence of the giving of the notice or report.
If any notice or report addressed to the member at the address of the member appearing on the books of the corporation is returned to the corporation by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice or report to the member at the address, all future notices or reports shall be deemed to have been duly given without further mailing if the same shall be available for the member upon written demand of the member at the principal office of the corporation for a period of one year from the date of the giving of the notice or report to all other members.
Notice given by electronic transmission by the corporation under this subdivision shall be valid only if it complies with Section 20. Notwithstanding the foregoing, notice shall not be given by electronic transmission by the corporation under this subdivision after either of the following:
The corporation is unable to deliver two consecutive notices to the member by that means.
The inability to so deliver the notices to the member becomes known to the secretary, any assistant secretary, the transfer agent, or other person responsible for the giving of the notice.
This paragraph shall not apply if notices are provided by electronic communication or other means of remote communication as permitted because of an emergency.
Upon request in writing to the corporation addressed to the attention of the chairperson of the board, president, vice president, or secretary by any person (other than the board) entitled to call a special meeting of members, the officer forthwith shall cause notice to be given to the members entitled to vote that a meeting will be held at a time fixed by the board not less than 35 nor more than 90 days after the receipt of the request. If the corporation is a common interest development, as defined in Section 4100 of the Civil Code, the corporation shall cause notice to be given to the members entitled to vote that a meeting will be held at a time fixed by the board not less than 35 nor more than 150 days after receipt of the request. If the notice is not given within 20 days after receipt of the request, the persons entitled to call the meeting may give the notice or the superior court of the proper county shall summarily order the giving of the notice, after notice to the corporation giving it an opportunity to be heard. The court may issue such orders as may be appropriate, including, without limitation, orders designating the time and place of the meeting, the record date for determination of members entitled to vote, and the form of notice.
When a members’ meeting is adjourned to another time or place, unless the bylaws otherwise require and except as provided in this subdivision, notice need not be given of the adjourned meeting if the time and place thereof (or the means of electronic transmission by and to the corporation or electronic video screen communication, conference telephone, or other means of remote communication, if any, by which members may participate) are announced at the meeting at which the adjournment is taken. No meeting may be adjourned for more than 45 days. At the adjourned meeting the corporation may transact any business which might have been transacted at the original meeting. If after the adjournment a new record date is fixed for notice or voting, a notice of the adjourned meeting shall be given to each member who, on the record date for notice of the meeting, is entitled to vote at the meeting.
The transactions of any meeting of members however called and noticed, and wherever held, are as valid as though had at a meeting duly held after regular call and notice, if a quorum is present either in person or by proxy, and if, either before or after the meeting, each of the persons entitled to vote, not present in person (or, if proxies are allowed, by proxy), provides a waiver of notice or consent to the holding of the meeting or an approval of the minutes thereof in writing. All such waivers, consents, and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance of a person at a meeting shall constitute a waiver of notice of and presence at the meeting, except when the person objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened and except that attendance at a meeting is not a waiver of any right to object to the consideration of matters required by this part to be included in the notice but not so included, if the objection is expressly made at the meeting. Neither the business to be transacted at nor the purpose of any regular or special meeting of members need be specified in any written waiver of notice, consent to the holding of the meeting or approval of the minutes thereof, unless otherwise provided in the articles or bylaws, except as provided in subdivision (f).
A court may find that notice not given in conformity with this section is still valid, if it was given in a fair and reasonable manner.
One-third of the voting power, represented in person or by proxy, shall constitute a quorum at a meeting of members, but, subject to subdivisions (b) and (c), a bylaw may set a different quorum. Any bylaw amendment to increase the quorum may be adopted only by approval of the members (Section 5034). If a quorum is present, the affirmative vote of the majority of the voting power represented at the meeting, entitled to vote, and voting on any matter shall be the act of the members unless the vote of a greater number or voting by classes is required by this part or the articles or bylaws.
Where a bylaw authorizes a corporation to conduct a meeting with a quorum of less than one-third of the voting power, then the only matters that may be voted upon at any regular meeting actually attended, in person or by proxy, by less than one-third of the voting power are matters notice of the general nature of which was given, pursuant to the first sentence of subdivision (a) of Section 7511.
Subject to subdivision (b), the members present at a duly called or held meeting at which a quorum is present may continue to transact business until adjournment notwithstanding the withdrawal of enough members to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the members required to constitute a quorum or, if required by this division, or by the articles or the bylaws, the vote of the greater number or voting by classes.
In the absence of a quorum, any meeting of members may be adjourned from time to time by the vote of a majority of the votes represented either in person or by proxy, but no other business may be transacted, except as provided in subdivision (c).
For an election of directors of a corporation that is a common interest development, and in the absence of meeting quorum as required by the association’s governing documents or this section, unless a lower quorum for a reconvened meeting is authorized by an association’s governing documents, the corporation may adjourn the meeting to a date at least 20 days after the adjourned meeting, at which time the quorum required for purposes of a reconvened meeting to elect directors shall be 20 percent of the association’s members, voting in person, by proxy, or by secret ballot.
Subject to subdivision (e), and unless prohibited in the articles or bylaws, any action which may be taken at any regular or special meeting of members may be taken without a meeting if the corporation distributes a written ballot to every member entitled to vote on the matter. Unless otherwise provided by the articles or bylaws and if approved by the board of directors, that ballot and any related material may be sent by electronic transmission by the corporation (Section 20) and responses may be returned to the corporation by electronic transmission to the corporation (Section 21). That ballot shall set forth the proposed action, provide an opportunity to specify approval or disapproval of any proposal, and provide a reasonable time within which to return the ballot to the corporation.
Approval by written ballot pursuant to this section shall be valid only when the number of votes cast by ballot within the time period specified equals or exceeds the quorum required to be present at a meeting authorizing the action, and the number of approvals equals or exceeds the number of votes that would be required to approve at a meeting at which the total number of votes cast was the same as the number of votes cast by ballot.
Ballots shall be solicited in a manner consistent with the requirements of subdivision (b) of Section 7511 and Section 7514. All such solicitations shall indicate the number of responses needed to meet the quorum requirement and, with respect to ballots other than for the election of directors, shall state the percentage of approvals necessary to pass the measure submitted. The solicitation must specify the time by which the ballot must be received in order to be counted.
Unless otherwise provided in the articles or bylaws, a written ballot may not be revoked.
Directors may be elected by written ballot under this section, where authorized by the articles or bylaws, except that election by written ballot may not be authorized where the directors are elected by cumulative voting pursuant to Section 7615.
When directors are to be elected by written ballot and the articles or bylaws prescribe a nomination procedure, the procedure may provide for a date for the close of nominations prior to the printing and distributing of the written ballots.
Any form of proxy or written ballot distributed to 10 or more members of a corporation with 100 or more members shall afford an opportunity on the proxy or form of written ballot to specify a choice between approval and disapproval of each matter or group of related matters intended, at the time the written ballot or proxy is distributed, to be acted upon at the meeting for which the proxy is solicited or by such written ballot, and shall provide, subject to reasonable specified conditions, that where the person solicited specifies a choice with respect to any such matter the vote shall be cast in accordance therewith.
In any election of directors, any form of proxy or written ballot in which the directors to be voted upon are named therein as candidates and which is marked by a member “withhold” or otherwise marked in a manner indicating that the authority to vote for the election of directors is withheld shall not be voted either for or against the election of a director.
Failure to comply with this section shall not invalidate any corporate action taken, but may be the basis for challenging any proxy at a meeting or written ballot and the superior court may compel compliance therewith at the suit of any member.
If for any reason it is impractical or unduly difficult for any corporation to call or conduct a meeting of its members, delegates or directors, or otherwise obtain their consent, in the manner prescribed by its articles or bylaws, or this part, then the superior court of the proper county, upon petition of a director, officer, delegate or member, may order that such a meeting be called or that a written ballot or other form of obtaining the vote of members, delegates or directors be authorized, in such a manner as the court finds fair and equitable under the circumstances.
The court shall, in an order issued pursuant to this section, provide for a method of notice reasonably designed to give actual notice to all parties who would be entitled to notice of a meeting held pursuant to the articles, bylaws and this part, whether or not the method results in actual notice to every such person, or conforms to the notice requirements that would otherwise apply. In a proceeding under this section the court may determine who the members or directors are.
The order issued pursuant to this section may dispense with any requirement relating to the holding of and voting at meetings or obtaining of votes, including any requirement as to quorums or as to the number or percentage of votes needed for approval, that would otherwise be imposed by the articles, bylaws, or this part.
Wherever practical any order issued pursuant to this section shall limit the subject matter of the meetings or other forms of consent authorized to items, including amendments to the articles or bylaws, the resolution of which will or may enable the corporation to continue managing its affairs without further resort to this section; provided, however, that an order under this section may also authorize the obtaining of whatever votes and approvals are necessary for the dissolution, merger, sale of assets or reorganization of the corporation.
Any meeting or other method of obtaining the vote of members, delegates or directors conducted pursuant to an order issued under this section, and which complies with all the provisions of such order, is for all purposes a valid meeting or vote, as the case may be, and shall have the same force and effect as if it complied with every requirement imposed by the articles, bylaws, and this part.
Any action required or permitted to be taken by the members may be taken without a meeting, if all members shall individually or collectively consent in writing to the action. The written consent or consents shall be filed with the minutes of the proceedings of the members. The action by written consent shall have the same force and effect as the unanimous vote of the members.
If the name signed on a ballot, consent, waiver, or proxy appointment corresponds to the name of a member, the corporation if acting in good faith is entitled to accept the ballot, consent, waiver or proxy appointment and give it effect as the act of the member.
If the name signed on a ballot, consent, waiver, or proxy appointment does not correspond to the record name of a member, the corporation if acting in good faith is nevertheless entitled to accept the ballot, consent, waiver, or proxy appointment and give it effect as the act of the member if any of the following occur:
The member is an entity and the name signed purports to be that of an officer or agent of the entity.
The name signed purports to be that of an attorney-in-fact of the member and if the corporation requests, evidence acceptable to the corporation of the signatory’s authority to sign for the member has been presented with respect to the ballot, consent, waiver, or proxy appointment.
Two or more persons hold the membership as cotenants or fiduciaries and the name signed purports to be the name of at least one of the coholders and the person signing appears to be acting on behalf of all the coholders.
The name signed purports to be that of an administrator, executor, guardian, or conservator representing the member and, if the corporation requests, evidence of fiduciary status acceptable to the corporation has been presented with respect to the ballot, consent, waiver, or proxy appointment.
The name signed purports to be that of a receiver or trustee in bankruptcy of the member, and, if the corporation requests, evidence of this status acceptable to the corporation has been presented with respect to the ballot, consent, waiver, or proxy appointment.
The corporation is entitled to reject a ballot, consent, waiver, or proxy appointment if the secretary or other officer or agent authorized to tabulate votes, acting in good faith, has a reasonable basis for doubt concerning the validity of the signature or the signatory’s authority to sign for the member.
The corporation and any officer or agent thereof who accepts or rejects a ballot, consent, waiver, or proxy appointment in good faith and in accordance with the standards of this section shall not be liable in damages to the member for the consequences of the acceptance or rejection.
Corporate action based on the acceptance or rejection of a ballot, consent, waiver, or proxy appointment under this section is valid unless a court of competent jurisdiction determines otherwise.
ARTICLE 2. Additional Provisions Relating to Election of Directors [7520. - 7527.]
As to directors elected by members, there shall be available to the members reasonable nomination and election procedures given the nature, size and operations of the corporation.
If a corporation complies with all of the provisions of Sections 7521, 7522, 7523, and 7524 applicable to a corporation with the same number of members, the nomination and election procedures of that corporation, shall be deemed reasonable. However, those sections do not prescribe the exclusive means of making available to the members reasonable procedures for nomination and election of directors. A corporation may make available to the members other reasonable nomination and election procedures given the nature, size, and operations of the corporation.
Subject to the provisions of subdivisions (a), (b), and (d) of Section 7616, the superior court of the proper county shall enforce the provisions of this section.
By any method authorized by the bylaws, or if no method is set forth in the bylaws by any method authorized by the board.
By petition delivered to an officer of the corporation, signed within 11 months preceding the next time directors will be elected, by members representing the following number of votes:
This subdivision does not apply to a corporation described in subdivision (c).
In corporations with one million or more members engaged primarily in the business of retail merchandising of consumer goods, by petition delivered to an officer of the corporation, signed within 11 months preceding the next time directors will be elected, by such reasonable number of members as is set forth in the bylaws, or if no number is set forth in the bylaws, by such reasonable number of members as is determined by the directors.
If there is a meeting to elect directors, by any member present at the meeting in person or by proxy if proxies are permitted.
The corporation’s articles or bylaws shall set a date for the close of nominations for the board. The date shall not be less than 50 nor more than 120 days before the day directors are to be elected. No nominations for the board can be made after the date set for the close of nominations.
If more people are nominated for the board than can be elected, the election shall take place by means of a procedure which allows all nominees a reasonable opportunity to solicit votes and all members a reasonable opportunity to choose among the nominees.
A nominee shall have a reasonable opportunity to communicate to the members the nominee’s qualifications and the reasons for the nominee’s candidacy.
If after the close of nominations the number of people nominated for the board is not more than the number of directors to be elected, the corporation may without further action declare that those nominated and qualified to be elected have been elected.
Notwithstanding subdivision (d), for a common interest development subject to this part, if, after the close of nominations of directors for the board of directors of the common interest development, the number of director nominees is not more than the number of vacancies to be elected, as determined by the inspector or inspectors of elections selected pursuant to Section 5110 of the Civil Code, the director nominees shall be considered elected by acclamation if the association provided individual notice of the election and the procedure for nominating candidates at least 30 days before the close of nominations.
For purposes of this subdivision:
“Common interest development” has the same meaning as that term is defined in Section 4100 of the Civil Code.
“Individual notice” has the same meaning as that term is defined in Section 4153 of the Civil Code.
Where a corporation with 500 or more members publishes any material soliciting a vote for any nominee for director in any publication owned or controlled by the corporation, the corporation may provide that it shall make available to all other nominees, in the same issue of the publication, an equal amount of space, with equal prominence, to be used by the nominee for a purpose reasonably related to the election.
A corporation with 500 or more members may provide that upon written request by any nominee for election to the board and the payment of the reasonable costs of mailing (including postage), the corporation shall within 10 business days after such request (provided payment has been made) mail to all members, or such portion of them as the nominee may reasonably specify, any material, which the nominee may furnish and which is reasonably related to the election, unless the corporation within five business days after the request allows the nominee, at the corporation’s option, the rights set forth in either paragraph (1) or (2) of subdivision (a) of Section 8330.
This section shall apply to corporations publishing or mailing materials on behalf of any nominee in connection with procedures for the nomination and election of directors.
Neither the corporation, nor its agents, officers, directors, or employees, may be held criminally liable, liable for any negligence (active or passive) or otherwise liable for damages to any person on account of any material which is supplied by a nominee for director and which it mails or publishes in procedures intended to comply with Section 7520 or pursuant to Section 7523 or 7524 but the nominee on whose behalf such material was published or mailed shall be liable and shall indemnify and hold the corporation, its agents, officers, directors, and employees and each of them harmless from all demands, costs, including reasonable legal fees and expenses, claims, damages and causes of action arising out of such material or any such mailing or publication.
Nothing in this section shall prevent a corporation or any of its agents, officers, directors, or employees from seeking a court order providing that the corporation need not mail or publish material tendered by or on behalf of a nominee under this article on the ground the material will expose the moving party to liability.
Without authorization of the board, no corporation funds may be expended to support a nominee for director after there are more people nominated for director than can be elected.
An action challenging the validity of any election, appointment or removal of a director or directors must be commenced within nine months after the election, appointment or removal. If no such action is commenced, in the absence of fraud, any election, appointment or removal of a director is conclusively presumed valid nine months thereafter.
CHAPTER 6. Voting of Memberships [7610. - 7616.]
The bylaws may provide or, in the absence of such provision, the board may fix, in advance, a date as the record date for the purpose of determining the members entitled to notice of any meeting of members. Such record date shall not be more than 90 nor less than 10 days before the date of the meeting. If no record date is fixed, members at the close of business on the business day preceding the day on which notice is given or, if notice is waived, at the close of business on the business day preceding the day on which the meeting is held are entitled to notice of a meeting of members. A determination of members entitled to notice of a meeting of members shall apply to any adjournment of the meeting unless the board fixes a new record date for the adjourned meeting.
The bylaws may provide or, in the absence of such provision, the board may fix, in advance, a date as the record date for the purpose of determining the members entitled to vote at a meeting of members. Such record date shall not be more than 60 days before the date of the meeting. Such record date shall also apply in the case of an adjournment of the meeting unless the board fixes a new record date for the adjourned meeting. If no record date is fixed, members on the day of the meeting who are otherwise eligible to vote are entitled to vote at the meeting of members or, in the case of an adjourned meeting, members on the day of the adjourned meeting who are otherwise eligible to vote are entitled to vote at the adjourned meeting of members.
The bylaws may provide or, in the absence of such provision, the board may fix, in advance, a date as the record date for the purpose of determining the members entitled to cast written ballots (Section 7513). Such record date shall not be more than 60 days before the day on which the first written ballot is mailed or solicited. If no record date is fixed, members on the day the first written ballot is mailed or solicited who are otherwise eligible to vote are entitled to cast written ballots.
The bylaws may provide or, in the absence of such provision, the board may fix, in advance, a date as the record date for the purpose of determining the members entitled to exercise any rights in respect of any other lawful action. Such record date shall not be more than 60 days prior to such other action. If no record date is fixed, members at the close of business on the day on which the board adopts the resolution relating thereto, or the 60th day prior to the date of such other action, whichever is later, are entitled to exercise such rights.
If a membership stands of record in the names of two or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, spouses as community property, tenants by the entirety, persons entitled to vote under a voting agreement or otherwise, or if two or more persons (including proxyholders) have the same fiduciary relationship respecting the same membership, unless the secretary of the corporation is given written notice to the contrary and is furnished with a copy of the instrument or order appointing them or creating the relationship wherein it is so provided, their acts with respect to voting shall have the following effect:
If only one votes, such act binds all; or
If more than one vote, the act of the majority so voting binds all.
Any member may authorize another person or persons to act by proxy with respect to such membership except that this right may be limited or withdrawn by the articles or bylaws, subject to subdivision (f). Any proxy purported to be executed in accordance with the provisions of this part shall be presumptively valid.
No proxy shall be valid after the expiration of 11 months from the date thereof unless otherwise provided in the proxy, except that the maximum term of any proxy shall be three years from the date of execution. Every proxy continues in full force and effect until revoked by the person executing it prior to the vote pursuant thereto, except as otherwise provided in this section. Such revocation may be effected by a writing delivered to the corporation stating that the proxy is revoked or by a subsequent proxy executed by the person executing the prior proxy and presented to the meeting, or as to any meeting by attendance at such meeting and voting in person by the person executing the proxy. The dates contained on the forms of proxy presumptively determine the order of execution, regardless of the postmark dates on the envelopes in which they are mailed.
A proxy is not revoked by the death or incapacity of the maker or the termination of a membership as a result thereof unless, before the vote is counted, written notice of such death or incapacity is received by the corporation.
Unless otherwise provided in the articles or bylaws, the proxy of a member which states that it is irrevocable is irrevocable for the period specified therein (notwithstanding subdivisions (b) and (c)) when it is held by any of the following or a nominee of any of the following:
A person who has purchased or who has agreed to purchase the membership;
A creditor or creditors of the corporation or the member who extended or continued credit to the corporation or the member in consideration of the proxy if the proxy states that it was given in consideration of such extension or continuation of credit and the name of the person extending or continuing the credit; or
A person who has contracted to perform services as an employee of the corporation, if the proxy is required by the contract of employment and if the proxy states that it was given in consideration of such contract of employment, the name of the employee and the period of employment contracted for.
Notwithstanding the period of irrevocability specified, the proxy becomes revocable when the agreement to purchase is terminated; the debt of the corporation or the member is paid; or the period of employment provided for in the contract of employment has terminated. In addition to the foregoing paragraphs (1) through (3), a proxy of a member may be made irrevocable (notwithstanding subdivision (c)) if it is given to secure the performance of a duty or to protect a title, either legal or equitable, until the happening of events which, by its terms, discharge the obligations secured by it.
A proxy may be revoked, notwithstanding a provision making it irrevocable, by a transferee of a membership without knowledge of the existence of the provision unless the existence of the proxy and its irrevocability appears on the certificate representing the membership.
Subdivision (a) notwithstanding:
No amendment of the articles or bylaws repealing, restricting, creating or expanding proxy rights may be adopted without approval by the members (Section 5034); and
No amendment of the articles or bylaws restricting or limiting the use of proxies may affect the validity of a previously issued irrevocable proxy during the term of its irrevocability, so long as it complied with applicable provisions, if any, of the articles or bylaws at the time of its issuance, and is otherwise valid under this section.
Anything to the contrary notwithstanding, any revocable proxy covering matters requiring a vote of the members pursuant to Section 7222; Section 7224; Section 7233; paragraph (1) of subdivision (f) of this section; Section 7812; paragraph (2) of subdivision (a) of Section 7911; Section 8012; subdivision (a) of Section 8015; Section 8610; or subdivision (a) of Section 8719 is not valid as to such matters unless it sets forth the general nature of the matter to be voted on.
In advance of any meeting of members, the board may appoint inspectors of election to act at the meeting and any adjournment thereof. If inspectors of election are not so appointed, or if any persons so appointed fail to appear or refuse to act, the chairperson of any meeting of members may, and on the request of any member or a member’s proxy shall, appoint inspectors of election (or persons to replace those who so fail or refuse) at the meeting. The number of inspectors shall be either one or three. If appointed at a meeting on the request of one or more members or proxies, the majority of members represented in person or by proxy shall determine whether one or three inspectors are to be appointed. In the case of any action by written ballot (Section 7513), the board may similarly appoint inspectors of election to act with powers and duties as set forth in this section.
The inspectors of election shall determine the number of memberships outstanding and the voting power of each, the number represented at the meeting, the existence of a quorum, and the authenticity, validity and effect of proxies, receive votes, ballots or consents, hear and determine all challenges and questions in any way arising in connection with the right to vote, count and tabulate all votes or consents, determine when the polls shall close, determine the result and do such acts as may be proper to conduct the election or vote with fairness to all members.
The inspectors of election shall perform their duties impartially, in good faith, to the best of their ability and as expeditiously as is practical. If there are three inspectors of election, the decision, act or certificate of a majority is effective in all respects as the decision, act, or certificate of all. Any report or certificate made by the inspectors of election is prima facie evidence of the facts stated therein.
If the articles or bylaws authorize cumulative voting, but not otherwise, every member entitled to vote at any election of directors may cumulate the member’s votes and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which the member is entitled, or distribute the member’s votes on the same principle among as many candidates as the member thinks fit. An article or bylaw provision authorizing cumulative voting may be repealed or amended only by approval of the members (Section 5034), except that the governing article or bylaw provision may require the vote of a greater proportion of the members, or of the members of any class, for its repeal.
No member shall be entitled to cumulate votes for a candidate or candidates unless the candidate’s name or candidates’ names have been placed in nomination prior to the voting and the member has given notice at the meeting prior to the voting of the member’s intention to cumulate votes. If any one member has given this notice, all members may cumulate their votes for candidates in nomination.
In any election of directors by cumulative voting, the candidates receiving the highest number of votes are elected, subject to any lawful provision specifying election by classes.
In any election of directors not governed by subdivision (c), unless otherwise provided in the articles or bylaws, the candidates receiving the highest number of votes are elected.
Elections for directors need not be by ballot unless a member demands election by ballot at the meeting and before the voting begins or unless the bylaws so require.
Upon the filing of an action therefor by any director or member or by any person who had the right to vote in the election at issue, the superior court of the proper county shall determine the validity of any election or appointment of any director of any corporation.
In the case of a corporation holding assets in charitable trust, any person bringing an action under this section shall give notice of the action to the Attorney General, who may intervene.
Upon the filing of the complaint, and before any further proceedings are had, the court shall enter an order fixing a date for the hearing, which shall be within five days unless for good cause shown a later date is fixed, and requiring notice of the date for the hearing and a copy of the complaint to be served upon the corporation and upon the person whose purported election or appointment is questioned and upon any person (other than the plaintiff) whom the plaintiff alleges to have been elected or appointed, in the manner in which a summons is required to be served, or, if the court so directs, by registered mail; and the court may make such further requirements as to notice as appear to be proper under the circumstances.
The court, consistent with the provisions of this part and in conformity with the articles and bylaws to the extent feasible, may determine the person entitled to the office of director or may order a new election to be held or appointment to be made, may determine the validity, effectiveness and construction of voting agreements and voting trusts, the validity of the issuance of memberships and the right of persons to vote and may direct such other relief as may be just and proper.
CHAPTER 7. Members’ Derivative Actions [7710. - 7710.]
Subdivisions (c) through (f) notwithstanding, no motion to require a bond shall be granted in an action brought by 100 members or the authorized number (Section 5036), whichever is less.
No action may be instituted or maintained in the right of any corporation by any member of such corporation unless both of the following conditions exist:
The plaintiff alleges in the complaint that plaintiff was a member at the time of the transaction or any part thereof of which plaintiff complains, or that plaintiff’s membership thereafter devolved upon plaintiff by operation of law from a holder who was a holder at the time of transaction or any part thereof complained of; and
The plaintiff alleges in the complaint with particularity plaintiff’s efforts to secure from the board such action as plaintiff desires, or the reasons for not making such effort, and alleges further that plaintiff has either informed the corporation or the board in writing of the ultimate facts of each cause of action against each defendant or delivered to the corporation or the board a true copy of the complaint which plaintiff proposes to file.
Subject to subdivision (a), in any action referred to in subdivision (b), at any time within 30 days after service of summons upon the corporation or upon any defendant who is an officer or director of the corporation, or held such office at the time of the acts complained of, the corporation or such defendant may move the court for an order, upon notice and hearing, requiring the plaintiff to furnish a bond as hereinafter provided. The motion shall be based upon one or both of the following grounds:
At the hearing upon any motion pursuant to subdivision (c), the court shall consider such evidence, written or oral, by witnesses or affidavit, as may be material (1) to the ground or grounds upon which the motion is based, or (2) to a determination of the probable reasonable expenses, including attorneys’ fees, of the corporation and the moving party which will be incurred in the defense of the action. If the court determines, after hearing the evidence adduced by the parties, that the moving party has established a probability in support of any of the grounds upon which the motion is based, the court shall fix the amount of the bond, not to exceed fifty thousand dollars ($50,000), to be furnished by the plaintiff for reasonable expenses, including attorneys’ fees, which may be incurred by the moving party and the corporation in connection with the action, including expenses for which the corporation may become liable pursuant to Section 7237. A ruling by the court on the motion shall not be a determination of any issue in the action or of the merits thereof. If the court, upon any such motion, makes a determination that a bond shall be furnished by the plaintiff as to any one or more defendants, the action shall be dismissed as to such defendant or defendants, unless the bond required by the court has been furnished within such reasonable time as may be fixed by the court.
If the plaintiff shall, either before or after a motion is made pursuant to subdivision (c), or any order or determination pursuant to such motion, furnish a bond or bonds in the aggregate amount of fifty thousand dollars ($50,000) to secure the reasonable expenses of the parties entitled to make the motion, the plaintiff has complied with the requirements of this section and with any order for a bond theretofore made, and any such motion then pending shall be dismissed and no further or additional bond shall be required.
If a motion is filed pursuant to subdivision (c), no pleadings need be filed by the corporation or any other defendant and the prosecution of the action shall be stayed until 10 days after the motion has been disposed of.
CHAPTER 8. Amendment of Articles [7810. - 7820.]
By complying with the provisions of this chapter, a corporation may amend its articles from time to time, in any and as many respects as may be desired, so long as its articles as amended contain only such provisions as it would be lawful to insert in original articles filed at the time of the filing of the amendment or as authorized by Section 7813.5 and, if a change in the rights of members or an exchange, reclassification or cancellation of memberships is to be made, such provisions as may be necessary to effect such change, exchange, reclassification or cancellation. It is the intent of the Legislature in adopting this section to exercise to the fullest extent the reserve power of the state over corporations and to authorize any amendment of the articles covered by the preceding sentence regardless of whether any provision contained in the amendment was permissible at the time of the original incorporation of the corporation.
A corporation shall not amend its articles to add any statement or to alter any statement which may appear in the original articles of the initial street address and initial mailing address of the corporation, the names and addresses of the first directors, or the name and address of the initial agent, except to correct an error in the statement or to delete the information after the corporation has filed a statement under Section 8210.
Any amendment of the articles may be adopted by a writing signed by a majority of the incorporators, so long as:
No directors were named in the original articles;
No directors have been elected; and
The corporation has no members.
Except as provided in this section or Section 7813, amendments may be adopted if approved by the board and approved by the members (Section 5034) and approved by such other person or persons, if any, as required by the articles. The approval by the members or other person or persons may be before or after the approval by the board.
Notwithstanding subdivision (a), the following amendments may be adopted by approval of the board alone:
An amendment extending the corporate existence or making the corporate existence perpetual, if the corporation was organized prior to August 14, 1929.
An amendment deleting the initial street address and initial mailing address of the corporation, the names and addresses of the first directors, or the name and address of the initial agent.
Any amendment, at a time the corporation has no members; provided, however, that if the articles require approval by any person for an amendment, an amendment may not be adopted without such approval.
An amendment adopted pursuant to Section 9913.
Whenever the articles require for corporate action the approval of a particular class of members or of a larger proportion of, or all of, the votes of any class, or of a larger proportion of, or all of, the directors, than is otherwise required by this part, the provision in the articles requiring such greater vote shall not be altered, amended or repealed except by such class or such greater vote, unless otherwise provided in the articles.
An amendment must also be approved by the members (Section 5034) of a class, whether or not such class is entitled to vote thereon by the provisions of the articles or bylaws, if the amendment would:
Materially and adversely affect the rights, privileges, preferences, restrictions or conditions of that class as to voting, dissolution, redemption or transfer in a manner different than such action affects another class;
Materially and adversely affect such class as to voting, dissolution, redemption or transfer by changing the rights, privileges, preferences, restrictions or conditions of another class;
Increase or decrease the number of memberships authorized for such class;
Increase the number of memberships authorized for another class;
Effect an exchange, reclassification or cancellation of all or part of the memberships of such class; or
Authorize a new class of memberships.
A mutual benefit corporation may amend its articles to change its status to that of a public benefit corporation, a religious corporation, a business corporation, a social purpose corporation, or a cooperative corporation by complying with this section and the other sections of this chapter.
Except as authorized by Section 7811 or unless the corporation has no members, an amendment to change its status to a public benefit corporation or religious corporation shall: (1) be approved by the members (Section 5034), and the fairness of the amendment to the members shall be approved by the Commissioner of Financial Protection and Innovation pursuant to Section 25142; (2) be approved by the members (Section 5034) in an election conducted by written ballot pursuant to Section 7513 in which no negative votes are cast; or (3) be approved by 100 percent of the voting power.
Amended articles authorized by this section shall include the provisions which would have been required (other than the initial street address and initial mailing address of the corporation and the name of the initial agent for service of process if a statement has been filed pursuant to Section 8210), and may in addition only include those provisions which would have been permitted, in original articles filed by the type of corporation (public benefit, religious, business, social purpose, or cooperative) into which the mutual benefit corporation is changing its status.
At the time of filing a certificate of amendment to change status to a public benefit corporation, the Secretary of State shall make available the filed certificate to the Attorney General.
In the case of a change of status to a business corporation, social purpose corporation, or a cooperative corporation, if the Franchise Tax Board has issued a determination exempting the corporation from tax as provided in Section 23701 of the Revenue and Taxation Code, the corporation shall be subject to Section 23221 of the Revenue and Taxation Code upon filing the certificate of amendment.
Except for amendments adopted by the incorporators pursuant to Section 7811, upon adoption of an amendment, the corporation shall file a certificate of amendment, which shall consist of an officers’ certificate stating:
The wording of the amendment or amended articles in accordance with Section 7816;
That the amendment has been approved by the board;
If the amendment is one for which the approval of the members (Section 5034) or the approval of 100 percent of the voting power is required, that the amendment was approved by the required vote of members; and
If the amendment is one which may be adopted with approval by the board alone, a statement of the facts entitling the board alone to adopt the amendment.
If the amendment is one for which the approval of a person or persons other than the incorporators, directors or members is required, that the approval of such person or persons has been obtained.
In the event of an amendment of the articles pursuant to a merger, the filing of the officers’ certificate and agreement pursuant to Section 8014 shall be in lieu of any filing required under this chapter.
In the case of amendments adopted by the incorporators under Section 7811, the corporation shall file a certificate of amendment signed and verified by a majority of the incorporators which shall state that the signers thereof constitute at least a majority of the incorporators, that directors were not named in the original articles and have not been elected, that the corporation has no members and that they adopt the amendment or amendments therein set forth.
The certificate of amendment shall establish the wording of the amendment or amended articles by one or more of the following means:
By stating that the articles shall be amended to read as therein set forth in full.
By stating that any provision of the articles, which shall be identified by the numerical or other designation given it in the articles or by stating the wording thereof, shall be stricken from the articles or shall be amended to read as set forth in the certificate.
By stating that the provisions set forth therein shall be added to the articles.
If the purpose of the amendment is to reclassify, cancel, exchange, or otherwise change outstanding memberships the amended articles shall state the effect thereof on outstanding memberships.
Upon the filing of the certificate of amendment, the articles shall be amended in accordance with the certificate and any change, reclassification or cancellation of memberships shall be effected, and a copy of the certificate, certified by the Secretary of State, is prima facie evidence of the performance of the conditions necessary to the adoption of the amendment.
A corporation formed for a limited period may at any time subsequent to the expiration of the term of its corporate existence, extend the term of its existence by an amendment to its articles removing any provision limiting the term of its existence and providing for perpetual existence. If the filing of the certificate of amendment providing for perpetual existence would be prohibited if it were original articles by the provisions of Section 7122, the Secretary of State shall not file such certificate unless, by the same or a concurrently filed certificate of amendment, the articles of such corporation are amended to adopt a new available name. For the purpose of the adoption of any such amendment, persons who have been functioning as directors of such corporation shall be considered to have been validly elected even though their election may have occurred after the expiration of the original term of the corporate existence.
A corporation may restate in a single certificate the entire text of its articles as amended by filing an officers’ certificate or, in circumstances where incorporators or the board may amend a corporation’s articles pursuant to Sections 7811 and 7815, a certificate signed and verified by a majority of the incorporators or the board, as applicable, entitled “Restated Articles of Incorporation of (insert name of corporation)” which shall set forth the articles as amended to the date of filing of the certificate, except that the signatures and acknowledgments of the articles by the incorporators and any statements regarding the effect of any prior amendment upon memberships and any provisions of agreements of merger (other than amendments to the articles of the surviving corporation), and the initial street address and initial mailing address of the corporation, and the names and addresses of the first directors and of the initial agent for service of process shall be omitted (except that the initial street address and initial mailing address of the corporation and the names and addresses of the initial agent for service of process and, if previously set forth in the articles, the initial directors, shall not be omitted prior to the time that the corporation has filed a statement under Section 8210). Such omissions are not alterations or amendments of the articles. The certificate may also itself alter or amend the articles in any respect, in which case the certificate must comply with Section 7814 or 7815, as the case may be, and Section 7816.
If the certificate does not itself alter or amend the articles in any respect, it shall be approved by the board or, prior to the issuance of any memberships and the naming and election of directors, by a majority of the incorporators, and shall be subject to the provisions of this chapter relating to an amendment of the articles not requiring approval of the members (Section 5034). If the certificate does itself alter or amend the articles, it shall be subject to the provisions of this chapter relating to the amendment or amendments so made.
Restated articles of incorporation filed pursuant to this section shall supersede for all purposes the original articles and all amendments filed prior thereto.
Amendment of the articles of a corporation holding property in charitable trust, pursuant to this chapter, does not, of itself, abrogate any requirement or limitation imposed upon the corporation, or any property held by it, by virtue of the trust under which such property is held by the corporation.
The Attorney General may, at the corporation’s request, and pursuant to such regulations as the Attorney General may issue, give rulings as to whether the Attorney General will or may oppose a proposed action, or article amendment, as inconsistent with or proscribed by the requirements of a charitable trust.
CHAPTER 9. Sales of Assets [7910. - 7914.]
Any mortgage, deed of trust, pledge or other hypothecation of all or any part of the corporation’s property, real or personal, for the purpose of securing the payment or performance of any contract or obligation may be approved by the board. Unless the articles or bylaws otherwise provide, no approval of the members (Section 5034) shall be necessary for such action.
Subject to the provisions of Section 7142, a corporation may sell, lease, convey, exchange, transfer or otherwise dispose of all or substantially all of its assets when the principal terms are:
Approved by the board; and
Unless the transaction is in the usual and regular course of its activities, approved by the members (Section 5034), either before or after approval by the board and before or after the transaction.
Notwithstanding approval by the members (Section 5034), the board may abandon the proposed transaction without further action by the members, subject to the contractual rights, if any, of third parties.
Subject to the provisions of Section 7142, such sale, lease, conveyance, exchange, transfer or other disposition may be made upon such terms and conditions and for such consideration as the board may deem in the best interests of the corporation. The consideration may be money, property, or securities of any domestic corporation, foreign corporation, or foreign business corporation or any of them.
Any deed or instrument conveying or otherwise transferring any assets of a corporation may have annexed to it the certificate of the secretary or an assistant secretary of the corporation, setting forth that the transaction has been validly approved by the board and (a) stating that the property described in such deed or instrument is less than substantially all of the assets of the corporation or that the transfer is in the usual and regular course of the business of the corporation, if such be the case, or (b) if such property constitutes all or substantially all of the assets of the corporation and the transfer is not in the usual and regular course of the business of the corporation, stating the fact of approval thereof by the members (Section 5034) or all the members pursuant to this chapter. Such certificate is prima facie evidence of the existence of the facts authorizing such conveyance or other transfer of the assets and conclusive evidence in favor of any purchaser or encumbrancer for value who, without notice of any trust restriction applicable to the property or any failure to comply therewith, in good faith parted with value.
A corporation holding assets in charitable trust must give written notice to the Attorney General 20 days before it sells, leases, conveys, exchanges, transfers or otherwise disposes of any or all of the assets held in trust unless the Attorney General has given the corporation a written waiver of this section as to the proposed transaction.
The provisions of Article 2 (commencing with Section 5914) of Chapter 9 of Part 2 apply to mutual benefit corporations to the extent provided therein.
CHAPTER 10. Mergers [8010. - 8022.]
ARTICLE 1. Merger [8010. - 8019.1.]
A mutual benefit corporation may merge with any domestic corporation, foreign corporation, foreign business corporation, or other business entity (Section 5063.5). However, a merger with a public benefit corporation, or a religious corporation, or an unincorporated association, the governing documents of which provide that its assets are irrevocably dedicated to charitable, religious, or public purposes, must have the prior written consent of the Attorney General.
The board of each corporation that desires to merge shall approve an agreement of merger. The constituent corporations shall be parties to the agreement of merger and other persons may be parties to the agreement of merger. The agreement shall state all of the following:
The terms and conditions of the merger.
The amendments, subject to Sections 7810 and 7816, to the articles of the surviving corporation to be effected by the merger, if any; if any amendment changes the name of the surviving corporation, the new name may be the same as or similar to the name of a disappearing corporation, subject to subdivision (c) of Section 7122.
The amendments to the bylaws of the surviving corporation to be effected by the merger, if any.
The name and place of incorporation of each constituent corporation and which of the constituent corporations is the surviving corporation.
The manner, if any, of converting memberships or securities of the constituent corporations into memberships or securities of the surviving corporation and, if any memberships or securities of any of the constituent corporations are not to be converted solely into memberships or securities of the surviving corporation, the cash, property, rights or securities of any corporation that the holders of those memberships or securities are to receive in exchange for the memberships or securities, which cash, property, rights or securities of any corporation may be in addition to or in lieu of memberships or securities of the surviving corporation, or that the memberships are to be canceled without consideration.
Other details or provisions as are desired, if any, including, without limitation, if not prohibited by this chapter, a provision for the payment of cash in lieu of fractional memberships or for any other arrangement with respect thereto.
Each membership of the same class of any constituent corporation (other than the cancellation of memberships held by a surviving corporation or its parent or a wholly owned subsidiary of either in a constituent corporation) shall be treated equally with respect to any distribution of cash, property, rights or securities unless: (a) all members of the class consent or (b) the Commissioner of Financial Protection and Innovation has approved the terms and conditions of the transaction and the fairness of the terms pursuant to Section 25142.
The principal terms of the merger shall be approved by the members (Section 5034) of each class of each constituent corporation and by each other person or persons whose approval of an amendment of articles is required by the articles; and the approval by the members (Section 5034) or such other person or persons required by this section may be given before or after the approval by the board.
Each constituent corporation shall sign the agreement by the chairperson of its board, president or a vice president, and secretary or an assistant secretary acting on behalf of their respective corporations.
After approval of a merger by the board and any approval by the members (Section 5034) required by Section 8012, the surviving corporation shall file a copy of the agreement of merger with an officers’ certificate of each constituent corporation attached stating the total number of memberships of each class entitled to vote on the merger, identifying any other person or persons whose approval is required, and that the principal terms of the agreement in the form attached were duly approved by the required vote of the members and, if applicable, any other person or persons. The merger and any amendment of the articles of the surviving corporation contained in the merger agreement shall thereupon be effective (subject to subdivision (c) of Section 5008 and subject to the provisions of Section 8018) and the several parties thereto shall be one corporation. The Secretary of State may certify a copy of the merger agreement separate from the officers’ certificates attached thereto.
Any amendment to the agreement may be adopted and the agreement so amended may be approved by the board and, if it changes any of the principal terms of the agreement, by the members (Section 5034) or other person or persons, as required by Section 8012, of any constituent corporation in the same manner as the original agreement.
If the agreement so amended is approved as provided in subdivision (a), the agreement so amended shall then constitute the agreement of merger.
The board may, in its discretion, abandon a merger, subject to the contractual rights, if any, of third parties, including other constituent corporations, without further approval by the members (Section 5034) or other persons entitled to approve the merger at any time before the merger is effective.
A copy of an agreement of merger certified on or after the effective date by an official having custody thereof has the same force in evidence as the original and, except as against the state, is conclusive evidence of the performance of all conditions precedent to the merger, the existence on the effective date of the surviving corporation and the performance of the conditions necessary to the adoption of any amendment to the articles contained in the agreement of merger.
Subject to the provisions of Section 8010, the merger of any number of corporations with any number of foreign corporations, foreign business corporations or domestic corporations may be effected if the foreign corporations are authorized by the laws under which they are formed to effect the merger. The surviving corporation may be any one of the constituent corporations and shall continue to exist under the laws of the state or place of its incorporation.
If the surviving corporation is a mutual benefit corporation, the merger proceedings with respect to that corporation and any domestic disappearing corporation shall conform to the provisions of this chapter and other applicable laws of this state, but if the surviving corporation is a foreign corporation, then, subject to the requirements of subdivision (d) and Section 8012 the merger proceedings may be in accordance with the laws of the state or place of incorporation of the surviving corporation.
If the surviving corporation is a mutual benefit corporation, the agreement and the officers’ certificate of each constituent corporation shall be filed as provided in Section 8014 and thereupon, subject to subdivision (c) of Section 5008, the merger shall be effective as to each corporation; and each foreign disappearing corporation that is qualified for the transaction of intrastate business shall, by virtue of the filing, automatically surrender its right to transact intrastate business.
If the surviving corporation is a foreign corporation, or foreign business corporation, the merger shall become effective in accordance with the law of the jurisdiction in which it is organized, but shall be effective as to any disappearing corporation as of the time of effectiveness in the foreign jurisdiction upon the filing in this state as required by this subdivision. There shall be filed as to the domestic disappearing corporation or corporations the documents described in any one of the following paragraphs:
A copy of the agreement, certificate, or other document filed by the surviving foreign corporation in the state or place of its incorporation for the purpose of effecting the merger, which copy shall be certified by the public officer having official custody of the original.
An executed counterpart of the agreement, certificate, or other document filed by the surviving corporation in the state or place of its incorporation for the purpose of effecting the merger.
A copy of the agreement of merger with an officers’ certificate of the surviving foreign corporation and of each constituent domestic corporation attached, which officers’ certificates shall conform to the requirements of Section 8014.
If the date of the filing in this state pursuant to subdivision (d) is more than six months after the time of the effectiveness in the foreign jurisdiction, or if the powers of the domestic corporation are suspended at the time of effectiveness in the foreign jurisdiction, the merger shall be effective as to the domestic disappearing corporation or corporations as of the date of filing in this state. Each foreign disappearing corporation that is qualified for the transaction of intrastate business shall automatically by the filing pursuant to subdivision (d) surrender its right to transact intrastate business as of the date of filing in this state regardless of the time of effectiveness as to a domestic disappearing corporation.
If an agreement of merger is entered into between a nonprofit corporation and a business corporation: (a) Sections 6011, 6012, 6014, and 6015 shall apply to any constituent public benefit corporation; (b) Sections 8011, 8011.5, 8012, 8014, and 8015 shall apply to any constituent mutual benefit corporation; (c) Sections 6014 and 6015 and subdivisions (c) and (d) of Section 9640 shall apply to any constituent religious corporation; and (d) Sections 1101, 1101.1, 1103, and 1104 shall apply to any constituent business corporation.
Subject to the provisions of Section 8010, any one or more corporations may merge with one or more other business entities (Section 5063.5). One or more other domestic corporations, foreign corporations (Section 5053), and foreign business corporations (Section 5052) may be parties to the merger. Notwithstanding the provisions of this section, such a merger may be effected only if:
In a merger in which a domestic corporation or domestic other business entity is a party, it is authorized by the laws under which it is organized to effect the merger.
In a merger in which a foreign corporation or foreign business corporation is a party, it is authorized by the laws under which it is organized to effect the merger.
In a merger in which a foreign other business entity is a party, it is authorized by the laws under which it is organized to effect the merger.
Each corporation and each other party which desires to merge shall approve an agreement of merger. The board and the members (Section 5034) of each corporation which desires to merge, and each other person or persons, if any, whose approval of an amendment of the articles of that corporation is required by the articles or bylaws shall approve the agreement of merger. The agreement of merger shall be approved on behalf of each other constituent party by those persons authorized or required to approve the merger by the laws under which it is organized. The parties desiring to merge shall be parties to the agreement of merger and other persons, including a parent party (Section 5064.5), may be parties to the agreement of merger. The agreement of merger shall state all of the following:
The terms and conditions of the merger.
The name and place of incorporation or organization of each party and the identity of the surviving party.
The amendments, if any, subject to Sections 7810 and 7816, to the articles of the surviving corporation, if applicable, to be effected by the merger. The name of the surviving corporation may be, subject to subdivisions (b) and (c) of Section 7122, the same as or similar to the name of a disappearing party to the merger.
The manner, if any, of converting the memberships or securities of each of the constituent corporations into shares, memberships, interests, or other securities of the surviving party; and, if any memberships or securities of any of the constituent corporations are not to be converted solely into shares, memberships, interests, or other securities of the surviving party, cash, rights, securities, or other property which the holders of those memberships or securities are to receive in exchange for the memberships or securities, which cash, rights, securities, or other property may be in addition to or in lieu of shares, memberships, interests, or other securities of the surviving party.
Any other details or provisions required by the laws under which any party to the merger is organized, including, if an unincorporated association is a party to the merger, Section 18370, or if a domestic limited partnership is a party to the merger, subdivision (a) of Section 15911.12, or, if a domestic general partnership is a party to the merger, subdivision (a) of Section 16911, or, if a domestic limited liability company is a party to the merger, subdivision (a) of Section 17710.12.
Any other details or provisions as are desired.
Each membership of the same class of any constituent corporation (other than the cancellation of memberships held by a party to the merger or its parent or a wholly owned subsidiary of either in another constituent corporation) shall be treated equally with respect to any distribution of cash, property, rights, or securities unless (i) all members of the class consent or (ii) the commissioner has approved the terms and conditions of the transaction and the fairness of those terms pursuant to Section 25142.
Notwithstanding its prior approval, an agreement of merger may be amended prior to the filing of the agreement of merger if the amendment is approved by each constituent corporation in the same manner as the original agreement of merger. If the agreement of merger as so amended and approved is also approved by each of the other parties to the agreement of merger, as so amended it shall then constitute the agreement of merger.
The board of a constituent corporation may, in its discretion, abandon a merger, subject to the contractual rights, if any, of third parties, including other parties to the agreement of merger, without further approval by the members (Section 5034) or other persons, at any time before the merger is effective.
Each constituent corporation shall sign the agreement of merger by its chairperson of the board, president, or a vice president and also by its secretary or an assistant secretary acting on behalf of their respective corporations.
After required approvals of the merger by each constituent corporation and each other party to the merger, the surviving party shall file a copy of the agreement of merger with an officers’ certificate of each constituent domestic corporation, foreign corporation, and foreign business corporation attached stating the total number of outstanding shares or membership interests of each class entitled to vote on the merger (and identifying any other person or persons whose approval is required), that the agreement of merger in the form attached or its principal terms, as required, were approved by that corporation by a vote of a number of shares or membership interests of each class which equaled or exceeded the vote required, specifying each class entitled to vote required of each class, and, if applicable, by such other person or persons whose approval is required.
If equity securities of a parent party (Section 5064.5) are to be issued in the merger, the officers’ certificate or certificate of merger of the controlled party shall state either that no vote of the shareholders of the parent party was required or that the required vote was obtained. The merger and any amendment of the articles of the surviving corporation, if applicable, contained in the agreement of merger shall be effective upon the filing of the agreement of merger, subject to the provisions of subdivision (i). If a domestic reciprocal insurer organized after 1974 to provide medical malpractice insurance is a party to the merger, the agreement of merger or certificate of merger shall not be filed until there has been filed the certificate issued by the Insurance Commissioner approving the merger pursuant to Section 1555 of the Insurance Code.
In lieu of an officers’ certificate, a certificate of merger, on a form prescribed by the Secretary of State, shall be filed for each constituent other business entity. The certificate of merger shall be executed and acknowledged by each domestic constituent limited liability company by all of the managers of the limited liability company (unless a lesser number is specified in its articles of organization or operating agreement) and by each domestic constituent limited partnership by all general partners (unless a lesser number is provided in its certificate of limited partnership or partnership agreement) and by each domestic constituent general partnership by two partners (unless a lesser number is provided in its partnership agreement) and by each foreign constituent limited liability company by one or more managers and by each foreign constituent general partnership or foreign constituent limited partnership by one or more general partners, and by each constituent reciprocal insurer by the chairperson of the board, president, or vice president, and by the secretary or assistant secretary, or, if a constituent reciprocal insurer has not appointed such officers, by the chairperson of the board, president, or vice president, and by the secretary or assistant secretary of the constituent reciprocal insurer’s attorney-in-fact, and by each other party to the merger by those persons required or authorized to execute the certificate of merger by the laws under which that party is organized, specifying for such party the provision of law or other basis for the authority of the signing persons.
The certificate of merger shall set forth, if a vote of the shareholders, members, partners, or other holders of interests of a constituent other business entity was required, a statement setting forth the total number of outstanding interests of each class entitled to vote on the merger and that the principal terms of the agreement of merger were approved by a vote of the number of interests of each class which equaled or exceeded the vote required, specifying each class entitled to vote and the percentage vote required of each class, and any other information required to be set forth under the laws under which the constituent other business entity is organized, including, if a domestic limited partnership is a party to the merger, subdivision (a) of Section 15911.14, if a domestic general partnership is a party to the merger, subdivision (b) of Section 16915 and, if a domestic limited liability company is a party to the merger, subdivision (a) of Section 17710.14. The certificate of merger for each constituent foreign other business entity, if any, shall also set forth the statutory or other basis under which that foreign other business entity is authorized by the laws under which it is organized to effect the merger.
The Secretary of State may certify a copy of the agreement of merger separate from the officers’ certificates and certificates of merger attached thereto.
A copy of an agreement of merger certified on or after the effective date by an official having custody thereof has the same force in evidence as the original and, except as against the state, is conclusive evidence of the performance of all conditions precedent to the merger, the existence on the effective date of the surviving party to the merger, the performance of the conditions necessary to the adoption of any amendment to the articles, if applicable, contained in the agreement of merger, and of the merger of the constituent corporations, either by themselves or together with other constituent parties, into the surviving party to the merger.
The merger of domestic corporations with foreign corporations or foreign other business entities in a merger in which one or more other business entities is a party shall comply with subdivisions (a) and (g) and this subdivision.
Subject to subdivision (c) of Section 5008 and paragraph (3), the merger shall be effective as to each domestic constituent corporation and domestic constituent other business entity upon filing of the agreement of merger with attachments as provided in subdivision (g).
If the surviving party is a foreign corporation or foreign business corporation or foreign other business entity, except as provided in paragraph (4), the merger shall be effective as to any domestic disappearing corporation as of the time of effectiveness in the foreign jurisdiction upon the filing in this state of a copy of the agreement of merger with an officers’ certificate of the surviving foreign corporation or foreign business corporation and of each constituent foreign and domestic corporation and a certificate of merger of each constituent other business entity attached, which officers’ certificates and certificates of merger shall conform to the requirements of subdivision (g).
If one or more domestic other business entities is a disappearing party in a merger pursuant to this subdivision in which a foreign other business entity is the surviving entity, a certificate of merger required by the laws under which each domestic other business entity is organized, including subdivision (a) of Section 15911.14, subdivision (b) of Section 16915, or subdivision (a) of Section 17710.14, if applicable, shall also be filed at the same time as the filing of the agreement of merger.
If the date of the filing in this state pursuant to this subdivision is more than six months after the time of the effectiveness in the foreign jurisdiction, or if the powers of a domestic disappearing corporation are suspended at the time of effectiveness in the foreign jurisdiction, the merger shall be effective as to the domestic disappearing corporation as of the date of filing in this state.
Each foreign disappearing corporation that is qualified for the transaction of intrastate business shall automatically by the filing pursuant to subdivision (g) surrender its right to transact intrastate business as of the date of filing in this state or, if later, the effective date of the merger. With respect to each foreign disappearing other business entity previously registered for the transaction of intrastate business in this state, the filing of the agreement of merger pursuant to subdivision (g) automatically has the effect of a cancellation of registration for that foreign other business entity as of the date of filing in this state or, if later, the effective date of the merger, without the necessity of the filing of a certificate of cancellation.
ARTICLE 2. Effect of Merger [8020. - 8022.]
Upon merger pursuant to this chapter the separate existences of the disappearing parties to the merger cease and the surviving party to the merger shall succeed, without other transfer, to all the rights and property of each of the disappearing parties to the merger and shall be subject to all the debts and liabilities of each and trust obligations upon the property of a disappearing party in the same manner as if incurred by the surviving party to the merger.
All rights of creditors and all liens and trusts upon or arising from the property of each of the constituent corporations and other parties to the merger shall be preserved unimpaired, provided that the liens and trust obligations upon property of a disappearing party shall be limited to the property affected thereby immediately prior to the time the merger is effective.
Any action or proceeding pending by or against any disappearing corporation or other party to the merger may be prosecuted to judgment, which shall bind the surviving party to the merger, or the surviving party to the merger may be proceeded against or substituted in its place.
Upon merger pursuant to this chapter, a surviving domestic or foreign corporation or other business entity shall be deemed to have assumed the liability of each disappearing domestic or foreign corporation or other business entity that is taxed under Part 10 (commencing with Section 17001) of, or under Part 11 (commencing with Section 23001) of, Division 2 of the Revenue and Taxation Code for the following:
To prepare and file, or to cause to be prepared and filed, tax and information returns otherwise required of that disappearing entity as specified in Chapter 2 (commencing with Section 18501) of Part 10.2 of Division 2 of the Revenue and Taxation Code.
To pay any tax liability determined to be due.
If the surviving entity is a domestic limited liability company, domestic corporation, or registered limited liability partnership or a foreign limited liability company, foreign limited liability partnership, or foreign corporation that is registered or qualified to do business in California, the Secretary of State shall notify the Franchise Tax Board of the merger.
Whenever a domestic or foreign or foreign business corporation or other business entity (Section 5063.5) having any real property in this state merges with another domestic or foreign or foreign business corporation or other business entity pursuant to the laws of this state or of the state or place in which any constituent party to the merger was organized, and the laws of the state or place of organization (including this state) of any disappearing party to the merger provide substantially that the making and filing of the agreement of merger vests in the surviving party to the merger all the real property of any disappearing party to the merger, the filing for record in the office of the county recorder of any county in this state in which any of the real property of the disappearing party to the merger is located of either (a) a certificate prescribed by the Secretary of State, or (b) a copy of the agreement of merger or certificate of merger, certified by the Secretary of State or an authorized public official of the state or place pursuant to the laws of which the merger is effected, shall evidence record ownership in the surviving party to the merger of all interest of such disappearing party to the merger in and to the real property located in that county.
Any bequest, devise, gift, grant, or promise contained in a will or other instrument of donation, subscription, or conveyance, which is made to a constituent corporation and which takes effect or remains payable after the merger, inures to the surviving party to the merger.
CHAPTER 11. Bankruptcy Reorganizations and Arrangements [8110. - 8110.]
Any proceeding, initiated with respect to a corporation, under any applicable statute of the United States, as now existing or hereafter enacted, relating to reorganizations of corporations, shall be governed by the provisions of Chapter 14 (commencing with Section 1400) of Division 1 of Title 1, and for this purpose the reference in Chapter 14 to “shareholders” shall be deemed to be a reference to members and the reference to “this division” shall be deemed to be a reference to this part.
CHAPTER 12. Required Filings by Corporation or Its Agent [8210. - 8217.]
Every corporation shall, within 90 days after the filing of its original articles and biennially thereafter during the applicable filing period, file, on a form prescribed by the Secretary of State, a statement containing: (1) the name of the corporation and the Secretary of State’s file number; (2) the names and complete business or residence addresses of its chief executive officer, secretary, and chief financial officer; (3) the street address of its principal office in California, if any; (4) the mailing address of the corporation, if different from the street address of its principal office or if the corporation has no principal office address in California and (5) if the corporation chooses to receive renewal notices and any other notifications from the Secretary of State by electronic mail instead of by United States mail, a valid electronic mail address for the corporation or for the corporation’s designee to receive those notices.
The statement required by subdivision (a) shall also designate, as the agent of the corporation for the purpose of service of process, a natural person residing in this state or any domestic or foreign or foreign business corporation that has complied with Section 1505 and whose capacity to act as an agent has not terminated. If a natural person is designated, the statement shall set forth the person’s complete business or residence street address. If a corporate agent is designated, no address for it shall be set forth.
For the purposes of this section, the applicable filing period for a corporation shall be the calendar month during which its original articles were filed and the immediately preceding five calendar months. The Secretary of State shall provide a notice to each corporation to comply with this section approximately three months before the close of the applicable filing period. The notice shall state the due date for compliance and shall be sent to the last address of the corporation according to the records of the Secretary of State or to the last electronic mail address according to the records of the Secretary of State if the corporation has elected to receive notices from the Secretary of State by electronic mail. Neither the failure of the Secretary of State to send the notice nor the failure of the corporation to receive it is an excuse for failure to comply with this section.
Whenever any of the information required by subdivision (a) is changed, the corporation may file a current statement containing all the information required by subdivisions (a) and (b). In order to change its agent for service of process or the address of the agent, the corporation must file a current statement containing all the information required by subdivisions (a) and (b). Whenever any statement is filed pursuant to this section, it supersedes any previously filed statement and the statement in the articles as to the agent for service of process and the address of the agent.
The Secretary of State may destroy or otherwise dispose of any statement filed pursuant to this section after it has been superseded by the filing of a new statement.
This section does not place any person dealing with the corporation on notice of, or under any duty to inquire about, the existence or content of a statement filed pursuant to this section.
An agent designated for service of process pursuant to Section 8210 may deliver to the Secretary of State, on a form prescribed by the Secretary of State for filing, a signed and acknowledged written statement of resignation as an agent for service of process containing the name of the corporation, the Secretary of State’s file number of the corporation, the name of the resigning agent for service of process, and a statement that the agent is resigning. Thereupon the authority of the agent to act in that capacity shall cease and the Secretary of State forthwith shall mail or otherwise provide written notice of the filing of the statement of resignation to the corporation at its principal office.
The resignation of an agent may be effective if, on a form prescribed by the Secretary of State containing the name of the corporation, the Secretary of State’s file number for the corporation, and the name of the agent for service of process, the agent disclaims having been properly appointed as the agent. Similarly, a person named as an officer or director may indicate that the person was never properly appointed as the officer or director.
The Secretary of State may destroy or otherwise dispose of any statement of resignation filed pursuant to this section after a new form is filed pursuant to Section 8210 replacing the agent for service of process that has resigned.
If a natural person who has been designated agent for service of process pursuant to Section 8210 dies or resigns or no longer resides in the state or if the corporate agent for such purpose resigns, dissolves, withdraws from the state, forfeits its right to transact intrastate business, has its corporate rights, powers and privileges suspended or ceases to exist, the corporation shall forthwith file a designation of a new agent conforming to the requirements of Section 8210.
Upon request of an assessor, a corporation owning, claiming, possessing or controlling property in this state subject to local assessment shall make available at the corporation’s principal office in California or at a place mutually acceptable to the assessor and the corporation a true copy of business records relevant to the amount, cost and value of all property that it owns, claims, possesses or controls within the county.
Any officers, directors, employees or agents of a corporation who do any of the following are liable jointly and severally for all the damages resulting therefrom to the corporation or any person injured thereby who relied thereupon or to both:
Make, issue, deliver or publish any prospectus, report, circular, certificate, financial statement, balance sheet, public notice or document respecting the corporation or its memberships, assets, liabilities, capital, dividends, business, earnings or accounts which is false in any material respect, knowing it to be false, or participate in the making, issuance, delivery or publication thereof with knowledge that the same is false in a material respect.
Make or cause to be made in the books, minutes, records or accounts of a corporation any entry which is false in any material particular knowing such entry is false.
Remove, erase, alter or cancel any entry in any books or records of the corporation, with intent to deceive.
The Attorney General, upon complaint of a member, director or officer, that a corporation is failing to comply with the provisions of this chapter, Chapter 5 (commencing with Section 7510), Chapter 6 (commencing with Section 7610) or Chapter 13 (commencing with Section 8310), may, in the name of the people of the State of California, send to the principal office of such corporation, (or, if there is no such office, to the office or residence of the chief executive officer or secretary, of the corporation, as set forth in the most recent statement filed pursuant to Section 8210) notice of the complaint. If the answer is not satisfactory, or if there is no answer within 30 days, the Attorney General may institute, maintain or intervene in such suits, actions, or proceedings of any type in any court or tribunal of competent jurisdiction or before any administrative agency for such relief by way of injunction, the dissolution of entities, the appointment of receivers or any other temporary, preliminary, provisional or final remedies as may be appropriate to protect the rights of members or to undo the consequences of failure to comply with such requirements. In any such action, suit or proceeding there may be joined as parties all persons and entities responsible for or affected by such activity.
In the case of a corporation where the action concerns assets held in charitable trust, the Attorney General may bring an action under subdivision (a) without having received a complaint, and without first giving notice of a complaint.
No corporation formed under this part for the sole purpose of operating a single ridesharing vanpool vehicle designed for transporting at least seven persons, including the driver, under an arrangement in which ridesharing is incidental to another purpose of the driver shall be subject to the payment of any fee under provisions of the Government Code for any filing required by this part.
For purposes of this section, “ridesharing” shall have the meaning specified in Section 522 of the Vehicle Code.
CHAPTER 13. Records, Reports, and Rights of Inspection [8310. - 8338.]
ARTICLE 1. General Provisions [8310. - 8313.]
If any record subject to inspection pursuant to this chapter is not maintained in written form, a request for inspection is not complied with unless and until the corporation at its expense makes such record available in written form. For the purposes of this chapter “written” or “in writing” also includes cathode ray tube and similar electronic communications methods.
Any inspection under this chapter may be made in person or by agent or attorney and the right of inspection includes the right to copy and make extracts.
Any right of inspection created by this chapter extends to the records of each subsidiary of a corporation.
The rights of members provided in this chapter may not be limited by contract or the articles or bylaws.
ARTICLE 2. Required Records, Reports to Directors and Members [8320. - 8325.]
Each corporation shall keep:
Adequate and correct books and records of account:
Minutes of the proceedings of its members, board and committees of the board; and
A record of its members giving their names and addresses and the class of membership held by each.
Those minutes and other books and records shall be kept either in written form or in any other form capable of being converted into clearly legible tangible form or in any combination of the foregoing. When minutes and other books and records are kept in a form capable of being converted into clearly legible paper form, the clearly legible paper form into which those minutes and other books and records are converted shall be admissible in evidence, and accepted for all other purposes, to the same extent as an original paper record of the same information would have been, provided that the paper form accurately portrays the record.
A corporation shall notify each member yearly of the member’s right to receive a financial report pursuant to this subdivision. Except as provided in subdivision (c), upon written request of a member, the board shall promptly cause the most recent annual report to be sent to the requesting member. An annual report shall be prepared not later than 120 days after the close of the corporation’s fiscal year. Unless otherwise provided by the articles or bylaws and if approved by the board of directors, that report and any accompanying material may be sent by electronic transmission by the corporation (Section 20). That report shall contain in appropriate detail the following:
A balance sheet as of the end of that fiscal year and an income statement and a statement of cashflows for that fiscal year.
A statement of the place where the names and addresses of the current members are located.
Any information required by Section 8322.
The report required by subdivision (a) shall be accompanied by any report thereon of independent accountants, or, if there is no report, the certificate of an authorized officer of the corporation that the statements were prepared without audit from the books and records of the corporation.
Subdivision (a) does not apply to any corporation that receives less than ten thousand dollars ($10,000) in gross revenues or receipts during the fiscal year.
Any provision of the articles or bylaws notwithstanding, every corporation shall furnish annually to its members and directors a statement of any transaction or indemnification of a kind described in subdivision (d) or (e), if any such transaction or indemnification took place. If the corporation issues an annual report to all members, this subdivision shall be satisfied by including the required information in the annual report. A corporation which does not issue an annual report to all members, pursuant to subdivision (c) of Section 8321, shall satisfy this section by mailing or delivering to its members the required statement within 120 days after the close of the corporation’s fiscal year. Unless otherwise provided by the articles or bylaws and if approved by the board of directors, that statement may be sent by electronic transmission by the corporation (Section 20).
Except as provided in subdivision (c), a covered transaction under this section is a transaction in which the corporation, its parent, or its subsidiary was a party, and in which either of the following had a direct or indirect material financial interest:
Any director or officer of the corporation, or its parent or subsidiary.
Any holder of more than 10 percent of the voting power of the corporation, its parent or its subsidiary.
For the purpose of subdivision (d), an “interested person” is any person described in paragraph (1) or (2) of this subdivision.
The statement required by subdivision (a) shall describe briefly:
The statement required by subdivision (a) shall describe briefly the amount and circumstances of any loans, guaranties, indemnifications or advances aggregating more than ten thousand dollars ($10,000) paid or made during the fiscal year to any officer or director of the corporation pursuant to Section 7237; provided that no such report need be made in the case of a loan, guaranty, or indemnification approved by the members (Section 5034) or a loan or guaranty not subject to the provisions of subdivision (a) of Section 7235.
The superior court of the proper county shall enforce the duty of making and mailing or delivering the information and financial statements required by this article and, for good cause shown, may extend the time therefor.
In any action or proceeding under this section, if the court finds the failure of the corporation to comply with the requirements of this article to have been without justification, the court may award the member reasonable expenses, including attorneys’ fees, in connection with such action or proceeding.
Nothing in this part relieves a corporation from the requirements of Article 7 (commencing with Section 12580) of Chapter 6 of Part 2 of Division 3 of the Government Code as to any assets held in charitable trust including, without limitation, subdivision (a) of Section 12586. If a report sent to the Attorney General in compliance with the requirements of Article 7 (commencing with Section 12580) of Chapter 6 of Part 2 of Division 3 of the Government Code includes the information required in the annual report, then the corporation may furnish a copy of its report to the Attorney General in lieu of the annual report, whenever it is required to furnish an annual report.
A corporation shall furnish any member who so requests a copy of any report filed by the corporation pursuant to Article 7 (commencing with Section 12580) of Chapter 6 of Part 2 of Division 3 of the Government Code. The corporation may impose reasonable charges for copying and mailing a report furnished under this subdivision.
For a period of 60 days following the conclusion of an annual, regular, or special meeting of members, a corporation shall, upon written request from a member, forthwith inform the member of the result of any particular vote of members taken at the meeting, including the number of memberships voting for, the number of memberships voting against, and the number of memberships abstaining or withheld from voting. If the matter voted on was the election of directors, the corporation shall report the number of memberships, or votes if voted cumulatively, cast for each nominee for director. If more than one class or series of memberships voted, the report shall state the appropriate numbers by class and series of memberships.
ARTICLE 3. Rights of Inspection [8330. - 8338.]
Inspect and copy the record of all the members’ names, addresses and voting rights, at reasonable times, upon five business days’ prior written demand upon the corporation which demand shall state the purpose for which the inspection rights are requested; or
Obtain from the secretary of the corporation, upon written demand and tender of a reasonable charge, a list of the names, addresses and voting rights of those members entitled to vote for the election of directors, as of the most recent record date for which it has been compiled or as of a date specified by the member subsequent to the date of demand. The demand shall state the purpose for which the list is requested. The membership list shall be made available on or before the later of ten business days after the demand is received or after the date specified therein as the date as of which the list is to be compiled.
The rights set forth in subdivision (a) may be exercised by:
Any member, for a purpose reasonably related to such person’s interest as a member. Where the corporation reasonably believes that the information will be used for another purpose, or where it provides a reasonable alternative pursuant to subdivision (c), it may deny the member access to the list. In any subsequent action brought by the member under Section 8336, the court shall enforce the rights set forth in subdivision (a) unless the corporation proves that the member will allow use of the information for purposes unrelated to the person’s interest as a member or that the alternative method offered reasonably achieves the proper purpose set forth in the demand.
The authorized number of members for a purpose reasonably related to the members’ interest as members.
The corporation may, within ten business days after receiving a demand under subdivision (a), deliver to the person or persons making the demand a written offer of an alternative method of achieving the purpose identified in said demand without providing access to or a copy of the membership list. An alternative method which reasonably and in a timely manner accomplishes the proper purpose set forth in a demand made under subdivision (a) shall be deemed a reasonable alternative, unless within a reasonable time after acceptance of the offer the corporation fails to do those things which it offered to do. Any rejection of the offer shall be in writing and shall indicate the reasons the alternative proposed by the corporation does not meet the proper purpose of the demand made pursuant to subdivision (a).
Where the corporation, in good faith, and with a substantial basis, believes that the membership list, demanded under Section 8330 by the authorized number (Section 5036), will be used for a purpose not reasonably related to the interests as members of the person or persons making the demand (hereinafter called the requesting parties) as members or provides a reasonable alternative pursuant to subdivision (c) of Section 8330, it may petition the superior court of the proper county for an order setting aside the demand.
Except as provided in subdivision (c), a petition for an order to show cause why a protective order pursuant to subdivision (d) should not issue shall be filed within 10 business days after the demand by the authorized number under Section 8330 or receipt of a written rejection by the authorized number of an offer made pursuant to subdivision (c) of Section 8330, whichever is later. The petition shall be accompanied by an application for a hearing on the petition. Upon the filing of the petition, the court shall issue a protective order staying production of the list demanded until the hearing on the order to show cause. The court shall set the hearing on the order to show cause not more than 20 days from the date of the filing of the petition. The order to show cause shall be granted unless the court finds that there is no reasonable probability that the corporation will make the showing required under subdivision (f).
A corporation may file a petition under this section more than 10 business days after the demand or rejection under Section 8330, but only upon a showing the delay was caused by excusable neglect. In no event, however, may any petition under this section be considered if filed more than 30 days after the requesting parties’ demand or rejection, whichever is later.
Upon the return day of the order to show cause, the court may issue a protective order staying production of the list demanded until final adjudication of the petition filed pursuant to this section. No protective order shall issue under this subdivision unless the court finds that the rights of the requesting parties can reasonably be preserved and that the corporation is likely to make the showing required by subdivision (f) or the court is likely to issue a protective order pursuant to subdivision (g).
If the corporation fails to file a petition within the time allowed by subdivision (b) or (c), whichever is applicable, or fails to obtain a protective order under subdivision (d), then the corporation shall comply with the demand, and no further action may be brought by the corporation under this section.
The court shall issue the final order setting aside the demand only if the corporation proves:
That there is a reasonable probability that the requesting parties will permit use of the membership list for a purpose unrelated to their interests as members; or
That the method offered by the corporation is a reasonable alternative in that it reasonably achieves the proper purpose set forth in the requesting parties’ demand and that the corporation intends and is able to effectuate the reasonable alternative.
The court shall award reasonable costs and expenses including reasonable attorneys’ fees, to requesting parties who successfully oppose any petition or application filed pursuant to this section.
Where the corporation has neither, within the time allowed, complied with a demand by the authorized number (Section 5036) under Section 8330, nor obtained a protective order staying production of the list, or a final order setting aside the demand, which is then in effect, the requesting parties may petition the superior court of the proper county for a writ of mandamus pursuant to Section 1085 of the Code of Civil Procedure compelling the corporation to comply with the demand. At the hearing, the court shall hear the parties summarily, by affidavit or otherwise, and shall issue a peremptory writ of mandamus unless it appears that the demand was not made by an authorized number (Section 5036), that the demand has been complied with, that the corporation, pursuant to subdivision (c) of Section 8330, made an offer which was not rejected in writing within a reasonable time, or that a protective or final order properly issued under subdivision (d), (f) or (g) is then in effect. No inquiry may be made in such proceeding into the use for which the authorized number seek the list. The court shall award reasonable costs and expenses, including reasonable attorneys’ fees, to persons granted an order under this subdivision.
Nothing in this section shall be construed to limit the right of the corporation to obtain damages for any misuse of a membership list obtained under Section 8330, or otherwise, or to obtain injunctive relief necessary to restrain misuse of a member list. A corporation shall be entitled to recover reasonable costs and expenses, including reasonable attorneys’ fees, incurred in successfully bringing any such action.
Upon petition of the corporation or any member, the superior court of the proper county may limit or restrict the rights set forth in Section 8330 where, and only where, such limitation or restriction is necessary to protect the rights of any member under the Constitution of the United States or the Constitution of the State of California. An order issued pursuant to this subdivision shall provide, insofar as possible, for alternative mechanisms by which the persons seeking to exercise rights under Section 8330 may communicate with members for purposes reasonably related to their interests as members.
Upon the filing of a petition under subdivision (a), the court may, if requested by the person making the petition, issue a temporary order suspending the running of any time limit specified in Section 8330 for compliance with that section. Such an order may be extended, after notice and hearing, until final adjudication of the petition, wherever it appears that the petitioner may prevail on the merits, and it is otherwise equitable to do so.
The accounting books and records and minutes of proceedings of the members and the board and committees of the board shall be open to inspection upon the written demand on the corporation of any member at any reasonable time, for a purpose reasonably related to such person’s interests as a member.
Every director shall have the absolute right at any reasonable time to inspect and copy all books, records and documents of every kind and to inspect the physical properties of the corporation of which such person is a director.
Where the proper purpose of the person or persons making a demand pursuant to Section 8330 is frustrated by (1) any delay by the corporation in complying with a demand under Section 8330 beyond the time limits specified therein, or (2) any delay caused by the filing of a petition under Section 8331 or Section 8332, or (3) any delay caused by the alternative proposed under subdivision (c) of Section 8330, the person or persons properly making the demand shall have, in the discretion of the court, a right to obtain from the superior court an order postponing any members’ meeting previously noticed for a period equal to the period of such delay. The members may obtain such an order in a proceeding brought pursuant to Section 8331 upon the filing of a verified complaint in the proper county and after a hearing, notice of which shall be given to such persons and in such manner as the court may direct. Such right shall be in addition to any other legal or equitable remedies to which the member may be entitled.
Upon refusal of a lawful demand for inspection under this chapter, or a lawful demand pursuant to Section 8330 or Section 8333, the superior court of the proper county, or the county where the books or records in question are kept, may enforce the demand or right of inspection with just and proper conditions or may, for good cause shown, appoint one or more competent inspectors or independent accountants to audit the financial statements kept in this state and investigate the property, funds and affairs of any corporation and of any subsidiary corporation thereof, domestic or foreign, keeping records in this state and to report thereon in such manner as the court may direct.
All officers and agents of the corporation shall produce to the inspectors or accountants so appointed all books and documents in their custody or power, under penalty of punishment for contempt of court.
All expenses of the investigation or audit shall be defrayed by the applicant unless the court orders them to be paid or shared by the corporation.
In any action or proceeding under this article, and except as required by Section 8331, if the court finds the failure of the corporation to comply with a proper demand thereunder was without justification, the court may award the member reasonable costs and expenses, including reasonable attorneys’ fees, in connection with such action or proceeding.
A membership list is a corporate asset. Without consent of the board a membership list or any part thereof may not be obtained or used by any person for any purpose not reasonably related to a member’s interest as a member. Without limiting the generality of the foregoing, without the consent of the board a membership list or any part thereof may not be:
Used to solicit money or property unless such money or property will be used solely to solicit the vote of the members in an election to be held by their corporation.
Used for any purpose which the user does not reasonably and in good faith believe will benefit the corporation.
Used for any commercial purpose or purpose in competition with the corporation.
Sold to or purchased by any person.
Any person who violates the provisions of subdivision (a) shall be liable for any damage such violation causes the corporation and shall account for and pay to the corporation any profit derived as a result of said violation. In addition, a court in its discretion may award exemplary damages for a fraudulent or malicious violation of subdivision (a).
Nothing in this article shall be construed to limit the right of a corporation to obtain injunctive relief necessary to restrain misuse of a membership list or any part thereof.
In any action or proceeding under this section, a court may award the corporation reasonable costs and expenses, including reasonable attorneys’ fees, in connection with such action or proceeding.
As used in this section, the term “membership list” means the record of the members’ names and addresses.
CHAPTER 14. Service of Process [8410. - 8410.]
Service of process upon a corporation shall be governed by Chapter 17 (commencing with Section 1700) of Division 1 of Title 1.
CHAPTER 15. Involuntary Dissolution [8510. - 8519.]
A complaint for involuntary dissolution of a corporation on any one or more of the grounds specified in subdivision (b) may be filed in the superior court of the proper county by any of the following persons:
One-half or more of the directors in office.
A person or persons holding or authorized in writing by persons holding not less than 3313 percent of the voting power exclusive of memberships held by persons who have personally participated in any of the transactions enumerated in paragraph (5) of subdivision (b).
Any member if the ground for dissolution is that the period for which the corporation was formed has terminated without extension thereof.
Any other person expressly authorized to do so in the articles.
In the case of a corporation holding assets in charitable trust, the Attorney General.
The head organization under whose authority the corporation was created, where the corporation’s articles include the provision authorized by subdivision (a), paragraph (4), clause (i), of Section 7132.
The grounds for involuntary dissolution are that:
The corporation has abandoned its activity for more than one year.
The corporation has an even number of directors who are equally divided and cannot agree as to the management of its affairs, so that its activities can no longer be conducted to advantage or so that there is danger that its property will be impaired or lost or its activities impaired and the members are so divided into factions that they cannot elect a board consisting of an uneven number.
There is internal dissension and two or more factions of members in the corporation are so deadlocked that its activities can no longer be conducted with advantage.
When during any four-year period or when all voting power has been exercised at two consecutive meetings or in two written ballots for the election of directors, whichever period is shorter, the members have failed to elect successors to directors whose terms have expired or would have expired upon election of their successors.
Those in control of the corporation have been guilty of or have knowingly countenanced persistent and pervasive fraud, mismanagement or abuse of authority or persistent unfairness toward any member or the corporation’s property is being misapplied or wasted by its directors or officers.
In the case of any corporation with 35 or fewer members, liquidation is reasonably necessary for the protection of the rights or interests of a complaining member or members.
The period for which the corporation was formed has terminated without extension of such period.
The corporation is required to dissolve under the terms of any article provision adopted pursuant to subdivision (a), paragraph (4), clause (i) of Section 7132.
At any time prior to the trial of the action any member or creditor may intervene therein.
This section does not apply to any corporation subject to:
In the case of a corporation holding assets in charitable trust at the time of the filing of the complaint pursuant to subdivision (a), a copy thereof shall be served on the Attorney General who may intervene.
The Attorney General may bring an action against any corporation or purported corporation in the name of the people of this state, upon the Attorney General’s own information or upon complaint of a private party, to procure a judgment dissolving the corporation and annulling, vacating or forfeiting its corporate existence upon any of the following grounds:
The corporation has seriously offended against any provision of the statutes regulating corporations.
The corporation has fraudulently abused or usurped corporate privileges or powers.
The corporation has violated any provision of law by any act or default which under the law is a ground for forfeiture of corporate existence.
The corporation has failed to pay to the Franchise Tax Board for a period of five years any tax imposed upon it by the Bank and Corporation Tax Law.
If the ground of the action is a matter or act which the corporation has done or omitted to do that can be corrected by amendment of its articles or by other corporate action, such suit shall not be maintained unless (1) the Attorney General, at least 30 days prior to the institution of suit, has given the corporation written notice of the matter or act done or omitted to be done and (2) the corporation has failed to institute proceedings to correct it within the 30-day period or thereafter fails to duly and properly make such amendment or take the corrective corporate action.
In any such action the court may order dissolution or such other or partial relief as it deems just and expedient. The court also may appoint a receiver for winding up the affairs of the corporation or may order that the corporation be wound up by its board subject to the supervision of the court.
Service of process on the corporation may be made pursuant to Chapter 17 (commencing with Section 1700) of Division 1 or by written notice to the president or secretary of the corporation at the address indicated in the corporation’s last tax return filed pursuant to the Bank and Corporation Tax Law. The Attorney General shall also publish one time in a newspaper of general circulation in the proper county a notice to the members of the corporation.
If the ground for the complaint for involuntary dissolution of the corporation is a deadlock in the board as set forth in paragraph (2) of subdivision (b) of Section 8510, the court may appoint a provisional director. The provisions of subdivision (d) of Section 7225 apply to any such provisional director so appointed.
If, at the time of the filing of a complaint for involuntary dissolution or at any time thereafter, the court has reasonable grounds to believe that unless a receiver of the corporation is appointed the interests of the corporation or its members will suffer pending the hearing and determination of the complaint, upon the application of the plaintiff, and after a hearing upon such notice to the corporation as the court may direct and upon the giving of security pursuant to Sections 566 and 567 of the Code of Civil Procedure, the court may appoint a receiver to take over and manage the affairs of the corporation and to preserve its property pending the hearing and determination of the complaint for dissolution.
After hearing the court may decree a winding up and dissolution of the corporation if cause therefor is shown or, with or without winding up and dissolution, may make such orders and decrees and issue such injunctions in the case as justice and equity require.
Involuntary proceedings for winding up a corporation commence when the order for winding up is entered under Section 8514.
When an involuntary proceeding for winding up has commenced, the board shall conduct the winding up of the affairs of the corporation, subject to the supervision of the court, unless other persons are appointed by the court, on good cause shown, to conduct the winding up. The directors or such other persons may, subject to any restrictions imposed by the court, exercise all their powers through the executive officers without any order of court.
When an involuntary proceeding for winding up has commenced, the corporation shall cease to conduct its activities except to the extent necessary for the beneficial winding up thereof and except during such period as the board may deem necessary to preserve the corporation’s goodwill or going-concern value, pending a sale or other disposition of its assets, or both, in whole or in part. The directors shall cause written notice of the commencement of the proceeding for involuntary winding up to be given by mail to all members and to all known creditors and claimants whose addresses appear on the records of the corporation, unless the order for winding up has been stayed by appeal therefrom or otherwise or the proceeding or the execution of the order has been enjoined.
When an involuntary proceeding for winding up has been commenced, the jurisdiction of the court includes:
The requirement of the proof of all claims and demands against the corporation, whether due or not yet due, contingent, unliquidated or sounding only in damages, and the barring from participation of creditors and claimants failing to make and present claims and proof as required by any order.
The determination or compromise of all claims of every nature against the corporation or any of its property, and the determination of the amount of money or assets required to be retained to pay or provide for the payment of claims.
The determination of the rights of members and of all classes of members in and to the assets of the corporation.
The presentation and filing of intermediate and final accounts of the directors or other persons appointed to conduct the winding up and hearing thereon, the allowance, disallowance or settlement thereof and the discharge of the directors or such other persons from their duties and liabilities.
The appointment of a commissioner to hear and determine any or all matters, with such power or authority as the court may deem proper.
The filling of any vacancies on the board which the directors or the members are unable to fill.
The removal of any director if it appears that the director has been guilty of dishonesty, misconduct, neglect or breach of trust in conducting the winding up or if the director is unable to act. The court may order an election to fill the vacancy so caused, and may enjoin, for such time as it considers proper, the reelection of the director so removed; or the court, in lieu of ordering an election, may appoint a director to fill the vacancy caused by such removal. Any director so appointed by the court shall serve until the next regular meeting of members or until a successor is elected or appointed.
The staying of the prosecution of any suit, proceeding or action against the corporation and requiring the parties to present and prove their claims in the manner required of other creditors.
The determination of whether adequate provision has been made for payment or satisfaction of all debts and liabilities not actually paid.
The making of orders for the withdrawal or termination of proceedings, to wind up and dissolve, subject to conditions for the protection of members and creditors.
The making of an order, upon the allowance or settlement of the final accounts of the directors or such other persons, that the corporation has been duly wound up and is dissolved. Upon the making of such order, the corporate existence shall cease except for purposes of further winding up if needed.
The making of orders for the bringing in of new parties as the court deems proper for the determination of all questions and matters.
The disposition of assets held in charitable trust.
All creditors and claimants may be barred from participation in any distribution of the general assets if they fail to make and present claims and proofs within such time as the court may direct, which shall not be less than four nor more than six months after the first publication of notice to creditors unless it appears by affidavit that there are no claims, in which case the time limit may be three months. If it is shown that a claimant did not receive notice because of absence from the state or other cause, the court may allow a claim to be filed or presented at any time before distribution is completed.
Such notice to creditors shall be published not less than once a week for three consecutive weeks in a newspaper of general circulation published in the county in which the proceeding is pending or, if there is no such newspaper published in that county, in such newspaper as may be designated by the court, directing creditors and claimants to make and present claims and proofs to the person, at the place and within the time specified in the notice. A copy of the notice shall be mailed to each person shown as a creditor or claimant on the books of the corporation, at such person’s last known address.
Holders of secured claims may prove for the whole debt in order to realize any deficiency. If such creditors fail to present their claims they shall be barred only as to any right to claim against the general assets for any deficiency in the amount realized on their security.
Before any distribution is made the amount of any unmatured, contingent or disputed claim against the corporation which has been presented and has not been disallowed, or such part of any such claim as the holder would be entitled to if the claim were due, established or absolute, shall be paid into court and there remain to be paid over to the party when the party becomes entitled thereto or, if the party fails to establish a claim, to be paid over or distributed with the other assets of the corporation to those entitled thereto; or such other provision for the full payment of such claim, if and when established, shall be made as the court may deem adequate. A creditor whose claim has been allowed but is not yet due shall be entitled to its present value upon distribution.
Suits against the corporation on claims which have been rejected shall be commenced within 30 days after written notice of rejection thereof is given to the claimant.
Upon the final settlement of the accounts of the directors or other persons appointed pursuant to Section 8515 and the determination that the corporation’s affairs are in condition for it to be dissolved, the court may make an order declaring the corporation duly wound up and dissolved. The order shall declare:
That the corporation has been duly wound up, that a final franchise tax return, as described by Section 23332 of the Revenue and Taxation Code, has been filed with the Franchise Tax Board, as required under Part 10.2 (commencing with Section 18401) of Division 2 of the Revenue and Taxation Code and that its known debts and liabilities have been paid or adequately provided for, or that those debts and liabilities have been paid as far as its assets permitted, as the case may be. If there are known debts or liabilities for payment of which adequate provision has been made, the order shall state what provision has been made, setting forth the name and address of the corporation, person or governmental agency that has assumed or guaranteed the payment, or the name and address of the depositary with which deposit has been made or such other information as may be necessary to enable the creditor or other person to whom payment is to be made to appear and claim payment of the debt or liability.
That its known assets have been distributed to the persons entitled thereto or that it acquired no known assets, as the case may be.
That the accounts of directors or such other persons have been settled and that they are discharged from their duties and liabilities to creditors and members.
That the corporation is dissolved.
The court may make such additional orders and grant such further relief as it deems proper upon the evidence submitted.
Upon the making of the order declaring the corporation dissolved, corporate existence shall cease except for the purposes of further winding up if needed; and the directors or such other persons shall be discharged from their duties and liabilities, except in respect to completion of the winding up.
Whenever a corporation is dissolved or its existence forfeited by order, decree or judgment of a court, a copy of the order, decree or judgment, certified by the clerk of court, shall forthwith be filed. The Secretary of State shall notify the Franchise Tax Board of the dissolution.
CHAPTER 16. Voluntary Dissolution [8610. - 8618.]
Any corporation which comes within one of the following descriptions may elect by approval of the board to wind up and dissolve:
A corporation which has been the subject of an order for relief in bankruptcy.
A corporation which has disposed of all of its assets and has not conducted any activity for a period of five years immediately preceding the adoption of the resolution electing to dissolve the corporation.
A corporation which has no members.
A corporation which is required to dissolve under provisions of its articles adopted pursuant to subparagraph (A) of paragraph (4) of subdivision (a) of Section 7132.
If a corporation comes within one of the descriptions in subdivision (b) and if the number of directors then in office is less than a quorum, it may elect to voluntarily wind up and dissolve by any of the following:
If a corporation elects to voluntarily wind up and dissolve pursuant to subdivision (c), references to the board in this chapter and Chapter 17 (commencing with Section 8710) shall be deemed to be to a board consisting solely of those directors or that sole director and action by the board shall require at least the same consent or vote as would be required under subdivision (c) for an election to wind up and dissolve.
Notwithstanding any other provision of this division, when a corporation has not issued any memberships, a majority of the directors, or, if no directors have been named in the articles or have been elected, the incorporator or a majority of the incorporators, may sign and verify a certificate of dissolution stating the following:
That the certificate of dissolution is being filed within 24 months from the date the articles of incorporation were filed.
That the corporation does not have any debts or other liabilities, except as provided in paragraph (3) and subdivision (d).
That the tax liability will be satisfied on a taxes-paid basis, or that a person or corporation or other business entity assumes the tax liability, if any, of the dissolving corporation and is responsible for additional corporate taxes, if any, that are assessed and that become due after the date of the assumption of the tax liability.
That a final franchise tax return, as described by Section 23332 of the Revenue and Taxation Code, has been or will be filed with the Franchise Tax Board as required under Part 10.2 (commencing with Section 18401) of Division 2 of the Revenue and Taxation Code.
That the corporation was created in error.
That the known assets of the corporation remaining after payment of, or adequately providing for, known debts and liabilities have been distributed as required by law or that the corporation acquired no known assets, as the case may be.
That a majority of the directors, or, if no directors have been named in the articles or have been elected, the incorporator or a majority of the incorporators authorized the dissolution and elected to dissolve the corporation.
That the corporation has not issued any memberships, and if the corporation has received payments for memberships, those payments have been returned to those making the payments.
That the corporation is dissolved.
A certificate of dissolution signed and verified pursuant to subdivision (a) shall be filed with the Secretary of State. The Secretary of State shall notify the Franchise Tax Board and the Attorney General’s Registry of Charities and Fundraisers of the dissolution.
Upon filing a certificate of dissolution pursuant to subdivision (b), a corporation shall be dissolved and its powers, rights, and privileges shall cease.
Notwithstanding the administrative dissolution of a corporation pursuant to this section, its liability to creditors, if any, is not discharged. The liability of the directors of, or other persons related to, the administratively dissolved corporation is not discharged. The dissolution of a corporation pursuant to this section shall not diminish or adversely affect the ability of the Attorney General to enforce liabilities as otherwise provided by law.
Whenever a corporation has elected to wind up and dissolve a certificate evidencing that election shall forthwith be filed. A copy of that certificate shall be filed with the Attorney General if the corporation holds assets in charitable trust or has a charitable dissolution clause.
The certificate shall be an officers’ certificate or shall be signed and verified by at least a majority of the directors then in office or by one or more members authorized to do so by approval of a majority of all members (Section 5033) and shall set forth:
That the corporation has elected to wind up and dissolve.
If the election was made by the vote of members alone, the number of votes for the election and that the election was made by a majority of all members (Section 5033).
If the election was made by the board and the members pursuant to paragraph (2) of subdivision (a) of Section 8610, the certificate shall state that it was made by the board and the members in accordance with Section 5034.
If the certificate is executed by a member or members, that the subscribing person or persons were authorized to execute the certificate a majority of all members (Section 5033).
If the election was made by the board pursuant to subdivision (b) of Section 8610, the circumstances showing the corporation to be within one of the categories described in that subdivision.
If an election to dissolve made pursuant to subdivision (a) of Section 8610 is made by the vote of all the members of a corporation with members or by a vote of all members of the board of a corporation without members pursuant to subdivision (b) of Section 8610 and a statement to that effect is added to the certificate of dissolution pursuant to Section 8615, the separate filing of the certificate of election pursuant to this section is not required.
A voluntary election to wind up and dissolve may be revoked prior to distribution of any assets: (1) if the election was made pursuant to subdivision (a) of Section 8610, by the vote of members representing a majority of the voting power; or (2) if the election was by the board pursuant to subdivision (b) of Section 8610, by approval of the board. Thereupon a certificate evidencing the revocation shall be signed, verified and filed in the manner prescribed by Section 8611 and a copy thereof filed with the Attorney General.
The certificate shall set forth:
That the corporation has revoked its election to wind up and dissolve.
That no assets have been distributed pursuant to the election.
If the revocation was made by the vote of members alone, the number of votes for the revocation and that the revocation was made by persons representing at least a majority of the voting power.
If the revocation was made by the board alone, the certificate shall so state.
Voluntary proceedings for winding up the corporation commence upon the adoption of the resolution required by Section 8610 by the members, by the board and members, or by the board alone, electing to wind up and dissolve.
When a voluntary proceeding for winding up has commenced, the board shall continue to act as a board and shall have full powers to wind up and settle its affairs, both before and after the filing of the certificate of dissolution.
When a voluntary proceeding for winding up has commenced, the corporation shall cease to conduct its activities except to the extent necessary for the beneficial winding up thereof, to the extent necessary to carry out its purposes, and except during such period as the board may deem necessary to preserve the corporation’s goodwill or going-concern value pending a sale or other disposition of its assets, or both, in whole or in part. The board shall cause written notice of the commencement of the proceeding for voluntary winding up to be given by mail to all its members (except no notice need be given to the members who voted in favor of winding up and dissolving the corporation), to all known creditors and claimants whose addresses appear on the records of the corporation, and in the case of a corporation holding assets in charitable trust to the Attorney General.
If a corporation is in the process of voluntary winding up, the superior court of the proper county, upon the petition of (a) the corporation, or (b) the authorized number (Section 5036), or (c) in the case of a corporation holding assets in charitable trust, the Attorney General, or (d) three or more creditors, and upon such notice to the corporation and to other persons interested in the corporation as members and creditors as the court may order, may take jurisdiction over such voluntary winding up proceeding if that appears necessary for the protection of any parties in interest or in the case of a corporation holding assets in charitable trust, for the protection of such assets. The court, if it assumes jurisdiction, may make such orders as to any and all matters concerning the winding up of the affairs of the corporation and the protection of its members, creditors and in the case of a corporation holding assets in charitable trust, for the protection of such assets, as justice and equity may require. The provisions of Chapter 15 (commencing with Section 8510) (except Sections 8510 and 8511) shall apply to such court proceedings.
When a corporation has been completely wound up without court proceedings therefor, a majority of the directors then in office shall sign and verify a certificate of dissolution stating:
That the corporation has been completely wound up.
That its known debts and liabilities have been actually paid, or adequately provided for, or paid or adequately provided for as far as its assets permitted, or that it has incurred no known debts or liabilities, as the case may be. If there are known debts or liabilities for payment of which adequate provision has been made, the certificate shall state what provision has been made, setting forth the name and address of the corporation, person or governmental agency that has assumed or guaranteed the payment, or the name and address of the depositary with which deposit has been made or such other information as may be necessary to enable the creditor or other person to whom payment is to be made to appear and claim payment of the debt or liability.
That its known assets have been distributed to the persons entitled thereto or that it acquired no known assets, as the case may be.
That the corporation is dissolved.
That all final returns required under the Revenue and Taxation Code, have been or will be filed with the Franchise Tax Board.
The certificate of dissolution shall be filed and thereupon the corporate existence shall cease, except for the purpose of further winding up if needed. The Secretary of State shall notify the Franchise Tax Board of the dissolution.
Except as otherwise provided by law, if the term of existence for which any corporation was organized expires without renewal or extension thereof, the board shall terminate its activities and wind up its affairs; and when the affairs of the corporation have been wound up a majority of the directors shall execute and file a certificate conforming to the requirements of Section 8615.
The board, in lieu of filing the certificate of dissolution, may petition the superior court of the proper county for an order declaring the corporation duly wound up and dissolved. Such petition shall be filed in the name of the corporation.
Upon the filing of the petition, the court shall make an order requiring all interested persons, including the Attorney General in the case of a corporation holding assets in charitable trust, to show cause why an order shall not be made declaring the corporation duly wound up and dissolved and shall direct that the order be served by notice to all creditors, claimants, and members in the same manner as the notice given under subdivision (b) of Section 8517.
Any person claiming to be interested as member, creditor or otherwise may appear in the proceeding at any time before the expiration of 30 days from the completion of publication of the order to show cause and contest the petition, and upon failure to appear such person’s claim shall be barred.
A corporation in the process of voluntary winding up may dispose of the known claims against it by following the procedure described in this section.
The written notice to known creditors and claimants required by subdivision (c) of Section 8613 shall comply with all of the following requirements:
Describe any information that must be included in a claim.
Provide a mailing address where a claim may be sent.
State the deadline, which may not be fewer than 120 days from the effective date of the written notice, by which the corporation must receive the claim.
State that the claim will be barred if not received by the deadline.
A claim against the corporation is barred if any of the following occur:
For purposes of this section “claim” does not include a contingent liability or a claim based on an event occurring after the effective date of dissolution.
CHAPTER 17. General Provisions Relating to Dissolution [8710. - 8724.]
The powers and duties of the directors (or other persons appointed by the court pursuant to Section 8515) and officers after commencement of a dissolution proceeding include, but are not limited to, the following acts in the name and on behalf of the corporation:
To elect officers and to employ agents and attorneys to liquidate or wind up its affairs.
To continue the conduct of the affairs of the corporation insofar as necessary for the disposal or winding up thereof.
To carry out contracts and collect, pay, compromise and settle debts and claims for or against the corporation.
To defend suits brought against the corporation.
To sue, in the name of the corporation, for all sums due or owing to the corporation or to recover any of its property.
To collect any amounts remaining unpaid on memberships or to recover unlawful distributions.
To sell at public or private sale, exchange, convey or otherwise dispose of all or any part of the assets of the corporation for an amount deemed reasonable by the board without compliance with the provisions of Section 7911 and to execute bills of sale and deeds of conveyance in the name of the corporation.
In general, to make contracts and to do any and all things in the name of the corporation which may be proper or convenient for the purposes of winding up, settling and liquidating the affairs of the corporation.
A vacancy on the board may be filled during a winding up proceeding in the manner provided in Section 7224.
When the identity of the directors or their right to hold office is in doubt, or if they are dead or unable to act, or they fail or refuse to act or their whereabouts cannot be ascertained, any interested person, including the Attorney General in the case of corporations holding assets in charitable trust, may petition the superior court of the proper county to determine the identity of the directors or, if there are no directors, to appoint directors to wind up the affairs of the corporation, after hearing upon such notice to such persons as the court may direct.
If the winding up is by court proceeding or subject to court supervision, the distribution shall not be made until after the expiration of any period for the presentation of claims that has been prescribed by order of the court.
Anything to the contrary notwithstanding, assets, if any, which are not subject to attachment, execution or sale for the corporation’s debts and liabilities may be distributed pursuant to Sections 8715 to 8717, inclusive, even though all debts and liabilities have not been paid or adequately provided for.
The payment of a debt or liability, whether the whereabouts of the creditor is known or unknown, has been adequately provided for if the payment has been provided for by either of the following means:
Payment thereof has been assumed or guaranteed in good faith by one or more financially responsible persons or by the United States government or any agency thereof, and the provision (including the financial responsibility of such persons) was determined in good faith and with reasonable care by the board to be adequate at the time of any distribution of the assets by the board pursuant to this chapter.
The amount of the debt or liability has been deposited as provided in Section 8720.
This section does not prescribe the exclusive means of making adequate provision for debts and liabilities.
After complying with the provisions of Section 8713, assets held by a corporation upon a valid condition requiring return, transfer, or conveyance, which condition has occurred or will occur, shall be returned, transferred, or conveyed in accordance with the condition.
After complying with the provisions of Section 8713:
Except as provided in Section 8715 those assets held by a corporation in a charitable trust shall be disposed of on dissolution in conformity with its articles or bylaws subject to complying with the provisions of any trust under which such assets are held.
Except as provided in subdivision (c), the disposition required in subdivision (a) shall be made by decree of the superior court of the proper county in proceedings to which the Attorney General is a party. The decree shall be made upon petition therefor by the Attorney General or, upon 30 days’ notice to the Attorney General, by any person concerned in the dissolution.
The disposition required in subdivision (a) may be made without the decree of the superior court, subject to the rights of persons concerned in the dissolution, if the Attorney General makes a written waiver of objections to the disposition.
If the articles or bylaws provide the manner of disposition, the assets shall be disposed of in that manner.
If the articles or bylaws do not provide the manner of disposition, the assets shall be distributed among the members in accordance with their respective rights therein.
Subject to the provisions of any trust under which assets to be distributed are held, distribution may be made either in money or in property or securities and either in installments from time to time or as a whole, if this can be done fairly and ratably and in conformity with the provisions of the articles and bylaws and shall be made as soon as reasonably consistent with the beneficial liquidation of the corporation assets.
If a corporation in process of winding up has more than one class of memberships outstanding, a plan of distribution of the memberships, obligations or securities of any other corporation, domestic or foreign, or assets other than money which is not in accordance with the liquidation rights of any class or classes as specified in the articles or bylaws may nevertheless be adopted if approved by (1) the board and (2) by approval by the members (Section 5034) of each class. The plan may provide that such distribution is in complete or partial satisfaction of the rights of any of such members upon distribution and liquidation of the assets.
A plan of distribution so approved shall be binding upon all the members. The board shall cause notice of the adoption of the plan to be given by mail within 20 days after its adoption to all holders of memberships having a liquidation preference.
If any members, creditors, or other persons are unknown or fail or refuse to accept their payment or distribution in cash or property or their whereabouts cannot be ascertained after diligent inquiry, or the existence or amount of a claim of a creditor, member or other person is contingent, contested, or not determined, or if the ownership of any memberships is in dispute, the corporation may deposit any such payment, distribution, or the maximum amount of the claim with the Controller in trust for the benefit of those lawfully entitled to the payment, distribution, or the amount of the claim. The payment or distribution shall be paid over by the depositary to the lawful owners, their representatives or assigns, upon satisfactory proof of title.
For the purpose of providing for the transmittal, receipt, accounting for, claiming, management, and investment of all money or other property deposited with the Controller under subdivision (a), the money or other property shall be deemed to be paid or delivered for deposit with the Controller under Chapter 7 (commencing with Section 1500) of Title 10 of Part 3 of the Code of Civil Procedure, and may be recovered in the manner prescribed in that chapter.
Whenever in the process of winding up a corporation any distribution of assets has been made, otherwise than under an order of court, without prior payment or adequate provision for payment of any of the debts and liabilities of the corporation, any amount so improperly distributed to any person may be recovered by the corporation. Any of such persons may be joined as defendants in the same action or be brought in on the motion of any other defendant.
Suit may be brought in the name of the corporation to enforce the liability under subdivision (a) against any or all persons receiving the distribution by any one or more creditors of the corporation, whether or not they have reduced their claims to judgment.
Members who satisfy any liability under this section shall have the right of ratable contribution from other distributees similarly liable. Any member who has been compelled to return to the corporation more than the member’s ratable share of the amount needed to pay the debts and liabilities of the corporation may require that the corporation recover from any or all of the other distributees such proportion of the amounts received by them upon the improper distribution as to give contribution to those held liable under this section and make the distribution of the assets fair and ratable, according to the respective rights and preferences of the memberships, after payment or adequate provision for payment of all the debts and liabilities of the corporation.
A corporation which is dissolved nevertheless continues to exist for the purpose of winding up its affairs, prosecuting and defending actions by or against it and enabling it to collect and discharge obligations, dispose of and convey its property and collect and divide its assets, but not for the purpose of continuing its activities except so far as necessary for the winding up thereof.
No action or proceeding to which a corporation is a party abates by the dissolution of the corporation or by reason of proceedings for winding up and dissolution thereof.
Any assets inadvertently or otherwise omitted from the winding up continue in the dissolved corporation for the benefit of the persons entitled thereto upon dissolution of the corporation and on realization shall be distributed accordingly.
Causes of action against a dissolved corporation, whether arising before or after the dissolution of the corporation, may be enforced against any of the following:
Against the dissolved corporation, to the extent of its undistributed assets, including, without limitation, any insurance assets held by the corporation that may be available to satisfy claims.
If any of the assets of the dissolved corporation have been distributed to other persons, against those persons to the extent of their pro rata share of the claim or to the extent of the corporate assets distributed to them upon dissolution of the corporation, whichever is less.
The total liability of a person under this section may not exceed the total amount of assets of the dissolved corporation distributed to that person upon dissolution of the corporation.
Except as set forth in subdivision (c), all causes of action against a person to whom assets were distributed arising under this section are extinguished unless the claimant commences a proceeding to enforce the cause of action against that person prior to the earlier of the following:
The expiration of the statute of limitations applicable to the cause of action.
Four years after the effective date of the dissolution of the corporation.
As a matter of procedure only, and not for purposes of determining liability, persons to whom assets of a dissolved corporation are distributed may be sued in the name of the corporation upon any cause of action against the corporation. This section does not affect the rights of the corporation or its creditors under Section 2009, or the rights, if any, of creditors under the Uniform Voidable Transactions Act, which may arise against persons to whom those assets are distributed.
This subdivision applies to corporations dissolved on or after January 1, 2000. Corporations dissolved prior to that date are subject to the law in effect prior to that date.
Summons or other process against the corporation may be served by delivering a copy thereof to an officer, director, or person having charge of its assets or, if none of these persons can be found, to any agent upon whom process might be served at the time of dissolution. If none of those persons can be found with due diligence and it is so shown by affidavit to the satisfaction of the court, then the court may make an order that summons or other process be served upon the dissolved corporation by personally delivering a copy thereof, together with a copy of the order, to the Secretary of State or an assistant or deputy secretary of state, with an additional copy of the summons or other process and order being delivered to the Attorney General in the case of a corporation that at the commencement of the dissolution proceedings held assets in charitable trust. Service in this manner is deemed complete on the 10th day after delivery of the process to the Secretary of State, or in the case of a corporation that at the commencement of the dissolution proceedings held assets in charitable trust, upon the 10th day after the later of delivery of process to the Secretary of State or Attorney General.
The corporation shall survive and continue to exist indefinitely for the purpose of being sued in any quiet title action. Any judgment rendered in that action shall bind each of its members or other persons having any equity or other interest in the corporation, to the extent of their interest therein, and that action shall have the same force and effect as an action brought under the provisions of Sections 410.50 and 410.60 of the Code of Civil Procedure. Service of summons or other process in that action may be made as provided in Chapter 4 (commencing with Section 413.10) of Title 5 of Part 2 of the Code of Civil Procedure or as provided in subdivision (b).
Upon receipt of that process and the fee therefor, the Secretary of State forthwith shall give notice to the corporation as provided in Section 1702.
Without the approval of 100 percent of the members, any contrary provision in this part or the articles or bylaws notwithstanding, so long as there is any lot, parcel, area, apartment, or unit for which an owners’ association, created in connection with any of the forms of development referred to in Section 11004.5 of the Business and Professions Code, is obligated to provide management, maintenance, preservation, or control, the following shall apply:
The owners’ association or any person acting on its behalf shall not do either of the following:
Transfer all or substantially all of its assets.
File a certificate of dissolution.
No court shall enter an order declaring the owners’ association duly wound up and dissolved.
CHAPTER 18. Crimes and Penalties [8810. - 8817.]
Upon the failure of a corporation to file the statement required by Section 8210, the Secretary of State shall provide a notice of such delinquency to the corporation. The notice shall also contain information concerning the application of this section, and advise the corporation of the penalty imposed by Section 19141 of the Revenue and Taxation Code for failure to timely file the required statement after notice of delinquency has been provided by the Secretary of State. If, within 60 days after providing notice of the delinquency, a statement pursuant to Section 8210 has not been filed by the corporation, the Secretary of State shall certify the name of the corporation to the Franchise Tax Board.
Upon certification pursuant to subdivision (a), the Franchise Tax Board shall assess against the corporation a penalty of fifty dollars ($50) pursuant to Section 19141 of the Revenue and Taxation Code.
The penalty herein provided shall not apply to a corporation which on or prior to the date of certification pursuant to subdivision (a) has dissolved, has converted to another type of business entity, or has been merged into another corporation or other business entity.
The penalty herein provided shall not apply and the Secretary of State need not provide a notice of the delinquency to a corporation the corporate powers, rights, and privileges of which have been suspended by the Franchise Tax Board pursuant to Section 23301, 23301.5, or 23775 of the Revenue and Taxation Code on or prior to, and remain suspended on, the last day of the filing period pursuant to Section 8210. The Secretary of State need not provide notice of the filing requirement pursuant to Section 8210, to a corporation the corporate powers, rights, and privileges of which have been so suspended by the Franchise Tax Board on or prior to, and remain suspended on, the day the Secretary of State prepares the notice for sending.
If, after certification pursuant to subdivision (a) the Secretary of State finds the required statement was filed before the expiration of the 60-day period after providing the notice of delinquency, the Secretary of State shall promptly decertify the name of the corporation to the Franchise Tax Board. The Franchise Tax Board shall then promptly abate any penalty assessed against the corporation pursuant to Section 19141 of the Revenue and Taxation Code.
If the Secretary of State determines that the failure of a corporation to file a statement required by Section 8210 is excusable because of reasonable cause or unusual circumstances which justify the failure, the Secretary of State may waive the penalty imposed by this section and by Section 19141 of the Revenue and Taxation Code, in which case the Secretary of State shall not certify the name of the corporation to the Franchise Tax Board, or if already certified, the Secretary of State shall promptly decertify the name of the corporation.
Any promoter, director, or officer of a corporation who knowingly and willfully issues or consents to the issuance of memberships or membership certificates with intent to defraud present or future members or creditors is guilty of a misdemeanor punishable by a fine of not more than one thousand dollars ($1,000) or by imprisonment in county jail for not more than one year or by both such fine and imprisonment.
Any director of any corporation who concurs in any vote or act of the directors of the corporation or any of them, knowingly and with dishonest or fraudulent purpose, to make any distribution of assets, except in the case and in the manner allowed by this part, either with the design of defrauding creditors or members or of giving a false appearance to the value of the membership and thereby defrauding purchasers is guilty of a crime. Each such crime is punishable by imprisonment pursuant to subdivision (h) of Section 1170 of the Penal Code, or by a fine of not more than one thousand dollars ($1,000) or imprisonment in a county jail for not more than one year, or by both that fine and imprisonment.
Every director or officer of any corporation is guilty of a crime if such director or officer knowingly concurs in making or publishing, either generally or privately, to members or other persons (1) any materially false report or statement as to the financial condition of the corporation, or (2) any willfully or fraudulently exaggerated report, prospectus, account or statement of operations, financial condition or prospects, or (3) any other paper intended to give, and having a tendency to give, a membership in such corporation a greater or lesser value than it really possesses.
Every director or officer of any corporation is guilty of a crime who refuses to make or direct to be made any book entry or the posting of any notice required by law in the manner required by law.
A violation of subdivision (a) or (b) of this section shall be punishable by imprisonment in state prison or by a fine of not more than one thousand dollars ($1,000) or imprisonment in the county jail for not more than one year or both such fine and imprisonment.
Every director, officer or agent of any corporation, who knowingly receives or acquires possession of any property of the corporation, otherwise than in payment of a just demand, and, with intent to defraud, omits to make, or to cause or direct to be made, a full and true entry thereof in the books or accounts of the corporation is guilty of a crime.
Every director, officer, agent or member of any corporation who, with intent to defraud, destroys, alters, mutilates or falsifies any of the books, papers, writings or securities belonging to the corporation or makes or concurs in omitting to make any material entry in any book of accounts or other record or document kept by the corporation is guilty of a crime.
Each crime specified in this section is punishable by imprisonment in state prison, or by imprisonment in a county jail for not exceeding one year, or a fine not exceeding one thousand dollars ($1,000), or both such fine and imprisonment.
Every director, officer or agent of any corporation, or any person proposing to organize such a corporation who knowingly exhibits any false, forged or altered book, paper, voucher, security or other instrument of evidence to any public officer or board authorized by law to examine the organization of such corporation or to investigate its affairs, with intent to deceive such officer or board in respect thereto, is punishable by imprisonment pursuant to subdivision (h) of Section 1170 of the Penal Code, or by imprisonment in a county jail for not exceeding one year.
Every person who, without being authorized so to do, subscribes the name of another to or inserts the name of another in any prospectus, circular or other advertisement or announcement of any corporation, whether existing or intended to be formed, with intent to permit the document to be published and thereby to lead persons to believe that the person whose name is so subscribed is an officer, agent or promoter of such corporation, when in fact no such relationship exists to the knowledge of such person, is guilty of a misdemeanor.
Nothing in this chapter limits the power of the state to punish any person for any conduct which constitutes a crime under any other statute.
CHAPTER 19. Foreign Corporations [8910. - 8910.]
PART 4. NONPROFIT RELIGIOUS CORPORATIONS [9110. - 9690.]
CHAPTER 1. Organization and Bylaws [9110. - 9160.]
ARTICLE 1. Title and Purposes [9110. - 9111.]
This part shall be known and may be cited as the Nonprofit Religious Corporation Law.
Subject to any other provision of law of this state applying to the particular class of corporation or line of activity, a corporation may be formed under this part primarily or exclusively for any religious purposes.
ARTICLE 2. Formation [9120. - 9122.]
One or more persons may form a corporation under this part by executing and filing articles of incorporation.
If initial directors are named in the articles, each director named in the articles shall sign and acknowledge the articles; if initial directors are not named in the articles, the articles shall be signed by one or more persons who thereupon are the incorporators of the corporation.
The corporate existence begins upon the filing of the articles and continues perpetually, unless otherwise expressly provided by law or in the articles.
In the case of an existing unincorporated association, the association may change its status to that of a corporation upon a proper authorization for such by the association in accordance with its rules and procedures.
In addition to the matters required to be set forth in the articles pursuant to Section 9130, the articles in the case of an incorporation authorized by subdivision (a) shall set forth that an existing unincorporated association, stating its name, is being incorporated by the filing of the articles.
The articles filed pursuant to this section shall be accompanied by a verified statement of any two officers or governing board members of the association stating that the incorporation of the association by means of the articles to which the verified statement is attached has been approved by the association in accordance with its rules and procedures.
Upon the change of status of an unincorporated association to a corporation pursuant to subdivision (a), the property of the association becomes the property of the corporation and the members of the association who had any voting rights of the type referred to in Section 5056 become members of the corporation.
The filing for records in the office of the county recorder of any county in this state in which any of the real property of the association is located of a copy of the articles of incorporation filed pursuant to this section, certified by the Secretary of State, shall evidence record ownership in the corporation of all interests of the association in and to the real property located in that county.
All rights of creditors and all liens upon the property of the association shall be preserved unimpaired. Any action or proceeding pending by or against the unincorporated association may be prosecuted to judgment, which shall bind the corporation, or the corporation may be proceeded against or substituted in its place.
If a corporation is organized by a person who is or was an officer, director or member of an unincorporated association and such corporation is not organized pursuant to subdivision (a), the unincorporated association may continue to use its name and the corporation may not use a name which is the same as or similar to the name of the unincorporated association.
The Secretary of State shall not file articles setting forth a name in which “bank,” “trust,” “trustee,” or related words appear, unless the certificate of approval of the Commissioner of Financial Protection and Innovation is attached thereto.
The name of a corporation shall not be a name that the Secretary of State determines is likely to mislead the public and shall be distinguishable in the records of the Secretary of State from all of the following:
The name of any corporation.
The name of any foreign corporation authorized to transact intrastate business in this state.
Each name that is under reservation pursuant to this title.
The name of a foreign corporation that has registered its name pursuant to Section 2101.
An alternate name of a foreign corporation under subdivision (b) of Section 2106.
A name that will become the record name of a domestic or foreign corporation upon a corporate instrument when there is a delayed effective or file date.
The use by a corporation of a name in violation of this section may be enjoined notwithstanding the filing of its articles by the Secretary of State.
Any applicant may, upon payment of the fee prescribed therefor in the Government Code, obtain from the Secretary of State a certificate of reservation of any name not prohibited by subdivision (b), and upon the issuance of the certificate the name stated therein shall be reserved for a period of 60 days. The Secretary of State shall not, however, issue certificates reserving the same name for two or more consecutive 60-day periods to the same applicant or for the use or benefit of the same person; nor shall consecutive reservations be made by or for the use or benefit of the same person of names so similar as to fall within the prohibitions of subdivision (b).
ARTICLE 3. Articles of Incorporation [9130. - 9134.]
The articles of incorporation of a corporation formed under this part shall set forth:
The name of the corporation.
The following statement:“This corporation is a religious corporation and is not organized for the private gain of any person. It is organized under the Nonprofit Religious Corporation Law (primarily or exclusively [insert one or both]) for religious purposes.” [The articles may include a further description of the corporation’s purpose.]
The initial street address of the corporation.
The initial mailing address of the corporation, if different from the initial street address.
The articles of incorporation may set forth a further statement limiting the purposes or powers of the corporation.
The articles of incorporation may set forth any or all of the following provisions, which shall not be effective unless expressly provided in the articles:
A provision limiting the duration of the corporation’s existence to a specified date.
In the case of a subordinate corporation instituted or created under the authority of a head organization, a provision setting forth either or both of the following:
That the subordinate corporation shall dissolve whenever its charter is surrendered to, taken away by, or revoked by the head organization granting it.
That in the event of its dissolution pursuant to an article provision allowed by subparagraph (A) or in the event of its dissolution for any reason, any assets of the corporation after compliance with the applicable provisions of Chapters 16 (commencing with Section 6610) and 17 (commencing with Section 6710) (made applicable pursuant to Section 9680) shall be distributed to the head organization.
Nothing contained in subdivision (a) shall affect the enforceability, as between the parties thereto, of any lawful agreement not otherwise contrary to public policy.
The articles of incorporation may set forth any or all of the following provisions:
The names and addresses of the persons appointed to act as initial directors.
The classes of members, if any, and if there are two or more classes, the rights, privileges, preferences, restrictions and conditions attaching to each class.
A provision which would allow any member to have more or less than one vote in any election or other matter presented to the members for a vote.
A provision that requires an amendment to the articles or to the bylaws, and any amendment or repeal of that amendment, to be approved in writing by a specified person or persons other than the board or the members. However, this approval requirement, unless the articles or the bylaws specify otherwise, shall not apply if any of the following circumstances exist:
The specified person or persons have died or ceased to exist.
If the right of the specified person or persons to approve is in the capacity of an officer, trustee, or other status and the office, trust, or status has ceased to exist.
If the corporation has a specific proposal for amendment or repeal, and the corporation has provided written notice of that proposal, including a copy of the proposal, to the specified person or persons at the most recent address for each of them, based on the corporation’s records, and the corporation has not received written approval or nonapproval within the period specified in the notice, which shall not be less than 10 nor more than 30 days commencing at least 20 days after the notice has been provided.
Any other provision, not in conflict with law, for the management of the activities and for the conduct of the affairs of the corporation, including any provision which is required or permitted by this part to be stated in the bylaws.
For all purposes other than an action in the nature of quo warranto, a copy of the articles of a corporation duly certified by the Secretary of State is conclusive evidence of the formation of the corporation and prima facie evidence of its corporate existence.
If initial directors have not been named in the articles, the incorporator or incorporators, until the directors are elected, may do whatever is necessary and proper to perfect the organization of the corporation, including the adoption and amendment of bylaws of the corporation and the election of directors and officers.
ARTICLE 4. Powers [9140. - 9143.]
Subject to any limitations contained in the articles or bylaws and to compliance with other provisions of this division and any other applicable laws, a corporation, in carrying out its activities, shall have all of the powers of a natural person, including, without limitation, the power to:
Adopt, use, and at will alter a corporate seal, but failure to affix a seal does not affect the validity of any instrument.
Adopt, amend, and repeal bylaws.
Qualify to conduct its activities in any other state, territory, dependency, or foreign country.
Issue, purchase, redeem, receive, take or otherwise acquire, own, sell, lend, exchange, transfer or otherwise dispose of, pledge, use, and otherwise deal in and with its own bonds, debentures, notes, and debt securities.
Issue memberships.
Pay pensions, and establish and carry out pension, deferred compensation, saving, thrift, and other retirement, incentive, and benefit plans, trusts, and provisions for any or all of its directors, officers, employees, and persons providing services to it or any of its subsidiary or related or associated corporations, and to indemnify and purchase and maintain insurance on behalf of any fiduciary of such plans, trusts, or provisions.
Levy dues, assessments, and fees.
Make donations for the public welfare or for community funds, hospital, charitable, educational, scientific, civic, religious, or similar purposes.
Assume obligations, enter into contracts, including contracts of guarantee or suretyship, incur liabilities, borrow or lend money or otherwise use its credit, and secure any of its obligations, contracts, or liabilities by mortgage, pledge, or other encumbrance of all or any part of its property and income.
Participate with others in any partnership, joint venture, or other association, transaction, or arrangement of any kind whether or not such participation involves sharing or delegation of control with or to others.
Act as trustee under any trust incidental to the principal objects of the corporation, and receive, hold, administer, exchange, and expend funds and property subject to such trust.
Carry on a business at a profit and apply any profit that results from the business activity to any activity in which it may lawfully engage.
Pay the reasonable value of services rendered in this state to the corporation before January 1, 1975, and not previously paid, by any person who performed such services on a full-time basis under the direction of a religious organization in connection with the religious tenets of the organization. Such person shall have relied solely on the religious organization for their financial support for a minimum of five years. A payment shall not be made if such person or religious organization waives the payment or receipt of compensation for such services in writing. Payment may be made to such religious organization to reimburse it for maintenance of any person who rendered such services and to assist it in providing future support and maintenance; however, payment shall not be made from any funds or assets acquired with funds donated by or traceable to gifts made to the corporation by any person, organization, or governmental agency other than the members, immediate families of members, and affiliated religious organizations of the religious organization under whose direction the services were performed.
In anticipation of or during an emergency, take either or both of the following actions necessary to conduct the corporation’s business operations and affairs, unless emergency bylaws provide otherwise pursuant to subdivision (g) of Section 9151:
Modify lines of succession to accommodate the incapacity of any director, officer, employee, or agent resulting from the emergency.
Relocate the principal office, designate alternative principal offices or regional offices, or authorize the officers to do so.
During an emergency, take either or both of the following actions necessary to conduct the corporation’s business operations and affairs, unless emergency bylaws provide otherwise pursuant to subdivision (g) of Section 9151:
Give notice to a director or directors in any practicable manner under the circumstances, including, but not limited to, by publication and radio, when notice of a meeting of the board cannot be given to that director or directors in the manner prescribed by the bylaws or Section 9211.
Deem that one or more officers of the corporation present at a board meeting is a director, in order of rank and within the same rank in order of seniority, as necessary to achieve a quorum for that meeting.
In anticipation of or during an emergency, the board may take any action that it determines to be necessary or appropriate to respond to the emergency, mitigate the effects of the emergency, or comply with lawful federal and state government orders, but shall not take any action that requires the vote of the members, unless the required vote of the members was obtained prior to the emergency.
Any actions taken in good faith in anticipation of or during an emergency under this subdivision bind the corporation and shall not be used to impose liability on a corporate director, officer, employee, or agent.
For purposes of this subdivision, “emergency” means any of the following events or circumstances as a result of which, and only so long as, a quorum of the corporation’s board of directors cannot be readily convened for action:
A natural catastrophe, including, but not limited to, a hurricane, tornado, storm, high water, wind-driven water, tidal wave, tsunami, earthquake, volcanic eruption, landslide, mudslide, snowstorm, drought, epidemic, pandemic, or disease outbreak, or, regardless of cause, any fire, flood, or explosion.
An attack on or within this state or on the public security of its residents by an enemy of this state or on the nation by an enemy of the United States of America, or upon receipt by this state of a warning from the federal government indicating that any such enemy attack is probable or imminent.
An act of terrorism or other manmade disaster that results in extraordinary levels of casualties or damage or disruption severely affecting the infrastructure, environment, economy, government functions, or population, including, but not limited to, mass evacuations.
A state of emergency proclaimed by the Governor of this state, including any person serving as Governor in accordance with Section 10 of Article V of the California Constitution and Section 12058 of the Government Code or by the President of the United States of America.
Subject to Section 9142:
No limitation upon the activities, purposes, or powers of the corporation or upon the powers of the members, officers, or directors, or the manner of exercise of such powers, contained in or implied by the articles or by Chapters 16 (commencing with Section 6610), and 17 (commencing with Section 6710) (made applicable pursuant to Section 9680) shall be asserted as between the corporation or member, officer or director and any third person, except in a proceeding: (1) by the authorized number of members (Section 5036), by any person authorized by the articles or bylaws to bring an action, or by the state to enjoin the doing or continuation of unauthorized activities by the corporation or its officers, or both, in cases where third parties have not acquired rights thereby, or (2) by the authorized number of members (Section 5036), by any person authorized by the articles or bylaws to bring an action, by any member suing in a representative suit, or by the corporation, against the officers or directors of the corporation for violation of their authority.
Any contract or conveyance made in the name of a corporation which is authorized or ratified by the board or is done within the scope of authority, actual or apparent, conferred by the board or within the agency power of the officer executing it, except as the board’s authority is limited by law other than this part, binds the corporation, and the corporation acquires rights thereunder whether the contract is executed or wholly or in part executory.
Notwithstanding Section 9141, any of the following may bring an action to enjoin, correct, obtain damages for or to otherwise remedy a breach of a trust under which any or all of the assets of a corporation are held:
The corporation, a member, or a former member asserting the right in the name of the corporation, provided that for the purpose of this paragraph the provisions of Section 5710 shall apply to such action.
An officer of the corporation.
A director of the corporation.
A person with a reversionary, contractual, or property interest in the assets subject to such trust.
In an action under this section, the court may not rescind or enjoin the performance of a contract unless:
All of the parties to the contract are parties to the action;
No party to the contract has, in good faith and without actual notice of the restriction, parted with value under the contract or in reliance upon it; and
It is equitable to do so.
No assets of a religious corporation are or shall be deemed to be impressed with any trust, express or implied, statutory or at common law unless one of the following applies:
Trusts created by paragraph (2) of subdivision (c) may be amended or dissolved by amendment from time to time to the articles, bylaws, or governing instruments creating the trusts. However, nothing in this subdivision shall be construed to permit the amendment of the articles to delete or to amend provisions required by Section 214.01 of the Revenue and Taxation Code to a greater extent than otherwise allowable by law.
Notwithstanding any other provision of this part to the contrary, when property, received by a corporation, covered by this part from a person directly affiliated with that corporation has been contributed based upon an affirmative representation that it would be used for a specific purpose other than the general support of the corporation’s activities and has been used in a manner contrary to the specific purpose for which the property was contributed, an action may be brought by the contributor or by any person listed in paragraph (1), (2), or (3) of subdivision (a) of Section 9142, if that person, before bringing an action, notifies the corporation, in writing, that an action will be brought unless the corporation takes immediate steps to correct any improper diversion of funds.
In the event that it becomes impractical or impossible for the corporation to devote the property to the specific purpose for which it was contributed, or that the directors or members of the corporation in good faith expressly conclude and record in writing that the stated purpose for which the property was contributed is no longer in accord with the policies or best interests of the corporation, the directors or members of the corporation may, in good faith, approve or ratify the use of the property for the general purposes of the corporation rather than for the specific purpose for which it was contributed.
A public officer may not bring an action in an official capacity under this section even on behalf of a private person.
ARTICLE 5. Bylaws [9150. - 9153.]
“Bylaws,” as used in this part means the code or codes of rules used, adopted, or recognized for the regulation or management of the affairs of the corporation irrespective of the name or names by which such rules are designated.
Bylaws may be adopted, amended or repealed as provided in the articles or bylaws and absent any provision, bylaws may be adopted, amended or repealed by approval of the members (Section 5034) or the board, except as provided in subdivision (c). The articles or bylaws may restrict or eliminate the power of the board to adopt, amend or repeal any or all bylaws subject to subdivision (e) of Section 9151.
Subject to any provision in the articles or bylaws, the power of the board to adopt, amend or repeal bylaws is subject to the powers of members set forth in Section 9151.
The bylaws shall set forth (unless such provision is contained in the articles, in which case it may only be changed by an amendment of the articles) the number of directors of the corporation, or the method of determining the number of directors of the corporation, or that the number of directors shall be not less than a stated minimum nor more than a stated maximum with the exact number of directors to be fixed, within the limits specified, by approval of the board or the members (Section 5034), in the manner provided in the bylaws, subject to subdivision (e) of Section 9151. The number or minimum number of directors may be one or more.
Except as otherwise provided in the articles or bylaws, once members have been admitted, a bylaw specifying or changing a fixed number of directors or the maximum or minimum number or changing from a fixed to a variable board or vice versa may only be adopted by approval of the members (Section 5034).
The bylaws may contain any provision, not in conflict with law or the articles, for the management of the activities and for the conduct of the affairs of the corporation, including, but not limited to:
Any provision referred to in subdivision (c) of Section 9132.
The time, place, and manner of calling, conducting, and giving notice of members’, directors’, and committee meetings, or of conducting mail ballots.
The qualifications, duties, and compensation of directors; the time of their election; and the requirements of a quorum for directors’ and committee meetings.
The appointment of committees, composed of directors or nondirectors, or both, by the board or any officer and the authority of any such committees.
The appointment, duties, compensation, and tenure of officers.
The mode of determination of members of record.
The making of reports and financial statements to members.
Setting, imposing, and collecting dues, assessments, and admissions and transfer fees.
The bylaws may provide for the manner of admission, withdrawal, suspension, and expulsion of members.
The bylaws may require, for any or all corporate actions (except as provided in Section 9222 and subdivision (b) of Section 9680), the vote of a larger proportion of, or all of, the members or the members of any class, unit, or grouping of members, or the vote of a larger proportion of, or all of, the directors than is otherwise required by this part. Such a provision in the bylaws requiring such greater vote shall not be altered, amended, or repealed except by such greater vote, unless otherwise provided in the bylaws.
The bylaws may contain a provision limiting the number of members, in total or of any class, which the corporation is authorized to admit.
The bylaws may contain any provision, not in conflict with the articles, to manage and conduct the business affairs of the corporation effective only in an emergency as defined in Section 9140, including, but not limited to, procedures for calling a board meeting, quorum requirements for a board meeting, and designation of additional or substitute directors.
During an emergency, the board may take any action that it determines to be necessary or appropriate to respond to the emergency, mitigate the effects of the emergency, or comply with lawful federal and state government orders, but shall not take any action that requires the vote of the members, unless the required vote of the members was obtained prior to the emergency.
All provisions of the regular bylaws consistent with the emergency bylaws shall remain effective during the emergency, and the emergency bylaws shall not be effective after the emergency ends.
Corporate action taken in good faith in accordance with the emergency bylaws binds the corporation, and shall not be used to impose liability on a corporate director, officer, employee, or agent.
Any corporation may provide in its bylaws for delegates having some or all of the authority of members. Where delegates are provided for, the bylaws shall set forth delegates’ terms of office, any reasonable method for delegates’ selection and removal, and any reasonable method for calling, noticing, and holding meetings of delegates, may set forth the manner in which delegates may act by written ballot similar to Section 9413 for written ballot of members, and may set forth the manner in which delegates may participate in meetings of delegates similar to paragraph (6) of subdivision (a) of Section 9211. Each delegate shall have one vote on each matter presented for action. A delegate shall not vote by proxy. Delegates may be given a name other than “delegates.”
A corporation may provide in its bylaws for voting by its members or delegates on the basis of chapter or other organizational unit, or by region or other geographic grouping.
ARTICLE 6. Location and Inspection of Articles and Bylaws [9160. - 9160.]
Every corporation shall keep at its principal office in this state the original or a copy of its articles and bylaws as amended to date, which shall be open to inspection by the members at all reasonable times during office hours. If the corporation has no office in this state, it shall upon the written request of any member furnish to such member a copy of the articles or bylaws as amended to date.
CHAPTER 2. Directors and Management [9210. - 9260.]
ARTICLE 1. General Provisions [9210. - 9215.]
Subject to the provisions of this part and any provision in the articles or bylaws:
Each corporation shall have a board of directors. The activities and affairs of a corporation shall be conducted and all corporate powers shall be exercised by or under the direction of the board.
The board may delegate the management of the activities of the corporation to any person or persons provided that the activities and affairs of the corporation shall be managed and all corporate powers shall be exercised under the ultimate direction of the board.
Unless otherwise provided in the articles or in the bylaws, all of the following apply:
Meetings of the board may be called by the chair of the board or the president or any vice president or the secretary or any two directors.
Regular meetings of the board may be held without notice if the time and place of the meetings are fixed by the bylaws or the board. Special meetings of the board shall be held upon four days’ notice by first-class mail or 48 hours’ notice delivered personally or by telephone, including a voice messaging system or by electronic transmission by a corporation (Section 20). The articles or bylaws may not dispense with notice of a special meeting. A notice, or waiver of notice, need not specify the purpose of any regular or special meeting of the board.
Notice of a meeting need not be given to a director who provided a waiver of notice or consent to holding the meeting or an approval of the minutes thereof in writing, whether before or after the meeting, or who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to that director. These waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meetings.
A majority of the directors present, whether or not a quorum is present, may adjourn any meeting to another time and place.
Meetings of the board may be held at a place within or without the state that has been designated in the notice of the meeting or, if not stated in the notice or there is no notice, designated in the bylaws or by resolution of the board.
Directors may participate in a meeting through use of conference telephone, electronic video screen communication, or electronic transmission by and to the corporation. Participation in a meeting through use of conference telephone or electronic video screen communication pursuant to this subdivision constitutes presence in person at that meeting as long as all directors participating in the meeting are able to hear one another. Participation in a meeting through use of electronic transmission by and to the corporation, other than conference telephone and electronic video screen communication pursuant to this subdivision constitutes presence in person at that meeting, if both of the following apply:
Each director participating in the meeting can communicate with all of the other directors concurrently.
Each director is provided the means of participating in all matters before the board, including, without limitation, the capacity to propose, or to interpose an objection to, a specific action to be taken by the corporation.
A majority of the number of directors authorized in or pursuant to the articles or bylaws constitutes a quorum of the board for the transaction of business.
The articles or bylaws may require the presence of one or more specified directors in order to constitute a quorum of the board to transact business, as long as the death or nonexistence of a specified director or the death or nonexistence of the person or persons otherwise authorized to appoint or designate that director does not prevent the corporation from transacting business in the normal course of events.
An act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present is the act of the board. The articles or bylaws may not provide that a lesser vote than a majority of the directors present at a meeting is the act of the board. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors if any action taken is approved by at least a majority of the required quorum for that meeting, or a greater number required by this division, the articles or the bylaws.
An action required or permitted to be taken by the board may be taken without a meeting if all directors shall individually or collectively consent in writing to that action and if, subject to subdivision (a) of Section 9224, the number of directors then in office constitutes a quorum. The written consent or consents shall be filed with the minutes of the proceedings of the board. The action by written consent shall have the same force and effect as a unanimous vote of the directors. For purposes of this subdivision only, “all directors” does not include an “interested director” as defined in subdivision (a) of Section 9243 or a “common director” as described in subdivision (a) of Section 9244 who abstains in writing from providing consent, where (1) the facts described in paragraph (2) or (3) of subdivision (d) of Section 9243 are established or the provisions of paragraph (1) of subdivision (a) of Section 9244 are satisfied, as appropriate, at or prior to execution of the written consent or consents; (2) the establishment of those facts or satisfaction of those provisions, as applicable, is included in the written consent or consents executed by the noninterested or noncommon directors or in other records of the corporation; and (3) the noninterested directors or noncommon directors, as applicable, approve the action by a vote that is sufficient without counting the votes of the interested directors or common directors.
Each director shall have one vote on each matter presented to the board of directors for action. A director shall not vote by proxy.
This section applies also to incorporators, to committees of the board, and to action by those incorporators or committees mutatis mutandis.
Subject to any provision in the articles or bylaws: (i) the board may, by resolution adopted by a majority of the number of directors then in office, provided that a quorum is present, create one or more committees, each consisting of two or more directors, to serve at the pleasure of the board; and (ii) appointments to such committees shall be by a majority vote of the directors then in office. The bylaws may authorize one or more such committees, each consisting of two or more directors, and may provide that a specified officer or officers who are also directors of the corporation shall be a member or members of such committee or committees. The board may appoint one or more directors as alternate members of such committee, who may replace any absent member at any meeting of the committee. Such committee, to the extent provided in the resolution of the board or in the bylaws, shall have all the authority of the board, except with respect to:
The filling of vacancies on the board or in any committee which has the authority of the board.
The fixing of compensation of the directors for serving on the board or on any committee.
The amendment or repeal of bylaws or the adoption of new bylaws.
The amendment or repeal of any resolution of the board which by its express terms is not so amendable or repealable.
The appointment of committees of the board or the members thereof.
A committee exercising the authority of the board shall not include as members persons who are not directors. However, the board may create other committees that do not exercise the authority of the board and these other committees may include persons regardless of whether they are directors.
Unless the bylaws otherwise provide, the board may delegate to any committee powers as authorized by Section 9210, but may not delegate the powers set forth in paragraphs (1) to (6), inclusive, of subdivision (a).
The board shall take the actions regarding audit committees that are required by subdivision (e) of Section 12586 of the Government Code, if applicable.
A corporation shall have (1) a chair of the board, who may be given the title chair, chairperson, chair of the board, or chairperson of the board, or a president or both, (2) a secretary, (3) a treasurer or a chief financial officer or both and (4) any other officers with any titles and duties as are stated in the bylaws or determined by the board and as may be necessary to enable it to sign instruments. The president, or if there is no president, the chair of the board, is the general manager and chief executive officer of the corporation, unless otherwise provided in the articles or bylaws. Unless otherwise specified in the articles or the bylaws, if there is no chief financial officer, the treasurer is the chief financial officer of the corporation. Any number of offices may be held by the same person unless the articles or bylaws provide otherwise, except that no person serving as the secretary, the treasurer, or the chief financial officer may serve concurrently as the president or chair of the board. Any compensation of the president or chief executive officer and the chief financial officer or treasurer shall be determined in accordance with subdivision (g) of Section 12586 of the Government Code, if applicable.
Except as otherwise provided by the articles or bylaws, officers shall be chosen by the board and serve at the pleasure of the board, subject to the rights, if any, of an officer under any contract of employment. Any officer may resign at any time upon written notice to the corporation without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party.
Subject to the provisions of subdivision (a) of Section 9141 and Section 9142, any note, mortgage, evidence of indebtedness, contract, conveyance or other instrument in writing, and any assignment or endorsement thereof, executed or entered into between any corporation and any other person, when signed by any one of the chairperson of the board, the president, or any vice president and by any one of the secretary, any assistant secretary, the chief financial officer, or any assistant treasurer of such corporation, is not invalidated as to the corporation by any lack of authority of the signing officers in the absence of actual knowledge on the part of the other person that the signing officers had no authority to execute the same.
The original or a copy in writing or in any other form capable of being converted into clearly legible tangible form of the bylaws or of the minutes of any incorporators’, members’, directors’, committee or other meeting or of any resolution adopted by the board or a committee thereof, or members, certified to be a true copy by a person purporting to be the secretary or an assistant secretary of the corporation, is prima facie evidence of the adoption of such bylaws or resolution or of the due holding of such meeting and of the matters stated therein.
ARTICLE 2. Selection, Removal and Resignation of Directors [9220. - 9226.]
The articles or bylaws may provide for the tenure, election, selection, designation, removal, and resignation of directors.
In the absence of any provision in the articles or bylaws, the term of directors shall be one year.
Unless the articles or bylaws otherwise provide, each director, including a director elected to fill a vacancy, shall hold office until the expiration of the term for which elected and until a successor has been elected and qualified, unless the director has been removed from office.
If a corporation has not issued memberships and (1) all the directors resign, die, or become incompetent, or (2) a corporation’s initial directors have not been named in the articles and all incorporators resign, die, or become incompetent before the election of the initial directors, the superior court of any county may appoint directors of the corporation upon application by any party in interest.
If authorized in the articles or bylaws of a corporation, all or any portion of the directors may hold office ex officio by virtue of occupying a specified position within the corporation or outside the corporation. The term of office of an ex officio director shall coincide with that director’s respective term of office in the specified position entitling him or her to serve on the board of directors. Upon an ex officio director’s resignation or removal from that position, or resignation or removal from the board for any reason, the term of office as a director of the corporation shall immediately cease. At that time, the successor in office shall become an ex officio director of the corporation, occupying the place of the former director.
The board may declare vacant the office of a director who has been declared of unsound mind by a final order of court, or convicted of a felony, or, if at the time a director is elected, the bylaws provide that a director may be removed for missing a specified number of board meetings, fails to attend the specified number of meetings.
As provided in paragraph (3) of subdivision (c) of Section 9151, the articles or bylaws may prescribe the qualifications of the directors. Unless otherwise provided by the articles or bylaws, the board, by a majority vote of the directors who meet all of the required qualifications to be a director, may declare vacant the office of any director who fails or ceases to meet any required qualification that was in effect at the beginning of that director’s current term of office.
Except as provided in the articles or bylaws and subject to subdivision (b) of this section, any or all directors may be removed without cause if the removal is approved by the members (Section 5034).
Except for a corporation having no members pursuant to Section 9310:
When by the provisions of the articles or bylaws the members of any class, voting as a class, are entitled to elect one or more directors, any director so elected may be removed only by the applicable vote of the members of that class.
When by the provisions of the articles or bylaws the members within a chapter or other organizational unit, or region or other geographic grouping, voting as such, are entitled to elect one or more directors, any director so elected may be removed only by the applicable vote of the members within the organizational unit or geographic grouping.
Any reduction of the authorized number of directors or any amendment reducing the number of classes of directors does not remove any director prior to the expiration of the director’s term of office, unless the reduction or the amendment also provides for the removal of one or more specified directors.
The superior court of the proper county may, at the suit of a director, or twice the authorized number (Section 5036) of members, remove from office any director in case of fraudulent acts and may bar from reelection any director so removed for a period prescribed by the court. The corporation shall be made a party to such action.
The Attorney General may bring an action under subdivision (a), may intervene in such an action brought by any other party and shall be given notice of any such action brought by any other party.
Unless otherwise provided in the articles or bylaws and except for a vacancy created by the removal of a director by the members, vacancies on the board may be filled by approval of the board (Section 5032) or, if the number of directors then in office is less than a quorum, by (1) the unanimous written consent of the directors then in office, (2) the affirmative vote of a majority of the directors then in office at a meeting held pursuant to notice or waivers of notice complying with Section 9211, or (3) a sole remaining director.
Subject to any provision in the articles or bylaws, the members may elect a director at any time to fill any vacancy not filled by the directors.
Any director may resign effective upon giving written notice to the chairperson of the board, the president, the secretary or the board of directors of the corporation, unless the notice specifies a later time for the effectiveness of such resignation. If the resignation is effective at a future time, a successor may be elected to take office when the resignation becomes effective.
No director may resign where the corporation would then be left without a duly elected director or directors in charge of its affairs.
ARTICLE 3. Examination by Attorney General [9230. - 9230.]
Except as the Attorney General is empowered to act in the enforcement of the criminal laws of this state, and except as the Attorney General is expressly empowered by subdivisions (b), (c) and (d), the Attorney General shall have no powers with respect to any corporation incorporated or classified as a religious corporation under or pursuant to this code.
The Attorney General shall have authority to institute an action or proceeding under Section 803 of the Code of Civil Procedure, to obtain judicial determination that a corporation is not properly qualified or classified as a religious corporation under the provisions of this part.
The Attorney General shall have the authority (1) expressly granted with respect to any subject or matter covered by Sections 9660 to 9690, inclusive; (2) to initiate criminal procedures to prosecute violations of the criminal laws, and upon conviction seek restitution as punishment; and (3) to represent as legal counsel any other agency or department of the State of California expressly empowered to act with respect to the status of religious corporations, or expressly empowered to regulate activities in which religious corporations, as well as other entities, may engage.
Where property has been solicited and received from the general public, based on a representation that it would be used for a specific charitable purpose other than general support of the corporation’s activities, and has been used in a manner contrary to that specific charitable purpose for which the property was solicited, the Attorney General may institute an action to enforce the specific charitable purpose for which the property was solicited; provided (1) that before bringing such action the Attorney General shall notify the corporation that an action will be brought unless the corporation takes immediate steps to correct the improper diversion of funds, and (2) that in the event it becomes impractical or impossible for the corporation to devote the property to the specified charitable purpose, or that the directors or members of the corporation in good faith expressly conclude and record in writing that the stated purpose for which the property was contributed is no longer in accord with the policies of the corporation, then the directors or members of the corporation may approve or ratify in good faith the use of such property for the general purposes of the corporation rather than for the specific purpose for which it was contributed.
As used in this section, “solicited from the general public” means solicitations directed to the general public, or to any individual or group of individuals who are not directly affiliated with the soliciting organization and includes, but is not limited to, instances where property has been solicited on an individual basis, such as door to door, direct mail, face to face, or similar solicitations, as well as solicitations on a more general level to the general public, or a portion thereof, such as through the media, including newspapers, television, radio, or similar solicitations.
Nothing in this section shall be construed to affect any individual rights of action which were accorded under law in existence prior to the enactment of Chapter 1324 of the Statutes of 1980.
As used in this section, “individual rights of action” include only rights enforceable by private individuals and do not include any right of action of a public officer in an official capacity regardless of whether the officer brings the action on behalf of a private individual.
Nothing in this section shall be construed to require express statutory authorization by the California Legislature of any otherwise lawful and duly authorized action by any agency of local government.
ARTICLE 4. Standards of Conduct [9240. - 9247.]
Any duties and liabilities set forth in this article shall apply without regard to whether a director is compensated by the corporation.
Part 4 (commencing with Section 16000) of Division 9 of the Probate Code does not apply to the directors of any corporation.
A director, in making a good faith determination, may consider what the director believes to be:
The religious purposes of the corporation; and
Applicable religious tenets, canons, laws, policies, and authority.
A director shall perform the duties of a director, including duties as a member of any committee of the board upon which the director may serve, in good faith, in a manner such director believes to be in the best interests of the corporation and with such care, including reasonable inquiry, as is appropriate under the circumstances.
In performing the duties of a director, a director shall be entitled to rely on information, opinions, reports, or statements, including financial statements and other financial data, in each case prepared or presented by:
One or more officers or employees of the corporation whom the director believes to be reliable and competent in the matters presented;
Counsel, independent accountants, or other persons as to matters which the director believes to be within that person’s professional or expert competence;
A committee upon which the director does not serve that is composed exclusively of any or any combination of directors, persons described in paragraph (1), or persons described in paragraph (2), as to matters within the committee’s designated authority, which committee the director believes to merit confidence; or
Religious authorities and ministers, priests, rabbis, or other persons whose position or duties in the religious organization the director believes justify reliance and confidence and whom the director believes to be reliable and competent in the matters presented, so long as, in any case, the director acts in good faith, after reasonable inquiry when the need therefor is indicated by the circumstances, and without knowledge that would cause that reliance to be unwarranted.
The provisions of this section, and not Section 9243, shall govern any action or omission of a director in regard to the compensation of directors, as directors or officers, or any loan of money or property to or guaranty of the obligation of any director or officer. No obligation, otherwise valid, shall be voidable merely because directors who benefited by a board resolution to pay such compensation or to make such loan or guaranty participated in making such board resolution.
Except as provided in Section 9243, a person who performs the duties of a director in accordance with subdivisions (a) and (b) shall have no liability based upon any alleged failure to discharge his or her obligations as a director, including, without limiting the generality of the foregoing, any actions or omissions which exceed or defeat any purpose to which the corporation, or assets held by it, may be dedicated.
Section 9241 governs the duties of directors as to any acts or omissions in connection with the election, selection, or nomination of directors.
This section shall not be construed to limit the provisions of Section 9241.
Except as provided in subdivision (b), for the purpose of this section, a self-dealing transaction means a transaction to which the corporation is a party and in which one or more of its directors has a material financial interest and which does not meet the requirements of paragraph (1), (2), (3), or (4) of subdivision (d). Such a director is an “interested director” for the purpose of this section.
This section does not apply to any of the following:
An action of the board fixing the compensation of a director as a director or officer of the corporation or making any loan of money or property to, or guaranteeing the obligation of, any director or officer.
A transaction which is part of a public, charitable or religious program of the corporation if it (A) is approved or authorized by the corporation in good faith and without unjustified favoritism, and (B) results in a benefit to one or more directors or their families because they are in the class of persons intended to be benefited by the public, charitable or religious program.
A transaction, of which the interested director or directors have no actual knowledge, and which does not exceed the lesser of 1 percent of the gross receipts of the corporation for the preceding fiscal year or one hundred thousand dollars ($100,000).
Any of the following may bring an action in the superior court of the proper county for the remedies specified in subdivision (h):
Any person authorized by the bylaws to bring an action.
In any action brought under subdivision (c) the remedies specified in subdivision (h) shall not be granted if:
The corporation entered into the transaction for its own benefit or for the benefit of the religious organization;
The transaction was fair and reasonable as to the corporation or was in furtherance of its religious purposes at the time the corporation entered into the transaction;
Prior to consummating the transaction or any part thereof, the board authorized or approved the transaction in good faith by a vote of a majority of the directors then in office without counting the vote of the interested director or directors, and with knowledge of the material facts concerning the transaction and the director’s interest in the transaction. Except as provided in paragraph (4), action by a committee of the board shall not satisfy this paragraph; and
Prior to authorizing or approving the transaction, the board considered and in good faith determined after reasonable investigation under the circumstances that either the corporation could not have obtained a more advantageous arrangement with reasonable effort under the circumstances or the transaction was in furtherance of the corporation’s religious purposes or (ii) in fact, either the corporation could not have obtained a more advantageous arrangement with reasonable effort under the circumstances or the transaction was in furtherance of the corporation’s religious purposes; or
A committee or person authorized by the board approved the transaction in a manner consistent with the standards set forth in paragraph (3).
It was not reasonably practicable to obtain approval of the board prior to entering into the transaction; and
The board, after determining in good faith that the conditions of subparagraphs (A) and (B) were satisfied, ratified the transaction at its next meeting by a vote of the majority of the directors then in office without counting the vote of the interested director or directors.
Except as provided in subdivision (f), an action under subdivision (c) or Section 9230 shall be commenced within two years after written notice setting forth the material facts of the transaction is filed with the Attorney General in accordance with such regulations, if any, as the Attorney General may adopt or if no such notice is filed, five years after the cause of action has accrued.
In any action for breach of an obligation of the corporation owed to an interested director, where the obligation arises from a self-dealing transaction which has not been approved as provided in subdivision (d), the court may, by way of offset only, make any order authorized by subdivision (h), notwithstanding the expiration of the applicable period specified in subdivision (e).
Interested directors may be counted in determining the presence of a quorum at a meeting of the board which authorizes, approves or ratifies a contract or transaction.
If a self-dealing transaction has taken place, the interested director or directors shall do such things and pay such damages as in the discretion of the court will provide an equitable and fair remedy to the corporation, taking into account any benefit received by the corporation and whether the interested director or directors acted in good faith and with intent to further the best interest of the corporation. Without limiting the generality of the foregoing, the court may order the director to do any or all of the following:
Account for any profits made from the transaction, and pay them to the corporation.
Pay the corporation the value of the use of any of its property used in the transactions.
Return or replace any property lost to the corporation as a result of the transaction, together with any income or appreciation lost to the corporation by reason of the transaction, or account for any proceeds of sale of the property, and pay the proceeds to the corporation together with interest at the legal rate.
The court may award prejudgment interest to the extent allowed in Sections 3287 and 3288 of the Civil Code. In addition, the court may, in its discretion, grant exemplary damages for a fraudulent or malicious violation of this section.
No contract or other transaction between a corporation and any domestic or foreign corporation, firm or association of which one or more of its directors are directors is either void or voidable because such director or directors are present at the meeting of the board or a committee thereof which authorizes, approves or ratifies the contract or transaction, if:
The material facts as to the transaction and as to such director’s other directorship are fully disclosed or known to the board or committee, and the board or committee authorizes, approves or ratifies the contract or transaction in good faith by a vote sufficient without counting the vote of the common director or directors; or
As to contracts or transactions not approved as provided in paragraph (1) of this subdivision, the contract or transaction is just and reasonable as to the corporation, taking into account its religious purposes, or is in furtherance of its religious purposes at the time it is authorized, approved or ratified.
This section does not apply to transactions covered by Section 9243.
Subject to the provisions of Section 9241, directors of a corporation who approve any of the following corporate actions shall be jointly and severally liable to the corporation for:
The making of any distribution.
The distribution of assets after institution of dissolution proceedings of the corporation, without paying or adequately providing for all known liabilities of the corporation, excluding any claims not filed by creditors within the time limit set by the court in a notice given to creditors under Section 9680 and those sections made applicable to this part by Section 9680.
The making of any loan or guaranty contrary to Section 9241.
Suit may be brought in the name of the corporation to enforce the liability:
Under paragraph (1) of subdivision (a) against any or all directors liable by the persons entitled to sue under subdivision (b) of Section 9610;
Under paragraph (2) or (3) of subdivision (a) against any or all directors liable by any one or more creditors of the corporation whose debts or claims arose prior to the time of the corporate action who have not consented to the corporate action, whether or not they have reduced their claims to judgment.
The damages recoverable from a director under this section shall be the amount of the illegal distribution, or if the illegal distribution consists of property, the fair market value of that property at the time of the illegal distribution, plus interest thereon from the date of the distribution at the legal rate on judgments until paid, together with all reasonably incurred costs of appraisal or other valuation, if any, of that property, or the loss suffered by the corporation as a result of the illegal loan or guaranty.
Any director sued under this section may implead all other directors liable and may compel contribution, either in that action or in an independent action against directors not joined in that action.
Directors liable under this section shall also be entitled to be subrogated to the rights of the corporation as follows:
With respect to paragraph (1) of subdivision (a), against members who received the distribution.
With respect to paragraph (2) of subdivision (a), against the members who received the distribution.
With respect to paragraph (3) of subdivision (a), against the person who received the loan or guaranty.
Any director sued under this section may file a cross-complaint against the person or persons who are liable to the director as a result of the subrogation provided for in this subdivision or may proceed against them in an independent action.
For the purposes of this section, “agent” means any person who is or was a director, officer, employee or other agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust, or other enterprise, or was a director, officer, employee, or agent of a foreign or domestic corporation which was a predecessor corporation of the corporation or of another enterprise at the request of that predecessor corporation; “proceeding” means any threatened, pending, or completed action or proceeding, whether civil, criminal, administrative or investigative; and “expenses” includes without limitation attorneys’ fees and any expenses of establishing a right to indemnification under subdivision (d) or paragraph (3) of subdivision (e).
A corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to any proceeding (other than an action by or in the right of the corporation to procure a judgment in its favor, an action brought under Section 9243, or an action brought by the Attorney General pursuant to Section 9230) by reason of the fact that the person is or was an agent of the corporation, against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with the proceeding if the person acted in good faith and in a manner the person believed to be in the best interests of the corporation and, in the case of a criminal proceeding, had no reasonable cause to believe the conduct of the person was unlawful. The termination of any proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent shall not, of itself, create a presumption that the person did not act in good faith and in a manner which the person believed to be in the best interests of the corporation or that the person had reasonable cause to believe that the person’s conduct was unlawful.
A corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action by or in the right of the corporation, or brought under Section 9243, or brought by the Attorney General pursuant to Section 9230, to procure a judgment in its favor by reason of the fact that the person is or was an agent of the corporation, against expenses actually and reasonably incurred by the person in connection with the defense or settlement of the action if the person acted in good faith, in a manner in which the person believed to be in the best interests of the corporation and with that care, including reasonable inquiry, as an ordinary prudent person in a like position would use under similar circumstances. No indemnification shall be made under this subdivision:
In respect of any claim, issue, or matter as to which the person shall have been adjudged to be liable to the corporation in the performance of the person’s duty to the corporation, unless and only to the extent that the court in which the proceeding is or was pending shall determine upon application that, in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for the expenses which the court shall determine;
Of amounts paid in settling or otherwise disposing of a threatened or pending action, with or without court approval; or
Of expenses incurred in defending a threatened or pending action which is settled or otherwise disposed of without court approval unless it is settled with the approval of the Attorney General.
To the extent that an agent of a corporation has been successful on the merits in defense of any proceeding referred to in subdivision (b) or (c) or in defense of any claim, issue or matter therein, the agent shall be indemnified against expenses actually and reasonably incurred by the agent in connection therewith.
Except as provided in subdivision (d), any indemnification under this section shall be made by the corporation only if authorized in the specific case, upon a determination that indemnification of the agent is proper in the circumstances because the agent has met the applicable standard of conduct set forth in either subdivision (b) or (c) by:
A majority vote of a quorum consisting of directors who are not parties to the proceeding;
Approval of the members (Section 5034), with the persons to be indemnified not being entitled to vote thereon; or
The court in which the proceeding is or was pending upon application made by the corporation or the agent or the attorney or other person rendering services in connection with the defense, whether or not the application by the agent, attorney, or other person is opposed by the corporation.
Expenses incurred in defending any proceeding may be advanced by the corporation prior to the final disposition of the proceeding upon receipt of an undertaking by or on behalf of the agent to repay the amount unless it shall be determined ultimately that the agent is entitled to be indemnified as authorized in this section.
No provision made by a corporation to indemnify its or its subsidiary’s directors or officers for the defense of any proceeding, whether contained in the articles, bylaws, a resolution of members or directors, an agreement or otherwise, shall be valid unless consistent with this section. Nothing contained in this section shall affect any right to indemnification to which persons other than the directors and officers may be entitled by contract or otherwise.
No indemnification or advance shall be made under this section, except as provided in subdivision (d) or paragraph (3) of subdivision (e), in any circumstance where it appears that:
It would be inconsistent with a provision of the articles, bylaws, a resolution of the members or an agreement in effect at the time of the accrual of the alleged cause of action asserted in the proceeding in which the expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification; or
It would be inconsistent with any condition expressly imposed by a court in approving a settlement.
A corporation shall have power to purchase and maintain insurance on behalf of any agent of the corporation against any liability asserted against or incurred by the agent in that capacity or arising out of the agent’s status as such whether or not the corporation would have the power to indemnify the agent against that liability under the provisions of this section; provided, however, that a corporation shall have no power to purchase and maintain insurance to indemnify any agent of the corporation for a violation of Section 9243.
This section does not apply to any proceeding against any trustee, investment manager, or other fiduciary of a pension, deferred compensation, saving, thrift, or other retirement, incentive, or benefit plan, trust, or provision for any or all of the corporation’s directors, officers, employees, and persons providing services to the corporation or any of its subsidiary or related or affiliated corporations, in the person’s capacity as such, even though the person may also be an agent as defined in subdivision (a) of the employer corporation. A corporation shall have power to indemnify the trustee, investment manager or other fiduciary to the extent permitted by subdivision (f) of Section 9140.
There shall be no personal liability for monetary damages to a third party on the part of a volunteer director or volunteer executive officer of a nonprofit corporation subject to this part, caused by the director’s or officer’s negligent act or omission in the performance of that person’s duties as a director or officer, if all of the following conditions are met:
The act or omission was within the scope of the director’s or executive officer’s duties.
The act or omission was performed in good faith.
The act or omission was not reckless, wanton, intentional, or grossly negligent.
Damages caused by the act or omission are covered pursuant to a liability insurance policy issued to the corporation, either in the form of a general liability policy or a director’s or officer’s liability policy, or personally to the director or executive officer. In the event that the damages are not covered by a liability insurance policy, the volunteer director or volunteer executive officer shall not be personally liable for the damages if the board of directors of the corporation and the person had made all reasonable efforts in good faith to obtain available liability insurance.
“Volunteer” means the rendering of services without compensation. “Compensation” means remuneration whether by way of salary, fee, or other consideration for services rendered. However, the payment of per diem, mileage, or other reimbursement expenses to a director or executive officer does not affect that person’s status as a volunteer within the meaning of this section.
“Executive officer” means the president, vice president, secretary, or treasurer of a corporation, or other individual serving in like capacity, who assists in establishing the policy of the corporation.
Nothing in this section shall limit the liability of the corporation for any damages caused by acts or omissions of the volunteer director or volunteer executive officer.
This section does not eliminate or limit the liability of a director or officer for any of the following:
In any action or proceeding brought by the Attorney General.
Nothing in this section creates a duty of care or basis of liability for damage or injury caused by the acts or omissions of a director or officer.
This section is only applicable to causes of action based upon acts or omissions occurring on or after January 1, 1988.
ARTICLE 5. Investments [9250. - 9251.]
In investing, reinvesting, purchasing, acquiring, exchanging, selling, and managing a corporation’s investments, the board shall meet the standards set forth in Section 9241.
Compliance with the Uniform Prudent Management of Institutional Funds Act (Part 7 (commencing with Section 18501) of Division 9 of the Probate Code), if that act would be applicable, will be deemed to be compliance with subdivision (a).
Nothing in Section 9250 shall abrogate or restrict the power of a court in proper cases to direct or permit a corporation to deviate from the terms of a trust or agreement regarding the making or retention of investments.
ARTICLE 6. Compliance with Internal Revenue Code [9260. - 9260.]
Notwithstanding any other law, every corporation, during any period or periods that corporation is deemed to be a “private foundation” as defined in Section 509 of the Internal Revenue Code of 1986, shall be subject to the requirements of Section 5260.
CHAPTER 3. Members [9310. - 9353.]
ARTICLE 1. Issuance of Memberships [9310. - 9313.]
A corporation may admit persons to membership, as provided in its articles or bylaws, or may provide in its articles or bylaws that it shall have no members. In the absence of any provision in its articles or bylaws providing for members, a corporation shall have no members.
Subject to the articles or bylaws, in the case of a corporation which has no members:
All rights which would otherwise vest under this part in the members shall vest in the directors.
Reference in this part to a corporation which has no members includes a corporation in which the directors are the only members.
Subject to the articles or bylaws, memberships may be issued by a corporation for no consideration or for such consideration as is determined by the board.
No person may hold more than one membership, and no fractional memberships may be held, provided, however, that:
Two or more persons may have an indivisible interest in a single membership when authorized by, and in such manner or under the circumstances prescribed by, the articles or bylaws; and
If the articles or bylaws provide for classes of membership in which the differences are not merely the number of votes entitled to be cast by members of the class, and if the articles or bylaws permit a person to be a member of more than one class, a person may hold a membership in one or more classes.
Except as provided in its articles or bylaws, a corporation may admit any person to membership.
ARTICLE 2. Transfer of Memberships [9320. - 9320.]
Subject to Section 9417:
No member may transfer for value a membership or any right arising therefrom; and
Unless otherwise provided in the corporation’s articles or bylaws, all rights of membership cease upon the member’s death or dissolution.
ARTICLE 3. Types of Memberships [9330. - 9332.]
A corporation may issue memberships having different rights, privileges, preferences, restrictions, or conditions, as authorized by its articles or bylaws.
Except as provided in or authorized by the articles or bylaws, all memberships shall have the same rights, privileges, preferences, restrictions, and conditions.
A corporation may refer to persons associated with it as “members” even though such persons are not members within the meaning of Section 5056; but references to members in this part mean members as defined in Section 5056.
A corporation may benefit, serve, or assist persons who are not members within the meaning of Section 5056 for such consideration, if any, as the board may determine or as is authorized or provided for in the articles or bylaws.
ARTICLE 4. Termination of Memberships [9340. - 9340.]
A member may resign from membership at any time.
This section shall not relieve the resigning member from any obligation for charges incurred, services or benefits actually rendered, dues, assessments or fees, or arising from contract or otherwise, and this section shall not diminish any right of the corporation to enforce any such obligation or obtain damages for its breach.
Except as provided in subdivision (b) of Section 9320 or in subdivision (a) of this section, a membership issued for a period of time shall expire when such period of time has elapsed unless the membership is renewed.
A membership may be terminated as provided in the articles or bylaws of the corporation.
ARTICLE 5. Rights and Obligations of Members and Creditors [9350. - 9353.]
A member of a corporation is not, as such, personally liable for the debts, liabilities, or obligations of the corporation.
No person is liable for any obligation arising from membership unless the person was admitted to membership upon the person’s application or with the person’s consent.
A corporation may levy dues, assessments, or fees upon its members pursuant to its articles or bylaws, but a member upon learning of them may avoid liability for them by promptly resigning from membership, except where the member is, by contract or otherwise, liable for them. Article or bylaw provisions authorizing such dues, assessments, or fees do not, of themselves, create such liability.
No action shall be brought by or on behalf of any creditor to reach and apply the liability, if any, of a member to the corporation to pay any amount due to the corporation unless final judgment has been rendered in favor of the creditor against the corporation and execution has been returned unsatisfied in whole or in part or unless such proceedings would be useless.
All creditors of the corporation, with or without reducing their claims to judgment, may intervene in any such creditor’s action to reach and apply unpaid amounts due the corporation and any or all members who owe amounts to the corporation may be joined in such action. Several judgments may be rendered for and against the parties to the action or in favor of a receiver for the benefit of the respective parties thereto.
All amounts paid by any member in any such action shall be credited on the unpaid balance due the corporation by such member.
Nothing in this part shall be construed as in derogation of any rights or remedies which any creditor or member may have against any promoter, member, director, officer or the corporation because of participation in any fraud or illegality practiced upon such creditor or member by any such person or by the corporation in connection with the issue or sale of memberships or securities or in derogation of any rights which the corporation may have by rescission, cancellation or otherwise because of any fraud or illegality practiced on it by any such person in connection with the issue or sale of memberships or securities.
CHAPTER 4. Meetings and Voting [9410. - 9421.]
In the absence of a contrary provision in the articles or bylaws, the provisions of this chapter shall apply to any regular or special meeting of members or obtaining approval of members (Section 5034) or approval of a majority of members (Section 5033). The articles or bylaws may provide any reasonable method of calling, noticing, and holding such meetings or obtaining such approvals.
Subject to the provisions of this chapter, regular and special meetings of members shall be called, noticed, and held as may be ordered by the board. Notwithstanding the foregoing, the notice of a members’ meeting or any report may be sent by electronic communication or other means of remote communication if the board determines it is necessary or appropriate because of an emergency, as defined in paragraph (5) of subdivision (n) of Section 9140. Subject to any limitations in the articles or bylaws of the corporation, if authorized by the board of directors in its sole discretion, and subject to those guidelines and procedures as the board of directors may adopt, members not physically present in person (or, if proxies are allowed, by proxy) at a meeting of members may, by electronic transmission by and to the corporation (Sections 20 and 21), electronic video screen communication, conference telephone, or other means of remote communication, participate in a meeting of members, be deemed present in person (or, if proxies are allowed, by proxy), and vote at a meeting of members, subject to subdivision (f).
Special meetings of members for any lawful purpose may be called by the board or the chairperson of the board or the president. In addition, special meetings of members for any lawful purpose may be called by 5 percent or more of the members.
Upon request in writing to the chairperson of the board, president, vice president, or secretary by any person (other than the board) entitled to call a special meeting of members, the board shall expeditiously set a reasonable time and place for the meeting and the officer forthwith shall cause notice to be given to the members entitled to vote of the time and place of the meeting. If the notice is not given within 20 days after receipt of the request, the persons entitled to call the meeting may give the notice or the superior court of the proper county shall summarily order the giving of the notice, after notice to the corporation giving it an opportunity to be heard. The court may issue such orders as may be appropriate, including, without limitation, orders designating the time and place of the meeting, the record date for determination of members entitled to vote, and the form of notice.
The transactions of any meeting of members, however called and noticed, and wherever held, are as valid as though had at a meeting duly held after regular call and notice, if a quorum is present either in person (or, if proxies are allowed, by proxy), and if, either before or after the meeting, each of the persons entitled to vote, not present in person or by proxy, signs a written waiver of notice or a consent to the holding of the meeting or an approval of the minutes thereof. All such waivers, consents, and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance of a person at a meeting shall constitute a waiver of notice of and presence at such meeting, except when the person objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened and except that attendance at a meeting is not a waiver of any right to object to the consideration of matters required by this part to be included in the notice but not so included, if such objection is expressly made at the meeting. Neither the business to be transacted at nor the purpose of any regular or special meeting of members need be specified in any written waiver of notice, consent to the holding of the meeting, or approval of the minutes thereof except as provided in subdivision (e).
Any member approval required under subdivision (b) of Section 9150, Section 9222, Section 5812 (made applicable pursuant to Section 9620), subdivision (a) of Section 9631, subdivision (c) of Section 9640, subdivision (a) of Section 6015 (made applicable pursuant to Section 9640), or subdivision (b) of Section 9680, other than unanimous approval by those entitled to vote, shall be valid only if the general nature of the proposal so approved was stated in the notice of meeting or in any written waiver of notice.
A meeting of the members may be conducted, in whole or in part, by electronic transmission by and to the corporation or by electronic video screen communication, conference telephone, or other means of remote communication if the corporation implements reasonable measures: (1) to provide members and proxyholders (if proxies are allowed) a reasonable opportunity to participate in the meeting and to vote on matters submitted to the members, including an opportunity to read or hear the proceedings of the meeting concurrently with those proceedings, (2) if any member or proxyholder (if proxies are allowed) votes or takes other action at the meeting by means of electronic transmission to the corporation, electronic video screen communication, conference telephone, or other means of remote communication, to maintain a record of that vote or action in its books and records, and (3) to verify that each person who has voted remotely is a member or proxyholder (if proxies are allowed). A corporation shall not conduct a meeting of members solely by electronic transmission by and to the corporation, electronic video screen communication, conference telephone, or other means of remote communication unless one or more of the following conditions apply: (A) all of the members consent; (B) the board determines it is necessary or appropriate because of an emergency, as defined in paragraph (5) of subdivision (n) of Section 9140; or (C) notwithstanding the absence of consent from all members pursuant to (A) or subdivision (b) of Section 20, the meeting includes a live audiovisual feed for the duration of the meeting. A corporation holding a meeting pursuant to (C) may offer, in addition to remote audiovisual feed, an audio-only means by which a member or proxyholder may participate provided that the choice between participating via audiovisual or via audio-only means is made by the member or proxyholder and the corporation does not impose any barriers to either mode of participation. A de minimis disruption of an audio or audiovisual feed does not require a corporation to end a meeting under, or render the corporation out of compliance with, this subdivision.
One-third of the voting power, represented in person, by written ballot, or by proxy, shall constitute a quorum at a meeting of members. If a quorum is present, the affirmative vote of the majority of the voting power represented at the meeting, entitled to vote, and voting on any matter shall be the act of the members.
The members present at a duly called or held meeting at which a quorum is present may continue to transact business until adjournment notwithstanding the withdrawal of enough members to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the members required to constitute a quorum or, if required by this division, or by the articles or the bylaws, the vote of the greater number or voting by classes.
In the absence of a quorum, any meeting of members may be adjourned from time to time by the vote of a majority of the votes represented either in person or by proxy, but no other business may be transacted, except as provided in subdivision (b).
Any action which may be taken at any regular or special meeting of members may be taken without a meeting if the written ballot of every member is solicited, if the required number of signed approvals in writing, setting forth the action so taken, is received, and if the requirements of subdivision (c) are satisfied. Unless otherwise provided by the articles or bylaws and if approved by the board of directors, that ballot and any related material may be sent by electronic transmission by the corporation (Section 20) and responses may be returned to the corporation by electronic transmission to the corporation (Section 21).
All solicitations of ballots shall indicate the time by which the ballot must be returned to be counted.
Approval by written ballot pursuant to this section shall be valid only when the number of ballots cast on or before the time the ballot must be returned to be counted equals or exceeds the quorum required to be present at a meeting authorizing the action, and the number of approvals equals or exceeds the number of votes that would be required to approve at a meeting at which the total number of votes cast was the same as the number of ballots cast.
A written ballot may not be revoked.
Directors may be elected by written ballot under this section, where authorized by the articles or bylaws, except that election by written ballot may not be authorized where the directors are elected by cumulative voting pursuant to Section 9415.
If for any reason it is impractical or unduly difficult for any corporation to call or conduct a meeting of its members, delegates or directors, or otherwise obtain their consent, in the manner prescribed by its articles or bylaws, or this part, then the superior court of the proper county, upon petition of a director, officer, delegate, or member, may order that such a meeting be called or that a written ballot or other form of obtaining the vote of members, delegates or directors be authorized, in such a manner as the court finds fair and equitable under the circumstances.
The court shall, in an order issued pursuant to this section, provide for a method of notice reasonably designed to give actual notice to all parties who would be entitled to notice of a meeting held pursuant to the articles, bylaws and this part, whether or not the method results in actual notice to every such person, or conforms to the notice requirements that would otherwise apply. In a proceeding under this section the court may determine who the members or directors are.
The order issued pursuant to this section may dispense with any requirement relating to the holding of and voting at meetings or obtaining of votes, including any requirement as to quorums or as to the number or percentage of votes needed for approval, that would otherwise be imposed by the articles, bylaws, or this part.
Wherever practical any order issued pursuant to this section shall limit the subject matter of the meetings or other forms of consent authorized to items, including amendments to the articles or bylaws, the resolution of which will or may enable the corporation to continue managing its affairs without further resort to this section; provided, however, that an order under this section may also authorize the obtaining of whatever votes and approvals are necessary for the dissolution, merger, sale of assets or reorganization of the corporation.
Any meeting or other method of obtaining the vote of members, delegates or directors conducted pursuant to an order issued under this section, and which complies with all the provisions of such order, is for all purposes a valid meeting or vote, as the case may be, and shall have the same force and effect as if it complied with every requirement imposed by the articles, bylaws and this part.
If the articles or bylaws authorize cumulative voting, but not otherwise, every member entitled to vote at any election of directors may cumulate such member’s votes and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which the member is entitled, or distribute the member’s votes on the same principle among as many candidates as the member thinks fit.
No member shall be entitled to cumulate votes for a candidate or candidates unless such candidate’s name or candidates’ names have been placed in nomination prior to the voting and the member has given notice at the meeting prior to the voting of the member’s intention to cumulate votes. If any one member has given such notice, all members may cumulate their votes for candidates in nomination.
In any election of directors, the candidates receiving the highest number of votes are elected, subject to any lawful provision specifying election by classes.
Elections for directors need not be by ballot unless a member demands election by ballot at the meeting and before the voting begins or unless the bylaws so require.
Any member may authorize another person or persons to act by proxy with respect to such membership, except that this right may be limited or withdrawn by the articles or bylaws. Any proxy purported to be executed in accordance with the provisions of this part shall be presumptively valid.
No proxy shall be valid after the expiration of 11 months from the date thereof unless otherwise provided in the proxy, except that the maximum term of any proxy shall be three years from the date of execution. Every proxy continues in full force and effect until revoked by the person executing it prior to the vote pursuant thereto. Such revocation may be effected by a writing delivered to the corporation stating that the proxy is revoked or by a subsequent proxy executed by the person executing the prior proxy and presented to the meeting, or as to any meeting by attendance at such meeting and voting in person by the person executing the proxy.
A proxy is not revoked by the death or incapacity of the maker or the termination of a membership as a result thereof unless, before the vote is counted, written notice of such death or incapacity is received by the corporation.
The proxy of a member may not be irrevocable.
Any proxy covering matters requiring a vote of the members pursuant to Section 5812 (made applicable pursuant to Section 9620), subdivision (a) of Section 9631, subdivision (c) of Section 9640, subdivision (a) of Section 6015 (made applicable pursuant to Section 9640), or subdivision (b) of Section 9680 is not valid unless it sets forth the general nature of the matter to be voted on.
Upon the filing of an action therefor by any director or member, or by any person who had the right to vote in the election at issue after such director, member, or person has exhausted any remedies provided in the articles or bylaws, the superior court of the proper county shall determine the validity of any election or appointment of any director of any corporation.
Upon the filing of the complaint, and before any further proceedings are had, the court shall enter an order fixing a date for the hearing, which shall be within five days unless for good cause shown a later date is fixed, and requiring notice of the date for the hearing and a copy of the complaint to be served upon the corporation and upon the person whose purported election or appointment is questioned and upon any person (other than the plaintiff) whom the plaintiff alleges to have been elected or appointed, in the manner in which a summons is required to be served, or, if the court so directs, by registered mail; and the court may make such further requirements as to notice as appear to be proper under the circumstances.
The court, consistent with the provisions of this part and in conformity with the articles and bylaws to the extent feasible, may determine the person entitled to the office of director or may order a new election to be held or appointment to be made, may determine the validity of the issuance of memberships and the right of persons to vote and may direct such other relief as may be just and proper.
In the absence of fraud, any election, appointment or removal of a director is conclusively presumed valid nine months thereafter if the only defect in the election, appointment or removal is the failure to give notice as provided in this part or in the corporation’s articles or bylaws.
Any action required or permitted to be taken by the members may be taken without a meeting, if all members shall individually or collectively consent in writing to the action. The written consent or consents shall be filed with the minutes of the proceedings of the members. The action by written consent shall have the same force and effect as the unanimous vote of the members.
If the name signed on a ballot, consent, waiver, or proxy appointment corresponds to the name of a member, the corporation if acting in good faith is entitled to accept the ballot, consent, waiver, or proxy appointment and give it effect as the act of the member.
If the name signed on a ballot, consent, waiver, or proxy appointment does not correspond to the record name of a member, the corporation if acting in good faith is nevertheless entitled to accept the ballot, consent, waiver, or proxy appointment and give it effect as the act of the member if any of the following occur:
The member is an entity and the name signed purports to be that of an officer or agent of the entity.
The name signed purports to be that of an attorney-in-fact of the member and if the corporation requests, evidence acceptable to the corporation of the signatory’s authority to sign for the member has been presented with respect to the ballot, consent, waiver, or proxy appointment.
Two or more persons hold the membership as cotenants or fiduciaries and the name signed purports to be the name of at least one of the coholders and the person signing appears to be acting on behalf of all the coholders.
The corporation is entitled to reject a ballot, consent, waiver, or proxy appointment if the secretary or other officer or agent authorized to tabulate votes, acting in good faith, has a reasonable basis for doubt concerning the validity of the signature or the signatory’s authority to sign for the member.
The corporation and any officer or agent thereof who accepts or rejects a ballot, consent, waiver, or proxy appointment in good faith and in accordance with the standards of this section shall not be liable in damages to the member for the consequences of the acceptance or rejection.
Corporate action based on the acceptance or rejection of a ballot, consent, waiver, or proxy appointment under this section is valid unless a court of competent jurisdiction determines otherwise.
CHAPTER 5. Records, Reports and Rights of Inspection [9510. - 9514.]
Each corporation shall keep:
Adequate and correct books and records of account.
Minutes of the proceedings of its members, board and committees of the board.
A record of its members giving their names and addresses and the class of membership held by each.
Those minutes and other books and records shall be kept either in written form or in any other form capable of being converted into clearly legible tangible form or in any combination of the foregoing. When minutes and other books and records are kept in a form capable of being converted into clearly legible paper form, the clearly legible paper form into which those minutes and other books and records are converted shall be admissible in evidence, and accepted for all other purposes, to the same extent as an original paper record of the same information would have been, provided that the paper form accurately portrays the record.
Except as otherwise provided in the articles or bylaws, a member may inspect and copy the record of all the members’ names, addresses and voting rights, at reasonable times, upon five business days’ prior written demand upon the corporation for a purpose reasonably related to the member’s interest as a member.
Except as otherwise provided in the articles or bylaws, the accounting books and records and minutes of proceedings of the members and the board and committees of the board shall be open to inspection upon the written demand on the corporation of any member at any reasonable time, for a purpose reasonably related to such person’s interests as a member.
Every director shall have the right at any reasonable time to inspect and copy all books, records and documents of every kind and to inspect the physical properties of the corporation of which such person is a director for a purpose reasonably related to such person’s interests as a director.
Upon refusal of a lawful demand for inspection under this chapter, the superior court of the proper county, or the county where the books or records in question are kept, may enforce the demand or right of inspection with just and proper conditions or may, for good cause shown, appoint one or more competent inspectors or independent accountants to audit the financial statements kept in this state and investigate the property and funds of any corporation and of any subsidiary corporation thereof, domestic or foreign, keeping records in this state and to report thereon in such manner as the court may direct.
All officers and agents of the corporation shall produce to the inspectors or accountants so appointed all books and documents in their custody or power, under penalty of punishment for contempt of court.
All expenses of the investigation or audit shall be defrayed by the applicant unless the court orders them to be paid or shared by the corporation.
CHAPTER 6. Miscellaneous Provisions [9610. - 9690.]
ARTICLE 1. Distributions [9610. - 9610.]
Suit may be brought in the name of the corporation by a creditor, a director, or the authorized number of members. In any such action in addition to the remedy provided in subdivision (a) of Section 5420, the court may award punitive damages for the benefit of the corporation against any director, officer, member or other person who with intent to defraud the corporation caused, received or aided and abetted in the making of any distribution.
ARTICLE 2. Amendment of Articles [9620. - 9621.]
A corporation formed for a limited period may at any time subsequent to the expiration of the term of its corporate existence, extend the term of its existence by an amendment to its articles removing any provision limiting the term of its existence and providing for perpetual existence. If the filing of the certificate of amendment providing for perpetual existence would be prohibited if it were original articles by the provisions of Section 9122 the Secretary of State shall not file such certificate unless, by the same or a concurrently filed certificate of amendment, the articles of such corporation are amended to adopt a new available name. For the purpose of the adoption of any such amendment, persons who have been functioning as directors of such corporation shall be considered to have been validly elected even though their election may have occurred after the expiration of the original term of the corporate existence.
A religious corporation may amend its articles to change its status to that of (1), a public benefit corporation, by complying with this section and the other sections of Chapter 8 (commencing with Section 5810) of Part 2 (made applicable pursuant to Section 9620) or (2), a mutual benefit corporation, business corporation, a social purpose corporation, or cooperative corporation by complying with Chapter 8 (commencing with Section 5810) of Part 2.
Amended articles authorized by this section shall include the provisions which would have been required (other than the initial street address and initial mailing address of the corporation and the name of the initial agent for service of process if a statement has been filed pursuant to Section 6210, made applicable pursuant to Section 9660) and may in addition only include those provisions which would have been permitted, in original articles filed by the type of corporation (public benefit, mutual benefit, business, social purpose, or cooperative) into which the religious corporation is changing its status.
ARTICLE 3. Sale of Assets [9630. - 9634.]
Any mortgage, deed of trust, pledge or other hypothecation of all or any part of the corporation’s property, real or personal, for the purpose of securing the payment or performance of any contract or obligation may be approved by the board. Unless the articles or bylaws otherwise provide, no approval of the members (Section 5034) or of any other person or persons shall be necessary for such action.
Subject to the provisions of Section 9142, a corporation may sell, lease, convey, exchange, transfer or otherwise dispose of all or substantially all of its assets when the principal terms are:
Approved by the board; and
Unless the transaction is in the usual and regular course of its activities, approved by the members (Section 5034) and by any other person or persons whose approval is required by the articles or bylaws either before or after approval by the board and before or after the transaction.
Subject to any provision in the articles or bylaws, the board may, notwithstanding approval by the members (Section 5034) or such other person, abandon the proposed transaction without further action by the members, subject to the contractual rights, if any, of third parties.
Subject to the provisions of Section 9142, such sale, lease, conveyance, exchange, transfer or other disposition may be made upon such terms and conditions and for such consideration as the board may deem in the best interests of the corporation. The consideration may be money, property, or securities of any domestic corporation, foreign corporation, or foreign business corporation or any of them.
Any deed or instrument conveying or otherwise transferring any assets of a corporation may have annexed to it the certificate of the secretary or an assistant secretary of the corporation, setting forth that the transaction has been validly approved by the board, that the notice, if any, required by Section 9633 has been given and (a) stating that the property described in such deed or instrument is less than substantially all of the assets of the corporation or that the transfer is in the usual and regular course of the business of the corporation, if such be the case, or (b) if such property constitutes all or substantially all of the assets of the corporation and the transfer is not in the usual and regular course of the business of the corporation, stating the fact of approval thereof by the members (Section 5034). Such certificate is prima facie evidence of the existence of the facts authorizing such conveyance or other transfer of the assets and conclusive evidence in favor of any purchaser or encumbrancer for value who, without notice of any trust restriction applicable to the property or any failure to comply therewith, in good faith parted with value.
A corporation must give written notice to the Attorney General 20 days before it sells, leases, conveys, exchanges, transfers or otherwise disposes of all or substantially all of its assets unless the Attorney General has given the corporation a written waiver of this section as to the proposed transaction.
The provisions of Article 2 (commencing with Section 5914) of Chapter 9 of Part 2 apply to religious corporations to the extent provided therein.
ARTICLE 4. Mergers [9640. - 9640.]
A corporation may merge with any domestic corporation, foreign corporation, or other business entity (Section 5063.5). However, without the prior written consent of the Attorney General, a religious corporation may only merge with another religious corporation or with a public benefit corporation or a foreign nonprofit corporation or an unincorporated association, the governing documents of which provide that its assets are irrevocably dedicated to charitable, religious, or public purposes.
The principal terms of the merger shall be approved by the members (Section 5034) of each class of each constituent corporation and by each other person or persons whose approval of an amendment of the articles is required by the articles or bylaws; and the approval by the members (Section 5034) or any other person or persons required by this section may be given before or after the approval by the board.
The board of each corporation that desires to merge shall approve an agreement of merger. The constituent corporations shall be parties to the agreement of merger and other persons may be parties to the agreement of merger. The agreement shall state all of the following:
The terms and conditions of the merger.
The amendments, subject to Sections 5810 and 5816, to the articles of the surviving corporation to be effected by the merger, if any. If any amendment changes the name of the surviving corporation, the new name may be the same as or similar to the name of a disappearing corporation, subject to subdivision (b) of Section 9122.
The amendments to the bylaws of the surviving corporation to be effected by the merger, if any.
The name and place of incorporation of each constituent corporation and which of the constituent corporations is the surviving corporation.
The manner, if any, of converting memberships of the constituent corporations into memberships of the surviving corporation.
Any other details or provisions as are desired, if any.
ARTICLE 5. Bankruptcy Reorganizations and Arrangements [9650. - 9650.]
Any proceeding, initiated with respect to a corporation, under any applicable statute of the United States, as now existing or hereafter enacted, relating to reorganizations of corporations, shall be governed by the provisions of Chapter 14 (commencing with Section 1400) of Division 1 of Title 1, and for this purpose the reference in Chapter 14 to “shareholders” shall be deemed to be a reference to members and the reference to “this division” shall be deemed to be a reference to this part.
ARTICLE 6. Filings [9660. - 9660.]
The Attorney General may bring an action in the proper county to compel compliance with Chapter 12 (commencing with Section 6210) made applicable to religious corporations by this section.
ARTICLE 7. Service of Process [9670. - 9670.]
Service of process upon a corporation shall be governed by Chapter 17 (commencing with Section 1700) of Division 1 of Title 1.
ARTICLE 8. Dissolution [9680. - 9680.5.]
Any corporation which comes within one of the following descriptions may elect by approval of the board to wind up and dissolve:
A corporation which has been the subject of an order for relief in bankruptcy.
A corporation which has disposed of all its assets and has not conducted any activity for a period of five years immediately preceding the adoption of the resolution electing to dissolve the corporation.
A corporation which has no members.
A corporation which is required to dissolve under provisions of its articles adopted pursuant to subparagraph (i) of paragraph (2) of subdivision (a) of Section 9132.
If a corporation comes within one of the descriptions in paragraph (2) and if the number of directors then in office is less than a quorum, it may elect to voluntarily wind up and dissolve by any of the following:
The unanimous consent of the directors then in office.
The affirmative vote of a majority of the directors then in office at a meeting held pursuant to waiver of notice by those directors complying with paragraph (3) of subdivision (a) of Section 9211.
The vote of a sole remaining director.
If a corporation elects to voluntarily wind up and dissolve pursuant to paragraph (3), references to the board in this chapter shall be deemed to be to a board consisting solely of those directors or that sole director and action by the board shall require at least the same consent or vote as would be required under paragraph (3) for an election to wind up and dissolve.
If a corporation is in the process of voluntary winding up, the superior court of the proper county, upon the petition of (1) the corporation, or (2) the authorized number (Section 5036), or (3) the Attorney General, or (4) three or more creditors, and upon such notice to the corporation and members and creditors as the court may order, may take jurisdiction over the voluntary winding up proceeding if that appears necessary for the protection of the assets of the corporation. The court, if it assumes jurisdiction, may make such orders as to any and all matters concerning the winding up of the affairs of the corporation and the protection of its creditors and its assets as justice and equity may require. Chapter 15 (commencing with Section 6510) (except Sections 6510 and 6511) shall apply to those court proceedings.
The powers and duties of the directors (or other persons appointed by the court pursuant to Section 6515) and officers after commencement of a dissolution proceeding include, but are not limited to, the following acts in the name and on behalf of the corporation:
To sue, in the name of the corporation, for all sums due or owing to the corporation or to recover any of its property.
To collect any amounts remaining unpaid on memberships or to recover unlawful distributions.
Subject to the provisions of Section 9142, to sell at public or private sale, exchange, convey, or otherwise dispose of all or any part of the assets of the corporation in an amount deemed reasonable by the board without compliance with Section 9631, and to execute bills of sale and deeds of conveyance in the name of the corporation.
In general, to make contracts and to do any and all things in the name of the corporation which may be proper or convenient for the purposes of winding up, settling and liquidating the affairs of the corporation.
After complying with Section 6713:
Except as provided in Section 6715, all of a corporation’s assets shall be disposed of on dissolution in conformity with its articles or bylaws subject to complying with the provisions of any trust under which such assets are held.
Except as provided in subdivision (3), the disposition required in subdivision (1) shall be made by decree of the superior court of the proper county. The decree shall be made upon petition therefor, upon 30 days’ notice to the Attorney General, by any person concerned in the dissolution.
The disposition required in subdivision (1) may be made without the decree of the superior court, subject to the rights of persons concerned in the dissolution, if the Attorney General makes a written waiver of objections to the disposition.
A vacancy on the board may be filled during a winding up proceeding in the manner provided in Section 9224.
Notwithstanding any other provision of this division, when a corporation has not issued any memberships, a majority of the directors, or, if no directors have been named in the articles or been elected, the incorporator or a majority of the incorporators, may sign and verify a certificate of dissolution stating the following:
That the certificate of dissolution is being filed within 24 months from the date the articles of incorporation were filed.
That the corporation does not have any debts or other liabilities, except as provided in paragraph (3) and subdivision (d).
That the tax liability will be satisfied on a taxes-paid basis or that a person or corporation or other business entity assumes the tax liability, if any, of the dissolving corporation and is responsible for additional corporate taxes, if any, that are assessed and that become due after the date of the assumption of the tax liability.
That a final franchise tax return, as described by Section 23332 of the Revenue and Taxation Code, has been or will be filed with the Franchise Tax Board as required under Part 10.2 (commencing with Section 18401) of Division 2 of the Revenue and Taxation Code.
That the corporation was created in error.
That the known assets of the corporation remaining after payment of, or adequately providing for, known debts and liabilities have been distributed as required by law or that the corporation acquired no known assets, as the case may be.
That a majority of the directors, or, if no directors have been named in the articles or been elected, the incorporator or a majority of the incorporators authorized the dissolution and elected to dissolve the corporation.
That the corporation has not issued any memberships, and if the corporation has received payments for memberships, those payments have been returned to those making the payments.
That the corporation is dissolved.
A certificate of dissolution signed and verified pursuant to subdivision (a) shall be filed with the Secretary of State. The Secretary of State shall notify the Franchise Tax Board of the dissolution.
Upon filing a certificate of dissolution pursuant to subdivision (b), a corporation shall be dissolved and its powers, rights, and privileges shall cease.
Notwithstanding the dissolution of a nonprofit corporation pursuant to this section, its liability to creditors, if any, is not discharged. The liability of the directors of, or other persons related to, the dissolved corporation is not discharged. The dissolution of a nonprofit corporation pursuant to this section shall not diminish or adversely affect the ability of the Attorney General to enforce liabilities as otherwise provided by law.
ARTICLE 9. Crimes and Penalties [9690. - 9690.]
The provisions of Chapter 18 (commencing with Section 6810) of Part 2 apply to religious corporations. In so providing, the Legislature encourages the criminal courts of this state in sentencing persons convicted of fraudulent activities in the guise of religious activity to exercise their authority to impose restitution as a means of compensating the victims.
PART 5. TRANSITION PROVISIONS [9910. - 9928.]
As used in Sections 9910 to 9927 of this part:
“New public benefit, mutual benefit and religious corporation law” means Part 1 (commencing with Section 5002), Part 2 (commencing with Section 5110), Part 3 (commencing with Section 7110), Part 4 (commencing with Section 9110) and Part 5 (commencing with Section 9910), of Division 2 of Title 1 of the Corporations Code enacted by the California Legislature during the 1977–1978 Regular Session and, except as required by Section 9912, operative January 1, 1980.
“New public benefit corporation law” means Part 2 of the new public benefit, mutual benefit and religious corporation law.
“New mutual benefit corporation law” means Part 3 of the new public benefit, mutual benefit, and religious corporation law.
“New religious corporation law” means Part 4 of the new public benefit, mutual benefit and religious corporation law.
“Prior nonprofit law” means Part 1, Division 2 (commencing with Section 9000) of Title 1 of the Corporations Code in effect on December 31, 1979.
“Subject corporation” means any corporation described in paragraphs (3) through (5), inclusive, of subdivision (a) of Section 5003 and subject to the prior nonprofit law.
The new public benefit corporation law applies to all corporations which are incorporated on or after January 1, 1980, under Part 2 of this division or which are expressly governed by Part 2 pursuant to a particular provision of this division, Division 3 (commencing with Section 12000) or other specific statutory provision.
The new mutual benefit corporation law applies to all corporations which are incorporated on or after January 1, 1980, under Part 3 of this division or which are expressly governed by Part 3 pursuant to a particular provision of this division or Division 3 (commencing with Section 12000) or other specific statutory provision.
The new religious corporation law applies to all corporations which are incorporated on or after January 1, 1980, under Part 4 of this division or which are expressly governed by Part 4 pursuant to a particular provision of this division, Division 3 (commencing with Section 12000) or other specific statutory provision.
Notwithstanding subdivisions (a) through (c), if articles of incorporation intended to and in fact meeting the requirements of the prior nonprofit law have been initially received by the Secretary of State prior to January 1, 1980, and the matter is still pending on that date, then the entity may be incorporated pursuant to the prior nonprofit law if its articles are filed prior to May 1, 1980.
Except as otherwise expressly provided in this part, (i) the new public benefit corporation law applies to all subject corporations referred to in Section 5060 and to all actions taken by the directors, officers or members of such corporation on or after January 1, 1980; (ii) the new mutual benefit corporation law applies to all subject corporations referred to in Section 5059 and to all actions taken by the directors, officers or members of such corporations on or after January 1, 1980; and (iii) the new religious corporation law applies to all subject corporations referred to in Section 5061 and to all actions taken by the directors, officers or members of such corporations on or after January 1, 1980.
Except as otherwise expressly provided in this part, all of the sections of the new public benefit, mutual benefit and religious corporation law governing acts, contracts or other transactions by a corporation or its directors, officers or members, apply only to acts, contracts, or transactions occurring on or after January 1, 1980; and the prior nonprofit law governs acts, contracts or transactions occurring before January 1, 1980.
Except as otherwise expressly provided in this part, any vote or consent by the directors or members of a corporation prior to January 1, 1980, in accordance with the prior nonprofit law shall be effective in accordance with that law; and if any certificate or document is required to be filed in any public office of this state relating to such vote or consent, it may be filed on or after January 1, 1980, in accordance with the prior nonprofit law.
Each corporation which is subject (pursuant to the terms of the prior nonprofit law or some other specific statutory provision) to the prior nonprofit law shall, on and after January 1, 1980, be subject to the new public benefit corporation law, the new mutual benefit corporation law, or the new religious corporation law based on the following:
Any corporation of a type designated by statute as being subject to the new public benefit corporation law, the new mutual benefit corporation law, or the new religious corporation law, shall be subject to such law.
Any corporation organized primarily or exclusively for religious purposes shall be subject to the new religious corporation law.
Any corporation which does not come within paragraphs 1 or 2 of this subdivision but which has received an exemption under Section 23701d of the Revenue and Taxation Code, shall be subject to the new public benefit corporation law.
Any corporation which does not come within paragraphs 1, 2, or 3 of this subdivision and all of the assets of which are irrevocably dedicated to charitable or public purposes and which according to its articles or bylaws must upon dissolution distribute its assets to a person or persons carrying on a similar purpose or purposes shall be subject to the new public benefit corporation law.
Any corporation which does not come within paragraphs 1, 2, 3 or 4 of this subdivision and which permits distribution of assets to its members upon dissolution shall be subject to the new mutual benefit corporation law.
Any corporation not otherwise described in this subdivision shall be subject to the new mutual benefit corporation law.
Prior to January 1, 1980, the Secretary of State’s office shall send a nonbinding, advisory notice to each corporation covered by subdivision (a) indicating the type of corporation it is, based on the rules set forth in subdivision (a) of this section.
Notwithstanding subdivision (a), assets held by a mutual benefit corporation in charitable trust shall be administered in compliance with the provisions of the trust and in accordance with any standards applicable pursuant to Section 7238.
A corporation may petition the superior court of the proper county to determine its status as a public benefit, mutual benefit or religious corporation in accordance with subdivision (a). Notice of the proceeding shall be given as the court may direct. Any member may intervene. Notice of the proceeding shall be served on the Attorney General who may intervene. A certified copy of any final judgment in any such proceeding shall be filed with the Secretary of State.
The Secretary of State may, in carrying out any obligation arising under this article, require any information necessary on existing corporations from the Franchise Tax Board or other state agency.
The provisions of Sections 5130, 5131 and 5132 of the new Public Benefit Corporation Law relating to the contents of articles of incorporation do not apply to subject corporations designated as public benefit corporations unless and until an amendment of the articles is filed stating that the corporation elects to be governed by all of the provisions of the new law not otherwise applicable to it under this part.
The provisions of Sections 7130, 7131, and 7132 of the new Mutual Benefit Corporation Law relating to the contents of articles of incorporation do not apply to subject corporations governed by the Mutual Benefit Corporation Law unless and until an amendment of the articles of incorporation is filed stating that the corporation elects to be governed by all of the provisions of the new law not otherwise applicable to it under this part.
The provisions of Sections 9130, 9131, and 9132 of the new Religious Corporation Law relating to the contents of articles of incorporation do not apply to subject corporations governed by the Religious Corporation Law unless and until an amendment of the articles is filed stating that the corporation elects to be governed by all of the provisions of the new law not otherwise applicable to it under this part.
The amendment described in subdivision (a) may be adopted by the board alone, except that if such amendment makes any change in the articles other than conforming the statement of purposes of the public benefit corporation to Section 5130 and the deletion of any references to the location of principal office and deleting any statement regarding the number of directors or conforming any such statement to Section 5151 (subject to Section 9915), it shall also be approved by the members (Section 5034) if such approval is otherwise required for the changes made.
The amendment described in subdivision (b) may be adopted by the board alone, except that if such amendment makes any change in the articles other than conforming the statement of purposes of the mutual benefit corporation to subdivisions (a) and (b) of Section 7130 and the deletion of any references to the location of principal office and deleting any statement regarding the number of directors or conforming any such statement to Section 7151 (subject to Section 9915), it shall also be approved by the members (Section 5034) if such approval is otherwise required for the changes made.
The amendment described in subdivision (c) may be adopted by the board alone, except that if such amendment makes any change in the articles other than conforming the statement of purposes of the religious corporation to Section 9130 and the deletion of any references to the location of principal office and deleting any statement regarding the number of directors or conforming any such statement to Section 9151 (subject to Section 9915), it shall also be approved by the members (Section 5034) if such approval is otherwise required for the changes made.
Section 5140 of the new public benefit corporation law applies to subject corporations governed by the public benefit corporation law, and Section 7140 of the new mutual benefit corporation law applies to subject corporations governed by the mutual benefit corporation law and Section 9140 of the new religious corporation law applies to subject corporations governed by the religious corporation law; but any statement in the articles of such corporations prior to an amendment thereof pursuant to Section 9913, relating to the powers of the corporation shall not be construed as a limitation unless it is expressly stated as such.
Subdivision (a) of Section 5151 of the new public benefit corporation law does not apply to subject corporations governed by the public benefit corporation law, subdivision (a) of Section 7151 of the new mutual benefit corporation law does not apply to subject corporations governed by the mutual benefit corporation law, and subdivision (a) of Section 9151 of the new religious corporation law does not apply to subject corporations governed by the religious corporation law, but those corporations shall continue to be governed by the prior nonprofit law unless and until an amendment of the articles is filed pursuant to Section 9913. If an amendment makes any change in the number of directors or the maximum or minimum number of directors or makes change from a fixed to a variable board or vice versa, it shall also be approved by the members (Section 5034).
Notwithstanding subdivision (a), the new public benefit corporation law, the new mutual benefit corporation law, or the new religious corporation law, as appropriate, rather than the provisions of the prior nonprofit law apply with the respect to determining the limits on the number of directors.
Subdivision (a) of Section 5213 of the new public benefit corporation law applies to subject corporations governed by the public benefit corporation law, subdivision (a) of Section 7213 of the new mutual benefit corporation law apply to subject corporations governed by the mutual benefit corporation law, and subdivision (a) of Section 9213 of the new religious corporation law applies to subject corporations governed by the religious corporation law; but the “treasurer” of those corporations shall be deemed to be the “chief financial officer,” unless otherwise provided in the articles or bylaws.
If a director on January 1, 1980, is serving a term in excess of three years in duration, the director may continue to serve until December 31, 1982, or until the expiration of the term whichever is earlier.
If, on January 1, 1980, more than one-third of the directors of a corporation hold office by virtue of designation or selection, they may continue to do so until December 31, 1982.
Section 5238 governs any proposed indemnification by a public benefit corporation, Section 7237 governs any proposed indemnification by a mutual benefit corporation, and Section 9246 governs any proposed indemnification by a religious corporation, after January 1, 1980, whether the events upon which the indemnification is based occurred before or after January 1, 1980. Any statement relating to indemnification contained in the articles or bylaws of a subject corporation shall not be construed as limiting the indemnification permitted by Section 5238, Section 7237, or Section 9246 unless it is expressly stated as so intended.
Section 7313 of the new mutual benefit corporation law relating to membership certificates applies to the membership certificates of a subject corporation if the certificates are issued on or after January 1, 1980, and the prior nonprofit law shall continue to govern certificates representing memberships issued prior to January 1, 1980, unless and until an amendment of the articles is filed pursuant to Section 9913.
The provisions of Chapter 5 (commencing with Section 5510) and Chapter 6 (commencing with Section 5610) of the new Public Benefit Corporation Law apply to any meeting of members of a public benefit corporation, the provisions of Chapter 5 (commencing with Section 7510) and Chapter 6 (commencing with Section 7610) of the new Mutual Benefit Corporation Law apply to any meeting of members of a mutual benefit corporation, and the provisions of Chapter 4 (commencing with Section 9410) of the new Religious Corporation Law apply to any meeting of members of a religious corporation, held on or after January 1, 1980, and to any action by such members pursuant to a written ballot, which becomes effective on or after January 1, 1980, and to any vote cast at such a meeting or ballot, given for such action (whether or not a proxy or ballot was executed by the member prior to January 1, 1980).
Notwithstanding subdivision (a):
The prior nonprofit law shall apply to any such meeting of members and to any vote cast at such a meeting if such meeting was initially called for a date prior to January 1, 1980, and notice thereof was given to members entitled to vote thereat; and
Where a proxy would be valid under the prior nonprofit law but would not be valid for a public benefit corporation under the new Public Benefit Corporation Law, for a mutual benefit corporation under the new Mutual Benefit Corporation Law, or for a religious corporation under the new Religious Corporation Law, and where the proxy by its terms expires during or after 1980, such proxy may be voted at meetings of members during 1980 (prior to its expiration date) but not thereafter.
Action taken by the board or the members after December 31, 1979, and before January 1, 1982, shall be valid if such action was taken in compliance with the prior nonprofit law and the articles and bylaws as they then existed, subject to the rights of any person who acted in detrimental reliance upon the invalidity of such action prior to Janaury 1, 1982. This subdivision does not validate any provision in the articles or bylaws after December 31, 1981, which does not comply with the then existing provisions of the new public benefit, mutual benefit, or religious corporation law, as the case may be.
Section 5710 of the new public benefit corporation law applies to actions commenced on or after January 1, 1980, with respect to a public benefit corporation, and Section 7710 of the new mutual benefit corporation law applies to actions commenced on or after January 1, 1980, with respect to a mutual benefit corporation. The prior nonprofit law governs actions commenced prior to but still pending on January 1, 1980.
Chapters 9 (commencing with Section 5910) and 10 (commencing with Section 6010) of the new public benefit corporation law apply to transactions consummated on or after January 1, 1980, by a public benefit corporation or, subject to Sections 9630 and 9640, by a religious corporation, and Chapters 9 (commencing with Section 7910) and 10 (commencing with Section 8010) of the new mutual benefit corporation law apply to transactions consummated on or after January 1, 1980, by a mutual benefit corporation, unless the approval required by the prior nonprofit law has been given prior to January 1, 1980, or has been given on or after January 1, 1980, but at a meeting of members initially called for a date prior to January 1, 1980, in which case the transaction shall be governed by the prior nonprofit law.
Chapters 15 (commencing with Section 6510) and 17 (commencing with Section 6710) of the new public benefit corporation law apply to acts for involuntary dissolution of a public benefit corporation commenced on or after January 1, 1980, and Chapters 15 (commencing with Section 8510) and 17 (commencing with Section 8710) of the new mutual benefit corporation law apply to acts for involuntary dissolution of a mutual benefit corporation commenced on or after January 1, 1980; but the prior nonprofit law governs any such actions commenced prior to but still pending on January 1, 1980.
Chapters 16 (commencing with Section 6610) and 17 (commencing with Section 6710) of the new public benefit corporation law apply to any voluntary dissolution proceeding initiated with respect to a public benefit corporation or, subject to Section 9680, with respect to a religious corporation, by the filing on or after January 1, 1980, of an election to wind up and dissolve, and Chapters 16 (commencing with Section 8610) and 17 (commencing with Section 8710) of the new mutual benefit corporation law apply to any voluntary dissolution proceeding initiated with respect to a mutual benefit corporation by the filing on or after January 1, 1980, of an election to wind up and dissolve; but the prior nonprofit law governs any such proceeding so initiated prior to January 1, 1980.
When any corporate agent for service of process has been designated prior to January 1, 1980, and such designation of agent included a name of a city, town or village wherein the corporate agent maintained an office, service on such agent may be effected at any office of the agent set forth in the certificate of the corporate agent filed pursuant to Section 6213 of the new public benefit corporation law (applicable to public benefit corporations and, subject to Section 9660, to religious corporations), Section 8213 of the new mutual benefit corporation law, Section 1505 of the Corporations Code, or filed pursuant to Section 3301.5, 3301.6, 6403.5, or 6403.6 of the Corporations Code as in effect prior to January 1, 1977.
Any subject corporation that existed on the first day of January, 1873, and was formed under the laws of this state, which corporation has not already elected to continue its existence under the prior nonprofit law, may at any time elect to continue its existence under the provisions of this code applicable thereto by the unanimous vote of all its directors, or such election may be made at any annual meeting of the members, or at any meeting called by the directors especially for considering the subject, if voted by members representing a majority of the voting power, or may be made by the directors upon the written consent of that number of the members.
A certificate of the action of the directors, signed by them and their secretary, when the election is made by their unanimous votes or upon the written consent of the members, or a certificate of the proceedings of the meeting of the members when the election is made at any such meeting, signed by the chairperson and secretary of the meeting and a majority of the directors, shall be filed in the office of the Secretary of State, and thereafter the corporation continues its existence under the provisions of this code which are applicable thereto, and possesses all the rights, and powers, and is subject to all the obligations, restrictions, and limitations prescribed thereby.
If the corporate rights, privileges and powers of a corporation have been suspended and are still suspended immediately prior to January 1, 1980, pursuant to the prior nonprofit law as a result of its incorporation of Sections 5700 through 5908 of the prior law (Section 2300), such sections and provisions continue to apply to such a corporation until restoration by the Controller pursuant to such sections.
A corporation which was organized prior to January 1, 1971, under any statutory provisions other than the General Corporation Law as then in effect (Division 1 (commencing with Section 100) of Title 1 of the Corporations Code or predecessor statutory provisions), has never filed a statement pursuant to Section 6210 or 8210, has never filed a statement pursuant to former Section 3301 and is not under suspension by the Franchise Tax Board, shall be subject to suspension by the Secretary of State pursuant to this section.
Prior to taking action to suspend, the Secretary of State shall, in accordance with Section 6061 of the Government Code, publish a notice one time in a newspaper of general circulation published in the county in which the articles require the principal office of the corporation to be located. The notice shall identify the corporation by name and corporate number and shall state that the corporation shall be subject to suspension without further notice if a statement pursuant to Section 6210 or 8210 is not filed within 60 days after the date of publication of the notice.
Not less than 61 days and not more than 180 days after the date of the publication, the Secretary of State may act to suspend the corporation in accordance with subdivisions (a) and (b).
The Secretary of State shall notify the Franchise Tax Board of the suspension and thereupon, except for the purpose of amending the articles to set forth a new name, the corporate powers, rights, and privileges of the corporation are suspended.
A statement pursuant to Section 6210 or 8210 may be filed notwithstanding suspension of the corporate powers, rights and privileges pursuant to this section or Section 23301, 23301.5, or 23775 of the Revenue and Taxation Code. Upon the filing of a statement pursuant to Section 6210 or 8210 by a corporation which has suffered suspension pursuant to this section, the Secretary of State shall certify that fact to the Franchise Tax Board and the corporation may thereupon, in accordance with Section 23305a of the Revenue and Taxation Code, be relieved from suspension unless the corporation is held in suspension by the Franchise Tax Board by reason of Section 23301, 23301.5, or 23775 of the Revenue and Taxation Code.
PART 6. CORPORATIONS SOLE [10000. - 10015.]
The provisions of this part apply to all corporations sole organized either before or after March 30, 1878, whether or not the corporations organized before have elected to continue their existence under the Civil Code or elect to continue their existence under this code, except that Sections 10002, and 10012 to 10015, inclusive, do not apply to corporations sole formed before March 30, 1878, unless they have elected to continue their existence under the Civil Code or under this code.
Any corporation sole formed prior to March 30, 1878, and existing under the laws of this State may elect to continue its existence under this part by filing a certificate to that effect, under its corporate seal, if any, signed by its chief officer, or by filing amended articles of incorporation in the form required in this part.
A corporation sole may be formed under this part by the bishop, chief priest, presiding elder, or other presiding officer of any religious denomination, society, or church, for the purpose of administering and managing the affairs, property, and temporalities thereof.
The articles of incorporation shall state:
The name of the corporation.
That the officer forming the corporation is duly authorized by the rules, regulations, or discipline of the religious denomination, society, or church to take such action.
The county in this State where the principal office for the transaction of the business of the corporation is located.
The manner in which any vacancy occurring in the office of the bishop, chief priest, presiding elder, or other presiding officer is required to be filled by the rules, regulations, or constitution of the denomination, society, or church.
The articles of incorporation may state any desired provision for the regulation of the affairs of the corporation in a manner not in conflict with law, including restrictions upon the power to amend all or any part of the articles of incorporation.
The articles shall be signed and verified by the bishop, chief priest, presiding elder, or other presiding officer forming the corporation and shall be submitted to the Secretary of State for filing in his office. If they conform to law he shall file them and endorse the date of filing thereon. Upon the filing of the articles with the Secretary of State the corporation sole is formed.
Every corporation sole may:
Sue and be sued, and defend, in all courts and places, in all matters and proceedings whatever.
Contract in the same manner and to the same extent as a natural person, for the purposes of the trust.
Borrow money, and give promissory notes therefor, and secure the payment thereof by mortgage or other lien upon property, real or personal.
Buy, sell, lease, mortgage, and in every way deal in real and personal property in the same manner that a natural person may, without the order of any court.
Receive bequests and devises for its own use or upon trusts to the same extent as natural persons may, subject, however, to the laws regulating the transfer of property by will.
Appoint attorneys in fact.
Every corporation sole has perpetual existence and also has continuity of existence, notwithstanding vacancies in the incumbency thereof. During the period of any such vacancy, the corporation sole has the same capacity and right to receive and take any gift, bequest, devise, or conveyance of property, either as grantee for its own use, or as trustee, and to be or be made the beneficiary of a trust, as though there were no vacancy. No agency created by a corporation sole by a written instrument which in express terms provides that the agency thereby created shall not be terminated by a vacancy in the incumbency of the corporation is terminated or affected by the death of the incumbent of the corporation or by a vacancy in the incumbency thereof, however caused.
Any judge of the superior court in the county in which a corporation sole has its principal office shall at all times have access to the books of the corporation.
The chief officer of a corporation sole may at any time amend the articles of incorporation of the corporation changing its name, the term of its existence, its territorial jurisdiction, or the manner of filling any vacancy in the office thereof, and may by amended articles of incorporation make provision for any act or thing for which provision is authorized in original articles of incorporation of corporations sole.
The chief officer of the corporation shall sign and verify a statement setting forth the provisions of the amendment and stating that it has been duly authorized by the religious organization governed by the corporation.
The amendment shall include the Secretary of State entity number and be submitted to the Secretary of State’s office for filing. If it conforms to law, the Secretary shall file it and endorse the date of filing thereon. Thereupon the articles are amended in the manner set forth in the statement.
A corporation sole may be dissolved and its affairs wound up voluntarily by filing with the Secretary of State a declaration of dissolution executed, signed, and verified by the chief officer of the corporation.
The declaration of dissolution shall set forth all of the following:
The name and entity number of the corporation as they exist on the Secretary of State’s records.
The reason for its dissolution or winding up.
That dissolution of the corporation has been duly authorized by the religious organization governed by the corporation sole.
The names and addresses of the persons who are to supervise the winding up of the affairs of the corporation.
The declaration shall be submitted to the Secretary of State for filing in his office. If it conforms to law he shall file it and endorse the date of filing thereon. Thereupon the corporation shall cease to carry on business, except for the purpose of adjusting and winding up its affairs.
After the debts and obligations of the corporation are paid or adequately provided for, any assets remaining shall be transferred to the religious organization governed by the corporation sole, or to trustees in its behalf, or disposed of as may be decreed by the superior court of the county in which the dissolved corporation had its principal office upon petition therefor by the Attorney General or any person connected with the organization.
PART 7. CORPORATIONS FOR CHARITABLE OR ELEEMOSYNARY PURPOSES [10200. - 10200.]
Every corporation organized or existing under Part 3 (commencing with Section 10200) of Division 2 in effect on December 31, 1979, is subject to and deemed to be a nonprofit public benefit corporation organized for charitable purposes under Part 2 (commencing with Section 5110) of the Nonprofit Corporation Law (Division 2 (commencing with Section 5000) of this title) except if the corporation is organized primarily or exclusively for religious purposes, in which case it is subject to and deemed to be a nonprofit religious corporation under Part 4 (commencing with Section 9110) of the Nonprofit Corporation Law.
PART 8. TRUST FUNDS [10250. - 10251.]
Any corporation organized under the provisions of or for the purposes set forth in Part 6 (commencing with Section 10000) of this division or organized on or prior to December 31, 1979, under the provisions of or for purposes set forth in Part 3 (commencing with Section 10200) of this division, then in effect, or organized under or subject to Part 2 (commencing with Section 5110), or organized under or subject to Part 4 (commencing with Section 9110), may, if authorized so to do by its articles of incorporation, establish one or more common trust funds for the purpose of furnishing investments to such corporation or to any church, parish, congregation, society, chapel, mission, religious, beneficial, charitable or educational institution affiliated with it, or to any organization, society or corporation holding funds or property for the benefit of any of the foregoing, or holding funds for the purpose of supporting a bishop, priest, religious pastor, or teacher or any building or buildings used by or owned by any of the foregoing, whether holding such funds or property as fiduciary or otherwise. Notwithstanding the provisions of any general or special law in any way limiting the right of any of the foregoing or the officers or directors thereof, as fiduciary or otherwise, to invest funds held by them, it shall be lawful for any of the foregoing to invest any or all of their funds or property in shares or interests of such common trust fund or trust funds; provided, that, in the case of funds or property held as fiduciary, such investment is not prohibited by the wording of the will, deed or other instrument creating such fiduciary relationship.
The directors or trustees of any such common trust fund, or trust funds, so organized, may employ such officers or agents as they think best, define their duties, and fix their compensation. They may also appoint a trust company or bank as custodian of the trust estate and may employ an investment adviser or advisers, define their duties, and fix their compensation. Securities which constitute part or all of the trust estate may be deposited in a securities depository, as defined in Section 30004 of the Financial Code, which is licensed under Section 30200 of the Financial Code or exempted from licensing thereunder by Section 30005 or 30006 of the Financial Code, and such securities may be held by such securities depository in the manner authorized by Section 775 of the Financial Code.
The directors or trustees of any such common trust fund, or trust funds, shall pay ratably among the holders of shares or beneficial certificates then outstanding, semiannual dividends which shall approximately equal, in each fiscal year, the net income of the trust, or trusts.
The provisions of the Corporate Securities Law (Division 1 (commencing with Section 25000) of Title 4) shall not apply to the creation, administration, or termination of common trust funds created hereunder, nor to participation therein.
“Educational institution,” as used in this section, means any nonprofit corporation organized under Chapter 4 (commencing with Section 94400) or Chapter 7 (commencing with Section 94700) of Part 59 of the Education Code or organized under Part 1 (commencing with Section 9000) of this division in effect on December 31, 1979, and designated on or after January 1, 1980, as a nonprofit public benefit corporation, or organized for charitable or eleemosynary purposes under Part 2 (commencing with Section 5110) of this division, or Part 3 (commencing with Section 10200) of this division in effect on December 31, 1979, and designated on or after January 1, 1980, as a nonprofit public benefit corporation for the purpose of establishing, conducting or maintaining an institution offering courses beyond high school and issuing or conferring a diploma or for the purpose of offering or conducting private school instruction on the high school or elementary school level and any charitable trust organized for such purpose or purposes. “Educational institution,” as used in this section, also means the University of California, the California State University, the California Community Colleges, and any auxiliary organization, as defined in Section 89901 of the Education Code, established for the purpose of receiving gifts, property and funds to be used for the benefit of a state college.
It shall be lawful for any educational institution to become a member of a nonprofit corporation incorporated under the laws of any state for the purpose of maintaining a common trust fund or similar common fund in which nonprofit organizations may commingle their funds and property for investment and to invest any and all of its funds, whenever and however acquired, in the common fund or funds; provided that, in the case of funds or property held as fiduciary, the investment is not prohibited by the wording of the will, deed, or other instrument creating the fiduciary relationship.
An educational institution electing to invest in a common fund or funds under this section may elect to receive distributions from each fund in an amount not to exceed for each fiscal year the greater of the income, as determined under the Uniform Principal and Income Act, Chapter 3 (commencing with Section 16320) of Part 4 of Division 9 of the Probate Code, accrued on its interest in the fund or 10 percent of the value of its interest in the fund as of the last day of its next preceding fiscal year. The educational institution may expend the distribution or distributions for any lawful purpose notwithstanding any general or special law characterizing the distribution, or any part thereof, as principal or income; provided that, in the case of funds or property invested as fiduciary, the expenditure is not prohibited by the wording of the will, deed, or other instrument creating the fiduciary relationship. No such prohibition of expenditure shall be deemed to exist solely because a will, deed, or other instrument, whether executed or in effect before or after the effective date of this section, directs or authorizes the use of only the “income,” or “interest,” or “dividends” or “rents, issues or profits,” or contains words of similar import.
The Corporate Securities Law of 1968 shall not apply to the creation, administration, or termination of common trust funds authorized under this section, or to participation therein.
This section shall become operative on January 1, 1997.
PART 9. SOCIETIES FOR PREVENTION OF CRUELTY TO ANIMALS [10400. - 10406.]
Corporations for the prevention of cruelty to animals may be formed under the Nonprofit Public Benefit Corporation Law (Part 2 (commencing with Section 5110)) by 20 or more persons, who shall be citizens and residents of this state. If the corporation is formed on or after January 1, 2011, its articles of incorporation shall specifically state that the corporation is being formed pursuant to this section.
Every such corporation may take by gift, purchase, devise, or bequest, any property, real or personal, and hold it or dispose thereof at its pleasure; but no such corporation shall hold real property the annual income of which exceeds fifty thousand dollars ($50,000).
Any such corporation, or humane officer thereof, may proffer a complaint against any person, before any court or magistrate having jurisdiction, for the violation of any law relating to or affecting animals and may aid in the prosecution of the offender before the court or magistrate.
All magistrates, sheriffs, and officers of police shall, as occasion may require, aid any such corporation, its officers, members, and agents, in the enforcement of all laws relating to or affecting animals.
This part applies to all corporations for the prevention of cruelty to animals, whether formed prior to or after May 20, 1905, but does not apply to any association, society, or corporation that uses or specifies a name or style the same, or substantially the same, as that of any previously existing society or corporation in this state organized for a like purpose.
PART 10. PORT AND TERMINAL PROTECTION AND DEVELOPMENT CORPORATIONS [10700. - 10703.]
As used in this part, “public agency” includes every port district, river port district, municipal port district, harbor district, harbor improvement district, joint harbor improvement district, Board of State Harbor Commissioners, board of harbor commissioners, city, county, and city and county in this state.
Every public agency owning or operating any port or marine terminal and every public agency organized for such purposes may associate itself with other public agencies, private corporations or individuals owning or operating, or organized for the purpose of owning or operating, ports or marine terminals located on the same harbor, bay, or other waterway or on communicating or related waterways, of this state and with other public agencies and with private corporations and individuals, or any of them, in the formation under the Nonprofit Mutual Benefit Corporation Law, Part 3 (commencing with Section 7110) of this division, and may become and remain a member of a nonprofit corporation organized under the Nonprofit Mutual Benefit Corporation Law for the purpose of, or the principal powers and purposes of which include carrying on a program of nonregulatory activities in the common interests of its members, including but not limited to any or all of the following activities: studies and research into traffic conditions, cargo volume, rate structures, cost factors, commercial transportation practices, and similar fields; the acquisition and dissemination of information relative to the said and similar subjects; the representation of the common interests of its members before federal, state, and local legislative and administrative authorities; and service as a facility for the cooperation of its members and the coordination of their activities toward the maintenance and improvement of the commercial welfare and competitive position of the ports and terminals owned or operated by its members, the maintenance of equitable and nondiscriminatory rate structures, and the elimination of inequitable, unfair, or discriminatory trade practices adversely affecting the interests of its members; and the undertaking or coordination of any other program of related activities or in related fields for the mutual benefit of its members as may be desired by the membership. Every such public agency may pay the dues and assessments required of its members by such nonprofit mutual benefit corporation out of any funds available to it for that purpose or for its support; may make contracts; may enter into agreements; may appoint an individual as its representative to such nonprofit mutual benefit corporation to exercise the voting power of such public agency and to act in its behalf with respect to such nonprofit mutual benefit corporation; and may do or perform all acts necessary and proper to carry out the purposes of this part; but no public agency shall become or remain a member of any such nonprofit mutual benefit corporation unless the articles of incorporation or the bylaws of the nonprofit mutual benefit corporation include at all times a provision limiting the liability of members to assessments to a specified or ascertainable amount.
For the purposes of this part, of the Nonprofit Mutual Benefit Corporation Law, and of the General Corporation Law of this state, every public agency and private corporation qualifying under this part shall be deemed to be a “person” and shall have the legal capacity to act as incorporator and as member of any nonprofit mutual benefit corporation formed under the provisions of this part.
If, when, and during such times as public agencies or individuals duly authorized to represent them and act in their behalf constitute a majority of the incorporators or of the directors and are entitled to exercise a majority of the voting power of a nonprofit mutual benefit corporation pursuant to this part:
The Corporate Securities Law (Division 1 (commencing with Section 25000) of Title 4) shall not apply to memberships nor to membership certificates issued by the corporation; and
The corporation shall be exempt from payment of any taxes under the Bank and Corporation Tax Law (Part 11 of Division 2 of the Revenue and Taxation Code), except as provided in Article 2 of Chapter 4 thereof.
PART 11. NONPROFIT MEDICAL, HOSPITAL, OR LEGAL SERVICES CORPORATIONS [10810. - 10841.]
ARTICLE 1. Nonprofit Corporations for Medical Services [10810. - 10812.]
A nonprofit corporation may be formed under Part 2 (commencing with Section 5110) or Part 3 (commencing with Section 7110) of this division for the purposes of defraying or assuming the cost of professional services of licentiates under any chapter of Division 2 (commencing with Section 500) of the Business and Professions Code or of rendering any such services, but it may not engage directly or indirectly in the performance of the corporate purposes or objects unless all of the following requirements are met:
At least one-fourth of all licentiates of the particular profession residing in California become members.
Membership in the corporation and an opportunity to render professional services upon a uniform basis are available to all licensed members of the particular profession.
Voting by proxy and cumulative voting are prohibited.
A certificate is issued to the corporation by the particular professional board whose licentiates have become members, finding compliance with the requirements of subdivisions (a), (b), and (c).
Any such corporation shall be subject to supervision by the particular professional board under which its members are licensed and shall also be subject to the part under which it is formed, either Part 2 (commencing with Section 5110) or Part 3 (commencing with Section 7110) of this division, except as to matters specifically otherwise provided for in this article.
Any nonprofit corporation described in Section 10810 which defrays or assumes some portion or all of the costs of refractions or eye appliances shall offer an equal opportunity to render professional services upon a uniform basis to all licentiates expressly authorized by law to render such services.
The provisions of Sections 10810 and 10811 of this article apply to corporations formed on or after January 1, 1980, under Part 2 or Part 3 of this division and pursuant to this article and to corporations existing on December 31, 1979, and formed under Section 9201 or 9201.1 of the Corporations Code then in effect.
ARTICLE 2. Nonprofit Health Care Service Plans [10820. - 10821.]
“Health care service plan,” as used in this section means a corporation which is a health care service plan defined in the Knox-Keene Health Care Service Plan Act of 1975 (Chapter 2.2 (commencing with Section 1340) of Division 2 of the Health and Safety Code), other than a corporation which is exempted from that act by subdivision (d) of Section 1343 of the Health and Safety Code.
Notwithstanding any other provision of this division, as to a health care service plan which is formed under or subject to Part 2 (commencing with Section 5110) or Part 3 (commencing with Section 7110) of this division, all references to the Attorney General contained in Part 2 or Part 3 of this division shall, in the case of health care service plans, be deemed to refer to the Director of the Department of Managed Health Care.
ARTICLE 3. Nonprofit Corporation to Administer System of Defraying Cost of Professional Services of Attorneys [10830. - 10831.]
A nonprofit corporation may be formed under Part 3 (commencing with Section 7110) of this division for the purposes of administering a system or systems of defraying the cost of professional services of attorneys, but any such corporation may not engage directly or indirectly in the performance of the corporate purposes or objects unless all of the following requirements are met:
The attorneys furnishing professional services pursuant to such system or systems are acting in compliance with the Rules of Professional Conduct of the State Bar of California concerning such system or systems.
Membership in the corporation and an opportunity to render professional services upon a uniform basis are available to all active members of the State Bar.
Voting by proxy and cumulative voting are prohibited.
A certificate is issued to the corporation by the State Bar of California, finding compliance with the requirements of subdivisions (a), (b) and (c).
Any such corporation shall be subject to supervision by the State Bar of California and shall also be subject to Part 3 (commencing with Section 7110) of this division except as to matters specifically otherwise provided for in this article.
The provisions of this article apply to corporations formed on or after January 1, 1980, under Part 3 of this division and pursuant to this article and to corporations existing on December 31, 1979, and formed under Section 9201.2 of the Corporations Code then in effect.
ARTICLE 4. Hospital Service Plans [10840. - 10841.]
“Hospital service plan,” as used in this section means a corporation which is a nonprofit hospital service plan defined in Chapter 11a (commencing with Section 11491) of Part 2 of Division 2 of the Insurance Code.
Notwithstanding any other provision of this division, as to a hospital service plan which is formed under or subject to Part 2 (commencing with Section 5110) or Part 3 (commencing with Section 7110) of this division, all references to the Attorney General contained in Part 2 or Part 3 of this division shall, in the case of hospital service plans, be deemed to refer to the Insurance Commissioner.
DIVISION 3. CORPORATIONS FOR SPECIFIC PURPOSES [12000. - 14707.]
PART 1. CHAMBERS OF COMMERCE, BOARDS OF TRADE, MECHANICS' INSTITUTES, ETC. [12000. - 12000.]
Every corporation organized or existing under Part 1 (commencing with Section 12000) in effect on December 31, 1979, is subject to and deemed to be organized under:
The General Corporation Law (Division 1 (commencing with Section 100) of this title), if the corporation is organized with capital stock.
The Nonprofit Mutual Benefit Corporation Law (Part 3 (commencing with Section 7110) of Division 2 of this title) if the corporation is organized without capital stock.
PART 2. COOPERATIVE CORPORATIONS [12200. - 12704.]
CHAPTER 1. General Provisions, Organization and Bylaws [12200. - 12340.]
ARTICLE 1. Title, Purposes and Application of Part [12200. - 12203.]
This part shall be known as the Cooperative Corporation Law. This part is intended primarily to apply to the organization and operation of cooperatives, including, but not limited to, consumer cooperatives, worker cooperatives, and cooperatives formed for the purpose of recycling or treating hazardous waste that elect to incorporate under its provisions.
Subject to any other provision of law of this state applying to the particular class of corporation or line of activity, a corporation may be formed under this part for any lawful purpose provided that it shall be organized and shall conduct its business primarily for the mutual benefit of its members as patrons of the corporation. The earnings, savings, or benefits of the corporation shall be used for the general welfare of the members or shall be proportionately and equitably distributed to some or all of its members or its patrons, based upon their patronage (Section 12243) of the corporation, in the form of cash, property, evidences of indebtedness, capital credits, memberships, or services.
Such corporations are democratically controlled and are not organized to make a profit for themselves, as such, or for their members, as such, but primarily for their members as patrons (Section 12243).
Notwithstanding Section 12201, the net earnings and losses of a worker cooperative shall be apportioned and distributed at the time and in the manner specified in the articles of incorporation or bylaws.
Net earnings declared as patronage distributions with respect to a period of time, and paid to a creditor or member, shall be apportioned among the members in accordance with the ratio that each member’s patronage during the period bears to total patronage by all members during the period.
The apportionment, distribution, and payment of net earnings required by subdivision (a) may be paid in cash, credits, written notices of allocation, or capital stock issued by the worker cooperative.
The provisions of this part apply to corporations existing pursuant to Part 2 (commencing with Section 12200) of Division 3 of Title 1 in effect immediately prior to January 1, 1984.
The existence of corporations formed or existing on the date of enactment of this part shall not be affected by the enactment or reenactment of this part or by any change in the requirements for the formation of corporations or by the amendment or repeal of the laws under which they were formed or created.
Neither the repeal of Part 2 (commencing with Section 12200) of Division 3 of Title 1 as in effect immediately prior to January 1, 1984, nor the reenactment or amendment of this part shall impair or take away any existing liability or cause of action against any corporation, its members, shareholders, directors, or officers incurred prior to the enactment of this part.
Unless the provisions or the context otherwise requires, the definitions set forth in this part govern the construction of this part.
ARTICLE 2. General Provisions and Definitions [12210. - 12256.]
A corporation may be sued as provided in the Code of Civil Procedure.
Any corporation shall, as a condition of its existence as a corporation, be subject to the provisions of the Code of Civil Procedure authorizing the attachment of corporate property.
The fees of the Secretary of State for filing instruments by or on behalf of corporations are prescribed in Article 3 (commencing with Section 12180) of Chapter 3 of Part 2 of Division 3 of Title 2 of the Government Code.
Any agreement, certificate, or other instrument filed pursuant to the provisions of this part, may be corrected with respect to any misstatement of fact contained therein, any defect in the execution thereof or any other error or defect contained therein, by filing a certificate of correction entitled “Certificate of Correction of ____ (insert here the title of the agreement, certificate or other instrument to be corrected and the name of the corporation or corporations).” However, no such certificate of correction shall alter the wording of any resolution which was in fact adopted by the board or the members or delegates or effect a corrected amendment of articles which amendment as so corrected would not in all respects have complied with the requirements of this part, at the time of filing of the agreement, certificate or other instrument being corrected. Such certificate of correction shall be signed and verified or acknowledged as provided in this part with respect to the agreement, certificate or other instrument being corrected. It shall set forth the following:
The name or names of the corporation or corporations.
The date the agreement, certificate or other instrument being corrected was filed.
The provision in the agreement, certificate or other instrument as corrected and, if the execution was defective, wherein it was defective.
The filing of the certificate of correction shall not alter the effective time of the agreement, certificate or other instrument being corrected, which shall remain as its original effective time, and such filing shall not affect any right or liability accrued or incurred before such filing, except that any right or liability accrued or incurred by reason of the error or defect being corrected shall be extinguished by such filing if the person having such right has not detrimentally relied on the original instrument.
Upon receipt of any instrument by the Secretary of State for filing pursuant to this part, if it conforms to law, it shall be filed by, and in the office of the Secretary of State and the date of filing endorsed thereon. Except for instruments filed pursuant to Section 12570 the date of filing shall be the date the instrument is received by the Secretary of State unless the instrument provides that it is to be withheld from filing until a future date, other than instruments filed pursuant to Section 12220.5, or, unless in the judgment of the Secretary of State, the filing is intended to be coordinated with the filing of some other corporate document which cannot be filed. The Secretary of State shall file a document as of any requested future date not more than 90 days after its receipt, including a Saturday, Sunday, or legal holiday, if the document is received in the Secretary of State’s office at least one business day prior to the requested date of filing. An instrument does not fail to conform to law because it is not accompanied by the full filing fee if the unpaid portion of the fee does not exceed the limits established by the policy of the Secretary of State for extending credit in these cases.
If the Secretary of State determines that an instrument submitted for filing or otherwise submitted does not conform to law and returns it to the person submitting it, the instrument may be resubmitted accompanied by a written opinion of the member of the State Bar of California submitting the instrument, or representing the person submitting it, to the effect that the specific provision of the instrument objected to by the Secretary of State does conform to law and stating the points and authorities upon which the opinion is based. The Secretary of State shall rely, with respect to any disputed point of law, other than the application of Section 12302, upon that written opinion in determining whether the instrument conforms to law. The date of filing in that case shall be the date the instrument is received on resubmission.
Any instrument filed with respect to a corporation, other than original articles or instruments filed pursuant to Section 12220.5, may provide that it is to become effective not more than 90 days subsequent to its filing date. In case such a delayed effective date is specified, the instrument may be prevented from becoming effective by a certificate stating that by appropriate corporate action it has been revoked and is null and void, executed in the same manner as the original instrument and filed before the specified effective date. In the case of a merger agreement, the certificate revoking the earlier filing need only be executed on behalf of one of the constituent corporations. If no revocation certificate is filed, the instrument becomes effective on the date specified.
Any instrument submitted to the Secretary of State for filing pursuant to this part by a domestic corporation or foreign corporation that is qualified to transact business in California under Section 2105 shall include the entity name and number as they exist on the Secretary of State’s records.
The Secretary of State may cancel the filing of articles if a check or other remittance accepted in payment of the filing fee or franchise tax is not paid upon presentation. Within 90 days of receiving written notification that the item presented for payment has not been honored for payment, the Secretary of State shall give written notice of the applicability of this section and the cancellation date which shall be not less than 20 days from the date of mailing the written notice as certified by the Secretary of State, to the agent for service of process or to the person submitting the instrument. Thereafter, if the amount has not been paid by cashier’s check or equivalent before the date of cancellation as stated in the written notice of cancellation, the cancellation shall thereupon be effective.
A corporation that (1) fails to file a statement pursuant to Section 12570 for an applicable filing period, (2) has not filed a statement pursuant to Section 12570 during the preceding 24 months, and (3) was certified for penalty pursuant to Section 12670 for the same filing period of the prior year, shall be subject to suspension pursuant to this section rather than to a penalty under Section 12670.
When subdivision (a) is applicable, the Secretary of State shall mail a notice to the corporation informing the corporation that its corporate powers, rights, and privileges will be suspended 60 days from the date of the notice if the corporation does not file the statement required by Section 12570.
If the 60-day period expires without the delinquent corporation filing the required statement, the Secretary of State shall notify the Franchise Tax Board of the suspension, and mail a notice of the suspension to the corporation. Following completion of these notification requirements, except for the purpose of amending the articles of incorporation to set forth a new name or filing an application for exempt status, the corporate powers, rights, and privileges of the corporation are suspended.
A statement required by Section 12570 may be filed, notwithstanding suspension of the corporate powers, rights, and privileges under this section or under provisions of the Revenue and Taxation Code. Upon the filing of a statement under Section 12570, by a corporation that has been suspended pursuant to this section, the Secretary of State shall certify that fact to the Franchise Tax Board and the corporation may, in accordance with Section 23305a of the Revenue and Taxation Code, be relieved from suspension, unless the corporation is held in suspension by the Franchise Tax Board pursuant to Section 23301, 23301.5, or 23775 of the Revenue and Taxation Code.
Except as otherwise permitted, any reference in this part to mailing means first-class mail, postage prepaid, unless registered or some other form of mail is specified or permitted. Registered mail includes certified mail.
If the articles provide for more than one vote for any member on any matter, the references in Sections 12223 and 12224 to a majority or other proportion of members mean, as to such matters, a majority or other proportion of the votes entitled to be cast. Whenever members are disqualified from voting on any matter, they shall not be counted for the determination of a quorum at any meeting to act upon, or the required vote to approve action upon, that matter under any other provision of this part or the articles or bylaws.
All references in this part to financial statements of a corporation mean statements prepared in conformity with generally accepted accounting principles or some other basis of accounting which reasonably sets forth the assets and liabilities and the income and expenses of the corporation and discloses the accounting basis used in their preparation.
As used in this part, “independent accountant” means a certified public accountant or public accountant who is independent of the corporation as determined in accordance with generally accepted auditing standards and who is engaged to audit financial statements of the corporation or perform other accounting services.
Any reference in this part to the time a notice is given or sent means, unless otherwise expressly provided, the time a written notice by mail is deposited in the United States mails, postage prepaid; or the time any other written notice is personally delivered to the recipient or is delivered to a common carrier for transmission, or actually transmitted by the person giving the notice by electronic means, to the recipient; or the time any oral notice is communicated, in person or by telephone or wireless, to the recipient or to a person at the office of the recipient who the person giving the notice has reason to believe will promptly communicate it to the recipient.
A notice or report mailed or delivered as part of a newsletter, magazine or other organ regularly sent to members shall constitute written notice or report pursuant to this part when addressed and mailed postage prepaid by first or second class mail or delivered to the member, or in the case of members who are residents of the same household and who have the same address on the books of the corporation, when addressed and mailed postage prepaid by first or second class mail or delivered to one of such members, at the address appearing on the books of the corporation.
Otherwise lawful corporate actions not in compliance, or purportedly not in compliance, with this division or the articles, bylaws, or a plan or agreement to which the corporation is a party in effect at the time of the corporate action, may be ratified, or validated by the superior court, in accordance with the provisions of this section.
Except as otherwise determined by the superior court pursuant to subdivision (e), a ratification or validation of a corporate action in accordance with this section is conclusive in the absence of fraud.
This section does not limit the authority of the board, the members, or the corporation to effect any other lawful means of ratification or validation of a corporate action or correction of a record.
No corporate action may be ratified under subdivision (b) by a dissolved corporation or a foreign corporation, and no petition may be filed under subdivision (e) in respect of any corporate action of such a corporation.
This section shall not be used to ratify or validate any corporate action in respect of any of the following:
Noncompliance with subdivision (a) of Section 12371.
Noncompliance with subdivision (a) or (b) of Section 12373.
Noncompliance with Section 12375.
A ratification of a corporate action pursuant to this section, other than a ratification relating to the election of the initial directors pursuant to paragraph (2) of this subdivision, shall be approved by the board and, as applicable, approved by the members in accordance with any provision set forth in this division or the articles, bylaws, or a plan or agreement to which the corporation is a party that is applicable to the type of corporate action proposed to be ratified and in effect at the time of the ratification, unless there are no members entitled to vote on the ratification at the time of the ratification, in which case the ratification shall be approved solely by the board, or a higher approval standard that was or would have been applicable to the original taking or purported taking of the corporate action, in which case the ratification shall be approved in accordance with such higher approval standard. In order to approve a ratification of a corporate action pursuant to this paragraph, the board and, as applicable, the members shall adopt resolutions setting forth all of the following:
Each corporate action to be ratified.
The date when each such corporate action was purportedly taken, and the date any such corporate action shall be deemed to have become effective pursuant to this section if different than the date the corporate action was purportedly taken.
The nature of the noncompliance or purported noncompliance of each such corporate action.
A statement that the ratification of each such corporate action is approved.
If the corporate action to be ratified relates to the election of the initial directors pursuant to Section 12316, a majority of the persons who, at the time of the ratification, are exercising the powers of directors may approve that ratification by adopting resolutions setting forth all of the following:
The name of the person or persons who first took action in the name of the corporation as the initial directors of the corporation.
The earlier of the date on which such persons first took such action or were purported to have been elected as the initial directors, and the date on which such person or persons shall be deemed to have become the initial directors of the corporation pursuant to this section if different than the date of such first action or purported election, as applicable.
That the ratification of the election of such person or persons as the initial directors is approved.
Notice of any ratification of a corporate action pursuant to this section shall be given promptly after ratification pursuant to subdivision (b) to each member, regardless of whether approval of the members is required for the ratification. The notice shall be given as provided in subdivision (b) of Section 12461 and shall include a copy of any resolutions adopted pursuant to subdivision (b) and a copy of this section.
A statement that the certificate of ratification is making, amending, or correcting any such instrument, as applicable, and a copy of any such instrument containing all of the information required to be included under this division for such instrument to be so made, amended, or corrected. An instrument attached to a certificate of ratification pursuant to this subparagraph need not be separately executed and acknowledged and need not include any statement required by any other section of this division that such instrument has been approved and adopted in accordance with the provisions of such other section.
A statement that the ratification has been approved pursuant to subdivision (b), a copy of the resolutions adopted pursuant to subdivision (b) in respect of the ratification.
Upon the filing of a petition by an authorized person, the superior court of the proper county shall have jurisdiction in equity to determine the validity of any corporate action (whether or not such corporate action is a ratification or has been the subject of any ratification), validate and declare effective any such corporate action, and declare the date any such corporate action shall be deemed to have become effective or valid, as applicable, pursuant to this section.
This section does not prescribe or circumscribe the facts and circumstances the superior court may consider or which remedies the superior court may grant in exercising its jurisdiction under this section, except as described in this subdivision. The superior court may make any order concerning the corporate action as justice and equity may require.
Any petition relating to a ratification taken or proposed to be taken pursuant to this section shall be filed not later than 180 days after the notice required by subdivision (c) is given, except this paragraph shall not apply to an action asserting that a ratification was not accomplished in accordance with this section or to any person to whom notice of the ratification was required to have been given pursuant to subdivision (c), but to whom such notice was not given.
For purposes of this subdivision, the proper county shall be the county where the principal office of the corporation is located or, if the principal office is not located in this state, in the county in which the corporation’s agent for service of process is located.
Service of the petition under paragraph (1) upon the registered agent of the corporation shall be deemed to be service upon the corporation, and no other party need be joined in order for the superior court to adjudicate the matter. The superior court may require notice of the action to be provided to other persons specified by the court and permit those other persons to intervene in the action.
For purposes of this subdivision, “authorized person” means the corporation, any successor entity to the corporation, any director, any member, or any other person, so long as the other person claims to be substantially and adversely affected by the ratification of a corporate action pursuant to this section.
Any petition seeking validation of a corporate action shall identify every pending legal proceeding of which the petitioner is aware and in which (A) the validity of the corporate action is being directly challenged or (B) the validation of the corporate action would result in the dismissal of the proceeding in whole or in part. If the petitioner becomes aware of any additional such legal proceeding, the petitioner shall amend, or, to the extent required by applicable rules, move for leave to amend, the petition within 10 court days to identify each such proceeding. Identification of a proceeding shall include the venue or forum in which the proceeding was filed, any case number or other unique identifier assigned to the proceeding in that venue or forum, the names of the parties to the proceeding, and the date on which the proceeding was filed.
If a corporate action validated by the superior court pursuant to this section would have required the filing of an instrument with the Secretary of State pursuant to the provisions of this division, or if such validation would cause any instrument previously filed with the Secretary of State to be inaccurate or incomplete in any material respect after giving effect to the validation, the corporation shall file a certificate of validation to make, amend, or correct each such instrument. The certificate of validation shall have the effect as specified therein, and shall be filed with the Secretary of State. A certificate of validation shall consist of an officers’ certificate setting forth all of the following:
The name of the corporation and the Secretary of State’s file number of the corporation.
The title of any such instrument whose making, amendment, or correction is being effected by the certificate of validation.
The date any such instrument was filed with the Secretary of State, or a statement that any such instrument was not previously filed with the Secretary of State and, as applicable, a statement that the validation ordered pursuant to the superior court order set forth in the certificate of validation would cause any such instrument to be inaccurate or incomplete in any material respect after giving effect to the validation.
The date any such instrument shall be deemed to have become effective pursuant to this section, which may be prior to or after the filing date.
A statement that the certificate of validation is making, amending, or correcting any such instrument, as applicable, and a copy of any such instrument containing all of the information required to be included under this division for such instrument to be so made, amended, or corrected. An instrument attached to a certificate of validation pursuant to this paragraph need not be separately executed and acknowledged and need not include any statement required by any other section of this division that such instrument has been approved and adopted in accordance with the provisions of such other section.
A statement that the validation has been ordered pursuant to subdivision (e), and a copy of the superior court order issued pursuant to subdivision (e) in respect of such validation.
Unless otherwise stated in resolutions adopted pursuant to subdivision (b) or determined by the superior court pursuant to subdivision (e), a corporate action or security of the corporation ratified or validated in accordance with this section relates back to the date of the original corporate action.
As used in this section:
“Corporate action” means any of the following:
Any action or purported action of the board.
Any action or purported action of the members.
Any other action or transaction taken, or purportedly taken, by or on behalf of the corporation.
“Higher approval standard” means any provision set forth in this division or the articles, bylaws, or a plan or agreement to which the corporation was a party in effect at the time of the original taking or purported taking of a corporate action:
Requiring action of the board or members, at a meeting or by written consent, to be taken by a proportion greater than would have been required pursuant to this division or the articles, bylaws, or a plan or agreement to which the corporation is a party in effect at the time of the ratification of the corporate action pursuant to this section.
Requiring a greater proportion of the directors or members to constitute a quorum for the transaction of business at a meeting than would have been required pursuant to this division or the articles, bylaws, or a plan or agreement to which the corporation is a party in effect at the time of the ratification of the corporate action pursuant to this section.
Requiring, prohibiting, or prescribing conditions on action of the board or members at a meeting or by written consent, which would not have been required, prohibited, or prescribed pursuant to this division or the articles, bylaws, or a plan or agreement to which the corporation is a party in effect at the time of the ratification of the corporate action pursuant to this section.
Requiring separate action of any specified person or persons, which would not have been required pursuant to this division or the articles, bylaws, or a plan or agreement to which the corporation is a party in effect at the time of the ratification of the corporate action pursuant to this section.
The corporation shall retain all records related to the ratification or validation of a corporate action under this section in accordance with Section 12590.
If the corporation is a party to a pending legal proceeding in which (1) the validity of a corporate action sought to be ratified or validated pursuant to this section is at issue or (2) the ratification or validation of a corporate action pursuant to this section would result in the dismissal in whole or in part of the proceeding, the corporation shall notify the judge, arbitrator, or other person presiding over the proceeding at least 10 court days prior to adopting resolutions pursuant to subdivision (b) or filing a petition pursuant to subdivision (e) with respect to that corporate action. That person shall have power to stay the ratification or validation as justice and equity may require.
“Acknowledged” means that an instrument is either:
Formally acknowledged as provided in Article 3 (commencing with Section 1180) of Chapter 4 of Title 4 of Part 4 of Division 2 of the Civil Code; or
Accompanied by a declaration in writing signed by the persons executing the same that they are such persons and that the instrument is the act and deed of the person or persons executing the same.
Any certificate of acknowledgment taken without this state before a notary public or a judge or clerk of a court of record having an official seal need not be further authenticated.
“Approved by (or approval of) the board” means approved or ratified by the vote of the board or by the vote of a committee authorized to exercise the powers of the board, except as to matters not within the competence of the committee under Section 12352.
“Approval by (or approval of) a majority of all members” means approval by an affirmative vote (or written ballot in conformity with Section 12463) of a majority of the votes entitled to be cast. Such approval shall include the affirmative vote of a majority of the outstanding memberships of each class, unit, or grouping of members entitled, by any provision of the articles or bylaws of this part to vote as a class, unit, or grouping of members on the subject matter being voted upon and shall also include the affirmative vote of such greater proportion, including all of the votes of the memberships of any class, unit, or grouping of members if such greater proportion is required by the bylaws or by this part.
“Approval by (or approval of) the members” means approved or ratified by the affirmative vote of a majority of the votes represented and voting at a duly held meeting at which a quorum is present (which affirmative votes also constitute a majority of the required quorum) or written ballot in conformity with Section 12463 or by the affirmative vote or written ballot of such greater proportion of the votes of the memberships of any class, unit, or grouping of members as may be provided in the bylaws or in this part for all or any specified member action.
“Articles” includes the articles of incorporation, amendments thereto, amended articles, restated articles, and certificates of incorporation.
“Bylaws” includes amendments thereto and amended bylaws.
“Board” means the board of directors of the corporation.
“Business corporation” means a corporation as defined in Section 162 of the General Corporation Law.
“Capital account cooperative” is a worker cooperative in which the entire net book value is reflected in member capital accounts, one for each member, and an unallocated capital account, if any.
For the purposes of this part, all references to “chairperson of the board,” other than in Section 12353, shall be deemed to refer to all permissible titles for a chair of the board, as permitted by Section 12353.
“Chapter” refers to a chapter of this part unless otherwise expressly stated.
“Class” refers to those memberships which: (a) are identified in the articles or bylaws as being a different type of membership; or (b) have the same rights with respect to voting, dissolution, redemption, distributions and transfer. For the purpose of this section, rights shall be considered the same if they are determined by a formula applied uniformly.
“Collective board worker cooperative” means a worker cooperative in which there is only one class of members consisting of worker-members, all of whom are members of the board.
“Constituent corporation” means a corporation which is merged with one or more other corporations and includes the surviving corporation.
“Corporation” as used in this part means a corporation which is organized under, or subject to this part, including a central organization.
“Directors” means natural persons, designated in the articles or bylaws or elected by the incorporators, and their successors and natural persons designated, elected, or appointed by any other name or title to act as members of the governing body of the corporation. “Directors” also means alternate directors described in Section 12331. A person who does not have authority to act as a member of the governing body of the corporation, including through voting rights as a member of the governing body, is not a director as that term is used in this part regardless of title. However, if the articles or bylaws designate that a natural person is a director or a member of the governing body of the corporation by reason of occupying a specified position within or outside the corporation, that person shall be a director for all purposes and shall have the same rights and obligations, including voting rights, as the other directors.
“Disappearing corporation” means a constituent corporation which is not the surviving corporation.
“Distribution” means the distribution of any gains, profits or dividends to any member as such, but does not include patronage distributions.
“Domestic corporation” means a corporation formed under the laws of this state.
“Foreign corporation” means a foreign corporation as defined in Section 171.
“Member” means any person who, pursuant to a specific provision of a corporation’s articles or bylaws, has the right to vote for the election of a director or directors, or possesses proprietary interests in the corporation.
The articles or bylaws may confer some or all of the rights of a member, set forth in this part, upon any person or persons who do not have any of the voting rights referred to in subdivision (a).
Where a member of a corporation is not a natural person, such member may authorize in writing one or more natural persons to vote on its behalf on any or all matters which may require a vote of the members.
A person is not a member by virtue of any of the following:
Any rights such person has as a delegate.
Any rights such person has to designate or select a director or directors.
Any rights such person has as a director.
“Worker-member” means a member of a worker cooperative who is a natural person and also a patron of a worker cooperative.
“Community investor” means a person who is not a worker-member and who holds a share or other proprietary interest in a worker cooperative.
“Worker” means a natural person contributing labor or services to a worker cooperative. “Candidate” means a worker who is being considered for membership in a worker cooperative, as defined in the corporation’s articles or bylaws.
A “membership” refers to the rights a member has pursuant to a corporation’s articles, bylaws and this part.
“Membership certificate,” as used in this part, means a document evidencing a proprietary interest in a corporation.
“Officers’ certificate” means a certificate signed and verified by the chair of the board, the president, or any vice president, and by the secretary, the chief financial officer, the treasurer, or any assistant secretary or assistant treasurer.
“On the certificate,” as used in this part means that a statement appears on the face of a certificate or on the reverse thereof with a reference thereto on the face.
“Other business entity” means a domestic or foreign limited liability company, limited partnership, general partnership, business trust, real estate investment trust, unincorporated association, or a domestic reciprocal insurer organized after 1974 to provide medical malpractice insurance as set forth in Article 16 (commencing with Section 1550) of Chapter 3 of Part 2 of Division 1 of the Insurance Code. As used herein, “general partnership” means a “partnership” as defined in Section 16101; “business trust” means a business organization formed as a trust; “real estate investment trust” means a “real estate investment trust” as defined in subsection (a) of Section 856 of the Internal Revenue Code of 1986, as amended; and “unincorporated association” has the meaning set forth in Section 18035.
“Parent party” means the corporation in control of any constituent domestic or foreign corporation or other business entity and whose equity securities are issued, transferred, or exchanged in a merger pursuant to Section 12540.1.
If the corporation is organized to provide goods or services to its members, the corporation’s “patrons” are those who purchase those types of goods from, or use those types of services of, the corporation. If the corporation is organized to market, process, or otherwise handle its members’ products or services, the corporation’s “patrons” are those persons whose products or services are so marketed, processed, or handled by the corporation.
“Patronage” of a patron is measured by the volume or value, or both, of a patron’s purchases of products from, and use of services furnished by, the corporation, and by products and services provided by the patron to the corporation for marketing.
If the corporation is organized as a worker cooperative, the corporation’s “patrons” are its worker-members.
If the corporation is organized as a worker cooperative, “patronage” may be measured by work performed, including, but not limited to, wages earned, number of hours worked, number of jobs created, or some combination of these measures.
“Patronage distribution” means any transfer made to a patron of the corporation the amount of which is computed with reference to the patron’s patronage of the corporation.
“Person,” unless otherwise expressly provided, includes any association, company, domestic or foreign corporation, corporation sole, estate, individual, joint stock company, joint venture, partnership, domestic or foreign limited liability company, government or political subdivision, agency or instrumentality of a government.
“Preferred memberships” means memberships that have a preference over any other memberships with respect to distribution of assets on liquidation or with respect to payment of distributions.
“Proper county” means the county where the corporation’s principal office in this state is located or, if the corporation has no such office, the County of Sacramento.
“Series” of memberships means memberships within a class of memberships that have the same rights, privileges, preferences, restrictions, and conditions, but that differ in one or more rights, privileges, preferences, restrictions, or conditions from other memberships within the class. Certificated securities and uncertificated securities do not constitute a different series if the only difference is certificated and uncertificated status.
“Shareholder” shall have the same meaning as “member” as defined in Section 12238.
“Share certificate” shall have the same meaning as “membership certificate” as defined in Section 12240.
“Surviving corporation” means a corporation into which one or more other corporations are merged.
“Vacancy” when used with respect to the board means any authorized position of director which is not then filled, whether the vacancy is caused by death, resignation, removal, change in the number of directors authorized in the articles or bylaws (by the board or the members), or otherwise.
“Verified” means that the statements contained in a certificate or other document are declared to be true of the own knowledge of the persons executing the same in either:
An affidavit signed by them under oath before an officer authorized by the laws of this state or of the place where it is executed to administer oaths; or
A declaration in writing executed by them under penalty of perjury and stating the date and place (whether within or without this state) of execution.
Any affidavit sworn to without this state before a notary public or a judge or clerk of a court of record having an official seal need not be further authenticated.
“Voting power” means the power to vote for the election of directors at the time any determination of voting power is made and does not include the right to vote upon the happening of some condition or event that has not yet occurred.
If different classes of memberships are entitled to vote as separate classes for different members of the board, the determination of percentage of voting power shall be made on the basis of the percentage of the total number of authorized directors that the memberships in question (whether of one or more classes) have the power to elect in an election at which all memberships then entitled to vote for the election of any directors are voted.
Community investor voting power in a worker cooperative shall be provided in the articles or bylaws, and is limited to approval rights only over a merger, sale of major assets, reorganization, or dissolution. Approval rights shall not include the right to propose any action.
“Worker cooperative” or “employment cooperative” means a corporation formed under this part that includes a class of worker-members who are natural persons whose patronage consists of labor contributed to or other work performed for the corporation. Election to be organized as a worker cooperative or an employment cooperative does not create a presumption that workers are employees of the corporation for any purposes. At least 51 percent of the workers shall be worker-members or candidates.
“Written” or “in writing” includes facsimile, telegraphic, and other electronic communication as authorized by this code.
“Written ballot” does not include a ballot distributed at a special or regular meeting of members.
A central organization is a corporation whose membership is composed, in whole or in part, of other corporations organized under this part.
ARTICLE 3. Formation [12300. - 12302.1.]
One or more persons may form a corporation under this part by executing and filing articles of incorporation.
Where initial directors are named in the articles, each director named in the articles shall sign and acknowledge the articles. Where initial directors are not named in the articles, the articles shall be signed by a person or persons described in subdivision (a) who thereupon are the incorporators of the corporation.
The corporate existence begins upon the filing of the articles and continues perpetually, unless otherwise expressly provided by law or in the articles.
In the case of an existing unincorporated association, the association may change its status to that of a corporation upon a proper authorization for such by the association in accordance with its rules and procedures.
In addition to the matters required to be set forth in the articles pursuant to Section 12310, the articles in the case of an incorporation authorized by subdivision (a) shall set forth that an existing unincorporated association, stating its name, is being incorporated by the filing of the articles.
The articles filed pursuant to this section shall be accompanied by a verified statement of any two officers or governing board members of the association stating that the incorporation of the association by means of the articles to which the verified statement is attached has been approved by the association in accordance with its rules and procedures.
Upon the change of status of an unincorporated association to a corporation pursuant to subdivision (a), the property of the association becomes the property of the corporation and the members of the association who have any voting rights of the type referred to in Section 12238 become members of the corporation.
The filing for record in the office of the county recorder of any county in this state in which any of the real property of the association is located, of a copy of the articles of incorporation filed pursuant to this section, certified by the Secretary of State, shall evidence record ownership in the corporation of all interests of the association in and to the real property located in that county.
All rights of creditors and all liens upon the property of the association shall be preserved unimpaired. Any action or proceeding pending by or against the unincorporated association may be prosecuted to judgment, which shall bind the corporation, or the corporation may be proceeded against or substituted in its place.
If a corporation is organized by a person who is or was an officer, director or member of an unincorporated association and such corporation is not organized pursuant to subdivision (a), the unincorporated association may continue to use its name and the corporation may not use a name which is the same as or similar to the name of the unincorporated association.
The Secretary of State shall not file articles setting forth a name in which “bank,” “trust,” “trustee,” or related words appear, unless the certificate of approval of the Commissioner of Financial Protection and Innovation is attached thereto.
The name of a corporation shall not be a name that the Secretary of State determines is likely to mislead the public and shall be distinguishable in the records of the Secretary of State from all of the following:
The name of any corporation.
The name of any foreign corporation authorized to transact intrastate business in this state.
Each name that is under reservation pursuant to this title.
The name of a foreign corporation that has registered its name pursuant to Section 2101.
An alternate name of a foreign corporation under subdivision (b) of Section 2106.
A name that will become the record name of a domestic or foreign corporation upon a corporate instrument when there is a delayed effective or file date.
The use by a corporation of a name in violation of this section may be enjoined notwithstanding the filing of its articles by the Secretary of State.
Any applicant may, upon payment of the fee prescribed therefor in the Government Code, obtain from the Secretary of State a certificate of reservation of any name not prohibited by subdivision (b), and upon the issuance of the certificate the name stated therein shall be reserved for a period of 60 days. The Secretary of State shall not, however, issue certificates reserving the same name for two or more consecutive 60-day periods to the same applicant or for the use or benefit of the same person; nor shall consecutive reservations be made by or for the use or benefit of the same person of names so similar as to fall within the prohibitions of subdivision (b).
ARTICLE 4. Articles of Incorporation [12310. - 12317.]
The articles of incorporation of a corporation formed under this part shall set forth:
The name of the corporation.
The following statement:
“This corporation is a cooperative corporation organized under the Cooperative Corporation Law. The purpose of this corporation is to engage in any lawful act or activity for which a corporation may be organized under the law.”
[The articles may include a further description of the corporation’s purpose.]
The name and street address in this state of the corporation’s initial agent for service of process in accordance with subdivision (b) of Section 12570.
The initial street address of the corporation.
The initial mailing address of the corporation, if different from the initial street address.
Whether the voting power or the proprietary interests of the members are equal or unequal. If the voting power or proprietary interests of the members are unequal, the articles shall state either (i) the general rule or rules by which the voting power and proprietary interests of the members shall be determined or (ii) that such rule or rules shall be prescribed in the corporation’s bylaws. Equal voting power means voting power apportioned on the basis of one vote for each member. Equal proprietary rights means property rights apportioned on the basis of one proprietary unit for each member.
Pursuant to Section 12310.5, the articles of incorporation may state whether the cooperative has elected to be governed as a worker cooperative.
A corporation organized under this part may elect to be governed as a worker cooperative by making the following statement in its articles of incorporation or its amended articles of incorporation:
“This corporation is a worker cooperative corporation organized under the Cooperative Corporation Law.”
A corporation that makes the election to be governed as a worker cooperative, unless expressly exempted, shall be governed by all the provisions of this part.
The names of all corporations formed under this part shall include “cooperative.” No corporation shall be formed under this part unless there is affixed or prefixed to its name some word or abbreviation which will indicate that it is a corporation, as distinguished from a natural person, a firm, or an unincorporated association.
No person shall adopt or use the word “cooperative” or any abbreviation or derivation thereof, or any word similar thereto, as part of the name or designation under which it does business in this state, unless incorporated as provided in this part or unless incorporated as a nonprofit cooperative association under Chapter 1 (commencing with Section 54001) of Division 20 of the Food and Agricultural Code, as a stock cooperative, as defined in Section 11003.2 of the Business and Professions Code, as a limited-equity housing cooperative, as defined in Section 817 of the Civil Code, as a credit union or organization owned for the mutual benefit of credit unions, or under some other law of this state enabling it to do so. However, the foregoing prohibition shall be inapplicable to any credit union or organization owned for the mutual benefit of credit unions, any housing cooperative, the financing of which is insured, guaranteed, or provided, in whole or in part, by a public or statutorily chartered entity pursuant to a program created for housing cooperatives, a nonprofit corporation, a majority of whose membership is composed of cooperative corporations, or an academic institution that serves cooperative corporations.
A domestic or foreign corporation or association which did business in this state under a name or designation including the word “cooperative” prior to September 19, 1939, and which conducts business on a cooperative basis substantially as set forth in this part, may continue to do business under that name or designation.
Any person, firm, individual, partnership, trust, domestic corporation, foreign corporation, or association which did business in this state under a name or designation including the word “cooperative” prior to September 19, 1939, but which does not conduct business on a cooperative basis as contemplated by Section 12201 of this part, may continue to do business under that name or designation if the words “not organized under the law relating to cooperative corporations” are always placed immediately after the name or designation wherever it is used.
Any foreign corporation, organized under and complying with the cooperative law of the state or other jurisdiction of its creation, may use the term “cooperative” in this state if it has complied with the laws of this state applicable to foreign corporations, insofar as those laws are applicable to it, and if it is doing business on a cooperative basis as contemplated by Section 12201.
The articles of incorporation may set forth a further statement limiting the purposes or powers of the corporation.
The articles of incorporation may set forth any or all of the following provisions, which shall not be effective unless expressly provided in the articles:
A provision limiting the duration of the corporation’s existence to a specified date.
A provision providing for the distribution of the remaining assets of the corporation, after payment or adequate provision for all of its debts and liabilities, to a charitable trust.
Nothing contained in subdivision (a) shall affect the enforceability, as between the parties thereto, of any lawful agreement not otherwise contrary to public policy.
The articles of incorporation may set forth any or all of the following provisions:
The names and addresses of the persons appointed to act as initial directors.
Provisions concerning the transfer of memberships, in accordance with Section 12410.
The classes of members, if any, and if there are two or more classes, the rights, privileges, preferences, restrictions, and conditions attaching to each class.
Any other provision, not in conflict with law, for the management of the activities and for the conduct of the affairs of the corporation, including any provision which is required or permitted by this part to be stated in the bylaws.
A provision conferring upon members the right to determine the consideration for which memberships shall be issued.
A provision authorizing the board of directors, within any limits or restrictions stated, to fix the rights, privileges, preferences, restrictions, and conditions attaching to any wholly unissued class of memberships authorized in the bylaws or the articles.
If the bylaws or articles authorize a class of memberships to be divisible into series, a provision authorizing the board of directors, within any limits or restrictions stated, to fix the rights, privileges, preferences, restrictions, and conditions attaching to any wholly unissued series of a membership class authorized to be divisible into series, and to fix the number of memberships in the series and the designation of the series. As to any series, the number of which is authorized to be fixed by the board, the articles may also authorize the board to increase or decrease, but not below the number of memberships then outstanding, the number of memberships of any such series subsequent to the issuance of that series. Unless the articles or bylaws provide otherwise, in case the number of memberships of any series is decreased, the memberships constituting this decrease shall resume the status which they had prior to the adoption of the board resolution originally fixing the number of memberships of the series.
The articles of incorporation of a central organization, as defined in Section 12256, organized under or subject to this part may provide for unequal voting power of its members based upon the number of its members’ members, the patronage of its members, or both. In no event shall any member have less than one vote.
For all purposes other than an action in the nature of quo warranto, a copy of the articles of a corporation duly certified by the Secretary of State is conclusive evidence of the formation of the corporation and prima facie evidence of its corporate existence.
If initial directors have not been named in the articles of incorporation, the incorporators may do whatever is necessary and proper to perfect the organization of the corporation, including the adoption and amendment of bylaws of the corporation and the election of directors and officers, until the directors are elected.
A worker cooperative may, in its articles or bylaws, establish itself as a capital account cooperative.
The articles or bylaws of a capital account cooperative may authorize assignment of a portion of retained net earnings and net losses to an unallocated capital account. The unallocated capital account in a capital account cooperative shall reflect any paid-in capital and retained net earnings not allocated to individual members. Earnings assigned to the unallocated capital account may be used for any and all corporate purposes, as determined by the board of directors.
The system of member and unallocated capital accounts may be used to determine the redemption price of member shares, capital stock, and written notices of allocation. The articles or bylaws may provide for the capital account cooperative worker cooperative to pay or credit interest on the balance in each member’s capital account.
The articles or bylaws of a capital account cooperative may permit the periodic redemption of written notices of allocation and capital stock and shall provide for recall and redemption of membership shares upon termination of membership in the cooperative. However, no redemption may occur that would result in the liability of any director or officer pursuant to Article 3 (commencing with Section 12370) of Chapter 2.
As used in this section, “written notice of allocation” has the same meaning as defined in Section 1388 (b) of the Internal Revenue Code.
ARTICLE 5. Powers [12320. - 12321.]
Subject to any limitations contained in the articles or bylaws and to compliance with other provisions of this part and any other applicable laws, a corporation, in carrying out its activities, shall have all of the powers of a natural person, including, without limitation, the power to:
Adopt, use, and at will alter a corporate seal, but failure to affix a seal does not affect the validity of any instrument.
Adopt, amend, and repeal bylaws.
Qualify to conduct its activities in any other state, territory, dependency, or foreign country.
Issue, purchase, redeem, receive, take or otherwise acquire, own, sell, lend, exchange, transfer or otherwise dispose of, pledge, use, and otherwise deal in and with its own memberships, bonds, debentures, notes, and debt securities.
Pay pensions, and establish and carry out pension, deferred compensation, saving, thrift, and other retirement, incentive, and benefit plans, trusts, and provisions for any or all of its directors, officers, employees, and persons providing services to it or any of its subsidiary or related or associated corporations, and to indemnify and purchase and maintain insurance on behalf of any fiduciary of such plans, trusts, or provisions.
Issue certificates evidencing membership in accordance with the provisions of Section 12401 and issue identity cards to identify those persons eligible to use the corporation’s facilities.
Levy dues, assessments, and membership and transfer fees.
Make donations for the public welfare or for community funds, hospital, charitable, educational, scientific, civic, religious, or similar purposes.
Assume obligations, enter into contracts, including contracts of guarantee or suretyship, incur liabilities, borrow or lend money or otherwise use its credit, and secure any of its obligations, contracts, or liabilities by mortgage, pledge, or other encumbrance of all or any part of its property and income.
Participate with others in any partnership, joint venture, or other association, transaction, or arrangement of any kind whether or not such participation involves sharing or delegation of control with or to others.
Act as trustee under any trust incidental to the principal objects of the corporation, and receive, hold, administer, exchange, and expend funds and property subject to such trust.
Carry on a business at a profit and apply any profit that results from the business activity to any activity in which it may lawfully engage.
In anticipation of or during an emergency, take either or both of the following actions necessary to conduct the corporation’s business operations and affairs, unless emergency bylaws provide otherwise pursuant to subdivision (h) of Section 12331:
Modify lines of succession to accommodate the incapacity of any director, officer, employee, or agent resulting from the emergency.
Relocate the principal office, designate alternative principal offices or regional offices, or authorize the officers to do so.
During an emergency, take either or both of the following actions necessary to conduct the corporation’s business operations and affairs, unless emergency bylaws provide otherwise pursuant to subdivision (h) of Section 12331:
Give notice to a director or directors in any practicable manner under the circumstances, including, but not limited to, by publication and radio, when notice of a meeting of the board cannot be given to that director or directors in the manner prescribed by the bylaws or Section 12351.
Deem that one or more officers of the corporation present at a board meeting is a director, in order of rank and within the same rank in order of seniority, as necessary to achieve a quorum for that meeting.
In anticipation of or during an emergency, the board may take any action that it determines to be necessary or appropriate to respond to the emergency, mitigate the effects of the emergency, or comply with lawful federal and state government orders, but shall not take any action that requires the vote of the members, unless the required vote of the members was obtained prior to the emergency.
Any actions taken in good faith in anticipation of or during an emergency under this subdivision bind the corporation and shall not be used to impose liability on a corporate director, officer, employee, or agent.
For purposes of this subdivision, “emergency” means any of the following events or circumstances as a result of which, and only so long as, a quorum of the corporation’s board of directors cannot be readily convened for action:
A natural catastrophe, including, but not limited to, a hurricane, tornado, storm, high water, wind-driven water, tidal wave, tsunami, earthquake, volcanic eruption, landslide, mudslide, snowstorm, drought, epidemic, pandemic, or disease outbreak, or, regardless of cause, any fire, flood, or explosion.
An attack on or within this state or on the public security of its residents by an enemy of this state or on the nation by an enemy of the United States of America, or upon receipt by this state of a warning from the federal government indicating that any such enemy attack is probable or imminent.
An act of terrorism or other manmade disaster that results in extraordinary levels of casualties or damage or disruption severely affecting the infrastructure, environment, economy, government functions, or population, including, but not limited to, mass evacuations.
A state of emergency proclaimed by the Governor of this state, including any person serving as Governor in accordance with Section 10 of Article V of the California Constitution and Section 12058 of the Government Code, or by the President of the United States of America.
No limitation upon the activities, purposes, or powers of the corporation or upon the powers of the members, officers, or directors, or the manner of exercise of such powers, contained in or implied by the articles or by Chapters 15 (commencing with Section 12620), 16 (commencing with Section 12630) and 17 (commencing with Section 12650) shall be asserted as between the corporation or member, officer or director and any third person, except in a proceeding: (1) by a member or the state to enjoin the doing or continuation of unauthorized activities by the corporation or its officers, or both, in cases where third parties have not acquired rights thereby, (2) to dissolve the corporation, or (3) by the corporation or by a member suing in any representative suit against the officers or directors of the corporation for violation of their authority.
Any contract or conveyance made in the name of a corporation which is authorized or ratified by the board, or is done within the scope of authority, actual or apparent, conferred by the board or within the agency power of the officer executing it, except as the board’s authority is limited by law other than this part, binds the corporation, and the corporation acquires rights thereunder whether the contract is executed or wholly or in part executory.
ARTICLE 6. Bylaws [12330. - 12333.]
Materially and adversely affect the rights or obligations of members as to voting, dissolution, redemption, transfer, distributions, patronage distributions, patronage, property rights, or rights to repayment of contributed capital.
Increase or decrease the number or members authorized in total or for any class.
Effect an exchange, reclassification or cancellation of all or part of the memberships.
Authorize a new class of membership.
Bylaws may be adopted, amended or repealed by approval of the members (Section 12224); provided, however, that adoption, amendment, or repeal also requires approval by the members of a class or series if that action would do any of the following:
Materially and adversely affect the rights or obligations of that class or series as to voting, dissolution, redemption, transfer, distributions, patronage distributions, patronage, property rights, or rights to repayment of contributed capital, in a manner different than such action affects another class or another series within the same class.
Materially and adversely affect such class or series as to voting, dissolution, redemption, transfer, distributions, patronage distributions, patronage, property rights, or rights to repayment of contributed capital, by changing the rights, privileges, preferences, restrictions or conditions of another class or another series within the same class.
Increase or decrease the number of memberships authorized for the class.
Increase the number of memberships authorized for another class.
Effect an exchange, reclassification or cancellation of all or part of the memberships of the class or series.
Authorize a new class of memberships.
The articles or bylaws may restrict or eliminate the power of the board to adopt, amend or repeal any or all bylaws, subject to subdivision (e) of Section 12331.
Bylaws may also provide that repeal or amendment of those bylaws, or the repeal or amendment of specified portions of those bylaws, may occur only with the approval in writing of a specified person or persons other than the board or members. However, this approval requirement, unless the articles or the bylaws specify otherwise, shall not apply if any of the following circumstances exist:
The bylaws shall set forth (unless such provision is contained in the articles, in which case it may only be changed by an amendment of the articles) the number of directors of the corporation, or the method of determining the number of directors of the corporation, or that the number of directors shall be not less than a stated minimum or more than a stated maximum with the exact number of directors to be fixed, within the limits specified, by approval of the board or the members (Sections 12222 and 12224), in the manner provided in the bylaws, subject to subdivision (e). The number or minimum number of directors shall not be less than three. Alternate directors may be permitted, in which event, the bylaws shall specify the manner and times of their election and the conditions to their service in place of a director.
Once members have been admitted, a bylaw specifying or changing a fixed number of directors or the maximum or minimum number or changing from a fixed to a variable board or vice versa may only be adopted by approval of the members.
The bylaws may contain any provision, not in conflict with law or the articles, for the management of the activities and for the conduct of the affairs of the corporation, including, but not limited to:
Any provision referred to in subdivision (c) of Section 12313.
The time, place, and manner of calling, conducting, and giving notice of members’, directors’, and committee meetings, or of conducting mail ballots.
The qualifications, duties, and compensation of directors; the time of their election; and the requirements of a quorum for directors’ and committee meetings.
The appointment of committees, composed of directors or nondirectors or both, by the board or any officer and the authority of these committees.
The appointment, duties, compensation, and tenure of officers.
The mode of determination of members of record.
The making of reports and financial statements to members.
Setting, imposing, and collecting dues, assessments, and membership and transfer fees.
The time and manner of patronage distributions consistent with this part.
The bylaws may provide for eligibility, the manner of admission, withdrawal, suspension, and expulsion of members, and the suspension or termination of memberships consistent with the requirements of Section 12431.
The bylaws may require, for any or all corporate actions, the vote of a larger proportion of, or all of, the members or the members of any class, unit, or grouping of members or the vote of a larger proportion of, or all of, the directors, than is otherwise required by this part. A provision in the bylaws requiring a greater vote shall not be altered, amended, or repealed except by the greater vote, unless otherwise provided in the bylaws.
The bylaws may contain a provision limiting the number of members, in total or of any class or series, which the corporation is authorized to admit.
The bylaws may provide for the establishment by the corporation of a program for the education of its members, officers, employees, and the general public in the principles and techniques of cooperation.
The bylaws may contain any provision, not in conflict with the articles, to manage and conduct the business affairs of the corporation effective only in an emergency as defined in Section 12320, including, but not limited to, procedures for calling a board meeting, quorum requirements for a board meeting, and designation of additional or substitute directors.
During an emergency, the board may take any action that it determines to be necessary or appropriate to respond to the emergency, mitigate the effects of the emergency, or comply with lawful federal and state government orders, but shall not take any action that requires the vote of the members, unless the required vote of the members was obtained prior to the emergency.
All provisions of the regular bylaws consistent with the emergency bylaws shall remain effective during the emergency, and the emergency bylaws shall not be effective after the emergency ends.
Corporate action taken in good faith in accordance with the emergency bylaws binds the corporation, and shall not be used to impose liability on a corporate director, officer, employee, or agent.
A corporation may provide in its bylaws for delegates having some or all of the authority of members. Where delegates are provided for, the bylaws shall set forth the delegates’ terms of office, any reasonable method for delegates’ selection and removal, and any reasonable method for calling, noticing, and holding meetings of delegates, may set forth the manner in which delegates may act by written ballot similar to Section 12463 for written ballot of members, and may set forth the manner in which delegates may participate in meetings of delegates similar to paragraph (6) of subdivision (a) of Section 12351. Unless delegates are directly elected by the membership, they shall be elected by a body or bodies directly elected by the membership. Each delegate shall have one vote on each matter presented for action. A delegate shall not vote by proxy. Delegates may be given a name other than “delegates.”
A corporation may provide in its bylaws for voting by its members or delegates on the basis of chapter or other organizational unit, or by region or other geographic grouping.
ARTICLE 7. Location and Inspection of Articles and Bylaws [12340. - 12340.]
Every corporation shall keep at its principal office in this state the original or a copy of its articles and bylaws as amended to date, which shall be open to inspection by the members at all reasonable times during office hours. If the corporation has no office in this state, it shall upon the written request of any member furnish to such member a copy of the articles or bylaws as amended to date.
CHAPTER 2. Directors and Management [12350. - 12377.]
ARTICLE 1. General Provisions [12350. - 12355.]
Each corporation shall have a board of directors. Subject to the provisions of this part and any limitations in the articles or bylaws relating to action required to be approved by the members (Section 12224), or by a majority of all members (Section 12223), the activities and affairs of a corporation shall be conducted and all corporate powers shall be exercised by or under the direction of the board. The board may delegate the management of the activities of the corporation to any person or persons, management company, or committee however composed, provided that the activities and affairs of the corporation shall be managed and all corporate powers shall be exercised under the ultimate direction of the board.
Unless otherwise provided in the articles or in the bylaws:
Meetings of the board may be called by the chair of the board or the president or any vice president or the secretary or any two directors.
Regular meetings of the board may be held without notice if the time and place of the meetings are fixed by the bylaws or the board. Special meetings of the board shall be held upon four days’ notice by first-class mail or 48 hours’ notice delivered personally or by telephone, including a voice messaging system or by electronic transmission by the corporation (Section 20). The articles or bylaws may not dispense with notice of a special meeting. A notice, or waiver of notice, need not specify the purpose of any regular or special meeting of the board.
Notice of a meeting need not be given to any director who provides a waiver of notice or consent to holding the meeting or an approval of the minutes thereof in writing, whether before or after the meeting, or who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to that director. All waivers, consents, and approvals shall be filed with the corporate records or made a part of the minutes of the meetings.
A majority of the directors present, whether or not a quorum is present, may adjourn any meeting to another time and place. If the meeting is adjourned for more than 24 hours, notice of any adjournment to another time or place shall be given prior to the time of the adjourned meeting to the directors who were not present at the time of the adjournment.
Meetings of the directors may be held at any place within or without the state which has been designated in the notice of the meeting or, if not stated in the notice or if there is no notice, designated in the bylaws or by resolution of the board.
Directors may participate in a meeting through use of conference telephone, electronic video screen communication, or electronic transmission by and to the corporation (Sections 20 and 21). Participation in a meeting through use of conference telephone or electronic video screen communication pursuant to this subdivision constitutes presence in person at that meeting as long as all directors participating in the meeting are able to hear one another. Participation in a meeting through use of electronic transmission by and to the corporation, other than conference telephone and electronic video screen communication pursuant to this subdivision constitutes presence in person at that meeting if both of the following apply:
Each director participating in the meeting can communicate with all of the other directors concurrently.
Each director is provided the means of participating in all matters before the board, including, without limitation, the capacity to propose, or to interpose an objection to, a specific action to be taken by the corporation.
A majority of the number of directors authorized in or pursuant to the articles or bylaws constitutes a quorum of the board for the transaction of business. The articles or bylaws may require the presence of one or more specified directors to constitute a quorum of the board to transact business, as long as the death or nonexistence of a specified director or the death or nonexistence of the person or persons otherwise authorized to appoint or designate a director does not prevent the corporation from transacting business in the normal course of events. The articles or bylaws may not provide that a quorum shall be less than one-fifth the number of directors authorized in or pursuant to the articles or bylaws, or less than two, whichever is larger.
Subject to the provisions of Sections 12352, 12373, 12374, and subdivision (e) of Section 12377, every act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present is the act of the board. The articles or bylaws may not provide that a lesser vote than a majority of the directors present at a meeting is the act of the board. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for the meeting, or a greater number as is required by this division, the articles or bylaws.
Any action required or permitted to be taken by the board may be taken without a meeting, if all directors shall individually or collectively consent in writing to that action. Such written consent or consents shall be filed with the minutes of the proceedings of the board.
The action by written consent shall have the same force and effect as a unanimous vote of the directors.
Each director shall have one vote on each matter presented to the board of directors for action. A director shall not vote by proxy.
The board may, by resolution adopted by a majority of the number of directors then in office, provided that a quorum is present, create one or more committees, each consisting of two or more directors, to serve at the pleasure of the board. Appointments to such committees shall be by a majority vote of the directors then in office, unless the articles or bylaws require a majority vote of the number of directors authorized in or pursuant to the articles or bylaws. The bylaws may authorize one or more such committees, each consisting of two or more directors, and may provide that a specified officer or officers who are also directors of the corporation shall be a member or members of such committee or committees. The board may appoint one or more directors as alternate members of such committee, who may replace any absent member at any meeting of the committee. Such committee, to the extent provided in the resolution of the board or in the bylaws, shall have all the authority of the board, except with respect to:
The filling of vacancies on the board or in any committee which has the authority of the board.
The fixing of compensation of the directors for serving on the board or on any committee.
The amendment or repeal of bylaws or the adoption of new bylaws.
The amendment or repeal of any resolution of the board which by its express terms is not so amendable or repealable.
The appointment of committees of the board or the members thereof.
The expenditure of corporate funds to support a nominee for director after there are more people nominated for director than can be elected.
A committee exercising the authority of the board shall not include as members persons who are not directors. However, the board may create other committees that do not exercise the authority of the board and these other committees may include persons regardless of whether they are directors.
Unless the bylaws otherwise provide, the board may delegate to any committee, appointed pursuant to paragraph (4) of subdivision (c) of Section 12331 or otherwise, powers as authorized by Section 12350, but may not delegate the powers set forth in paragraphs (1) through (7) of subdivision (a) of this section.
A corporation shall have (1) a chair of the board, who may be given the title chair, chairperson, chair of the board, or chairperson of the board, or a president or both, (2) a secretary, (3) a treasurer or a chief financial officer or both, and (4) any other officers with any titles and duties as shall be stated in the bylaws or determined by the board and as may be necessary to enable it to sign instruments. The president, or if there is no president the chair of the board, is the chief executive officer of the corporation, unless otherwise provided in the articles or bylaws. Unless otherwise specified in the articles or the bylaws, if there is no chief financial officer, the treasurer is the chief financial officer of the corporation. Any number of offices may be held by the same person unless the articles or bylaws provide otherwise. Either the chair of the board or the president shall be elected from among those board members elected by the membership of the corporation.
Except as otherwise provided by the articles or bylaws, officers shall be chosen by the board and serve at the pleasure of the board, subject to the rights, if any, of an officer under any contract of employment. Any officer may resign at any time upon written notice to the corporation without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party.
Subject to the provisions of subdivision (a) of Section 12321, any note, mortgage, evidence of indebtedness, contract, conveyance or other instrument in writing, and any assignment or endorsement thereof, executed or entered into between any corporation and any other person, when signed by any one of the chairperson of the board, the president or any vice president and by any one of the secretary, any assistant secretary, the chief financial officer, or any assistant treasurer of such corporation, is not invalidated as to the corporation by any lack of authority of the signing officers in the absence of actual knowledge on the part of the other person that the signing officers had no authority to execute the same.
The original or a copy in writing or in any other form capable of being converted into clearly legible tangible form of the bylaws or of the minutes of any incorporators’, members’, directors’, committee or other meeting or of any resolution adopted by the board or a committee thereof, or members, certified to be a true copy by a person purporting to be the secretary or an assistant secretary of the corporation, is prima facie evidence of the adoption of such bylaws or resolution or of the due holding of such meeting and of the matters stated therein.
ARTICLE 2. Selection, Removal and Resignation of Directors [12360. - 12364.]
Except as provided in subdivision (d), directors shall be elected for terms of not longer than four years, as fixed in the articles or bylaws. In the absence of any provision in the articles or bylaws, the terms shall be one year. No amendment of the articles or bylaws may extend the term of a director beyond that for which the director was elected, nor may any bylaw provision increasing the terms of directors be adopted without approval of the members.
Unless otherwise provided in the articles or bylaws, each director, including a director elected to fill a vacancy, shall hold office until the expiration of the term for which elected and until a successor has been elected and qualified, unless the director has been removed from office.
The articles or bylaws may prescribe requirements for eligibility for election as a director.
For the purposes of this subdivision, “designator” means one or more designators. Notwithstanding subdivisions (a) to (c), inclusive, all or any portion of the directors authorized in the articles or bylaws of a corporation may hold office by virtue of designation or selection by a specified designator as provided by the articles or bylaws rather than by election. Those directors shall continue in office for the term prescribed by the governing article or bylaw provision, or, if there is no term prescribed, until the governing article or bylaw provision is duly amended or repealed, except as provided in subdivision (f) of Section 12362. A bylaw provision authorized by this subdivision may be adopted, amended, or repealed only by approval of the members (Section 12224), except as provided in subdivision (d) of Section 12330. Unless otherwise provided in the articles or bylaws, the entitlement to designate or select a director or directors shall cease if any of the following circumstances exist:
The specified designator of that director or directors has died or ceased to exist.
If the entitlement of the specified designator of that director or directors to designate is in the capacity of an officer, trustee, or other status and the office, trust, or status has ceased to exist.
If a corporation has not issued memberships and (1) all the directors resign, die, or become incompetent, or (2) a corporation’s initial directors have not been named in the articles and all incorporators resign, die, or become incompetent before the election of the initial directors, the superior court of any county may appoint directors of the corporation upon application by any party in interest.
If authorized in the articles or bylaws of a corporation, all or any portion of the directors may hold office ex officio by virtue of occupying a specified position within the corporation or outside the corporation. The term of office of an ex officio director shall coincide with that director’s respective term of office in the specified position entitling him or her to serve on the board of directors. Upon an ex officio director’s resignation or removal from that position, or resignation or removal from the board for any reason, the term of office as a director of the corporation shall immediately cease. At that time, the successor in office shall become an ex officio director of the corporation, occupying the place of the former director.
The board may declare vacant the office of a director whose eligibility for election as a director has ceased, or who has been declared of unsound mind by a final order of court, or convicted of a felony, or, if at the time a director is elected, the bylaws provide that a director may be removed for missing a specified number of board meetings, fails to attend the specified number of meetings.
Subject to subdivisions (b), (c) and (g), any or all directors may be removed without cause if one of the following applies:
In a corporation with fewer than 50 members, the removal is approved by a majority of all members (Section 12223).
In a corporation with 50 or more members, the removal is approved by the members (Section 12224).
In a corporation in which the articles or bylaws authorize members to cumulate their votes pursuant to subdivision (a) of Section 12485, no director may be removed (unless the entire board is removed) when the votes cast against removal, or not consenting in writing to the removal, would be sufficient to elect the director if voted cumulatively at an election at which the same total number of votes were cast (or, if the action is taken by written ballot, all memberships entitled to vote were voted) and the entire number of directors authorized at the time of the director’s most recent election were then being elected; and
When by the provisions of the articles or bylaws the members of any class, voting as a class, are entitled to elect one or more directors, any director so elected may be removed only by the applicable vote of the members of that class.
Any reduction of the authorized number of directors or any amendment reducing the number of class of directors does not remove any director prior to the expiration of the director’s term of office, unless the reduction or amendment also provides for removal of one or more specified directors.
Where a different person may be designated pursuant to the governing article or bylaw provision, the new designation shall be made; or
Where the governing article or bylaw provision contains no provision under which a different person may be designated, the governing article or bylaw provision shall be deemed repealed.
For the purposes of this subdivision, “designator” means one or more designators. If by the provisions of the articles or bylaws a designator is entitled to designate one or more directors, then:
Unless as otherwise provided in the articles or bylaws at the time of designation, any director so designated may be removed without cause by the designator of that director.
Any director so designated may only be removed under subdivision (a) with the written consent of the designator of that director.
Unless as otherwise provided in the articles or bylaws, the right to remove shall not apply if any of the following circumstances exist:
The designator entitled to that right has died or ceased to exist.
If that right is in the capacity of an officer, trustee, or other status, and the office, trust, or status has ceased to exist.
The superior court of the proper county may, at the suit of a director, or members possessing 5 percent of the voting power, remove from office any director in case of fraudulent or dishonest acts or gross abuse of authority or discretion with reference to the corporation and may bar from reelection any director so removed for a period prescribed by the court. The corporation shall be made a party to such action.
Unless otherwise provided in the articles or bylaws and except for a vacancy created by the removal of a director, vacancies on the board may be filled by approval of the board (Section 12222) or, if the number of directors then in office is less than a quorum, by (1) the unanimous written consent of the directors then in office, (2) the affirmative vote of a majority of the directors then in office at a meeting held pursuant to notice or waivers of notice complying with Section 12351, or (3) a sole remaining director. Unless the articles or a bylaw approved by the members (Section 12224) provide that the board may fill vacancies occurring in the board by reason of the removal of directors, such vacancies may be filled only by approval of the members (Section 12224).
The members may elect a director at any time to fill any vacancy not filled by the directors.
Any director may resign effective upon giving written notice to the chairperson of the board, the president, the secretary, or the board of directors of the corporation, unless the notice specifies a later time for the effectiveness of such resignation. If the resignation is effective at a future time, a successor may be elected to take office when the resignation becomes effective.
ARTICLE 3. Standards of Conduct [12370. - 12377.]
Any duties and liabilities set forth in this article shall apply without regard to whether a director is compensated by the corporation.
A director shall perform the duties of a director, including duties as a member of any committee of the board upon which the director may serve, in good faith, in a manner such director believes to be in the best interests of the corporation and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances.
In performing the duties of a director, a director shall be entitled to rely on information, opinions, reports or statements, including financial statements and other financial data, in each case prepared or presented by:
One or more officers or employees of the corporation whom the director believes to be reliable and competent in the matters presented;
Counsel, independent accountants or other persons as to matters which the director believes to be within such person’s professional or expert competence; or
A committee upon which the director does not serve that is composed exclusively of any or any combination of directors, persons described in paragraph (1), or persons described in paragraph (2), as to matters within the committee’s designated authority, which committee the director believes to merit confidence, so long as, in any such case, the director acts in good faith, after reasonable inquiry when the need therefor is indicated by the circumstances and without knowledge that would cause such reliance to be unwarranted.
A person who performs the duties of a director in accordance with subdivisions (a) and (b) shall have no liability based upon any alleged failure to discharge the persons’s obligations as a director.
Section 12371 governs the duties of directors as to any acts or omissions in connection with the election, selection, or nomination of directors.
This section shall not be construed to limit the generality of Section 12371.
No contract or other transaction between a corporation and one or more of its directors, or between a corporation and any domestic or foreign corporation, firm or association in which one or more of its directors has a material financial interest, is either void or voidable because such director or directors or such other corporation, business corporation, firm or association are parties or because such director or directors are present at the meeting of the board or a committee thereof which authorizes, approves or ratifies the contract or transaction, if:
The material facts as to the transaction and as to such director’s interest are fully disclosed or known to the members and such contract or transaction is approved by the members (Section 12224) in good faith, with any membership owned by any interested director not being entitled to vote thereon;
The material facts as to the transaction and as to such director’s interest are fully disclosed or known to the board or committee, and the board or committee authorizes, approves or ratifies the contract or transaction in good faith by a vote sufficient without counting the vote of the interested director or directors and the contract or transaction is just and reasonable as to the corporation at the time it is authorized, approved or ratified; or
As to contracts or transactions not approved as provided in paragraph (1) or (2), the person asserting the validity of the contract or transaction sustains the burden of proving that the contract or transaction was just and reasonable as to the corporation at the time it was authorized, approved or ratified.
Neither a mere common directorship nor a member-patron relationship on terms available to all members constitutes a material financial interest within the meaning of this subdivision. A director is not interested within the meaning of this subdivision in a resolution fixing the compensation of another director as a director, officer or employee of the corporation, notwithstanding the fact that the first director is also receiving compensation from the corporation.
No contract or other transaction between a corporation and any corporation, business corporation or association of which one or more of its directors are directors is either void or voidable because such director or directors are present at the meeting of the board or a committee thereof which authorizes, approves or ratifies the contract or transaction, if:
The material facts as to the transaction and as to such director’s other directorship are fully disclosed or known to the board or committee, and the board or committee authorizes, approves or ratifies the contract or transaction in good faith by a vote sufficient without counting the vote of the common director or directors or the contract or transaction is approved by the members in good faith; or
As to contracts or transactions not approved as provided in paragraph (1), the contract or transaction is just and reasonable as to the corporation at the time it is authorized, approved or ratified.
This subdivision does not apply to contracts or transactions covered by subdivision (a).
Interested or common directors may be counted in determining the presence of a quorum at a meeting of the board or a committee thereof which authorizes, approves or ratifies a contract or transaction as provided in Section 12373.
Unless prohibited by the articles or bylaws, a corporation may loan money or property to, or guarantee the obligation of, any director or officer of the corporation or of its parent, affiliate or subsidiary, provided:
The board determines the loan or guaranty may reasonably be expected to benefit the corporation.
Prior to consummating the transaction or any part thereof, the loan or guaranty is either:
Approved by the members (Section 12224), without counting the vote of the director or officer, if a member.
Approved by the vote of a majority of the directors then in office, without counting the vote of the director who is to receive the loan or the benefit of the guaranty.
Notwithstanding subdivision (a), a corporation may advance money to a director or officer of the corporation or of its parent, affiliate or subsidiary, for any expenses reasonably anticipated to be incurred in the performance of the duties of the director or officer of the corporation or of its parent, affiliate or subsidiary, for any expenses reasonably anticipated to be incurred in the performance of the duties of the director or officer, provided that in the absence of such an advance the director or officer would be entitled to be reimbursed for these expenses by the corporation, its parent, affiliate, or subsidiary.
The provisions of subdivisions (a) and (b) do not apply to credit unions, or to the payment of premiums in whole or in part by a corporation on a life insurance policy on the life of a director or officer so long as repayment to the corporation of the amount paid by it is secured by the proceeds of the policy and its cash surrender value, or to loans permitted under any statute regulating any special class of corporations.
Subject to the provisions of Section 12371, directors of a corporation who approve any of the following corporate actions are jointly and severally liable to the corporation for the benefit of all of the creditors entitled to institute an action under paragraph (1) or (2) of subdivision (c) or to the corporation in an action by members under paragraph (3) of subdivision (c):
The making of any distribution or purchase or redemption of memberships contrary to Chapter 4 (commencing with Section 12450).
The distribution of assets after institution of dissolution proceedings of the corporation, without paying or adequately providing for all known liabilities of the corporation, excluding any claims not filed by creditors within the time limit set by the court in a notice given to creditors under Chapters 15 (commencing with Section 12620), 16 (commencing with Section 12630), and 17 (commencing with Section 12650).
The making of any loan or guarantee contrary to Section 12375.
A director who is present at a meeting of the board, or any committee thereof, at which action specified in subdivision (a) is taken and who abstains from voting shall be considered to have approved the action.
Suit may be brought in the name of the corporation to enforce the liability:
Under paragraph (1) of subdivision (a) against any or all directors liable by the persons entitled to sue under subdivision (c) of Section 12455.
Under paragraph (2) or (3) of subdivision (a) against any or all directors liable by any one or more creditors of the corporation whose debts or claims arose prior to the time of the corporate action who have not consented to the corporate action, whether or not they have reduced their claims to judgment.
Under paragraph (3) of subdivision (a) against any or all directors liable by any one or more members at the time of any corporate action specified in paragraph (3) of subdivision (a) who have not consented to the corporate action, without regard to the provisions of Section 12490.
The damages recoverable from a director under this section shall be the amount of the illegal distribution, or if the illegal distribution consists of property, the fair market value of that property at the time of the illegal distribution, plus interest thereon from the date of the distribution at the legal rate on judgments until paid, together with all reasonably incurred costs of appraisal or other valuation, if any, of that property, or the loss suffered by the corporation as a result of the illegal loan or guarantee, but not exceeding, in the case of an action for the benefit of creditors, the liabilities of the corporation owed to nonconsenting creditors at the time of the violation.
Any director sued under this section may implead all other directors liable and may compel contribution, either in that action or in an independent action against directors not joined in that action.
Directors liable under this section shall also be entitled to be subrogated to the rights of the corporation:
With respect to paragraph (1) of subdivision (a), against the persons who received the distribution.
With respect to paragraph (2) of subdivision (a), against the persons who received the distribution.
With respect to paragraph (3) of subdivision (a), against the person who received the loan or guarantee.
Any director sued under this section may file a cross-complaint against the person or persons who are liable to the director as a result of the subrogation provided for in this subdivision or may proceed against them in an independent action.
For the purposes of this section, “agent” means any person who is or was a director, officer, employee or other agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise, or was a director, officer, employee or agent of a foreign or domestic corporation which was a predecessor corporation of the corporation or of another enterprise at the request of the predecessor corporation; “proceeding” means any threatened, pending or completed action or proceeding, whether civil, criminal, administrative or investigative; and “expenses” includes without limitation attorneys’ fees and any expenses of establishing a right to indemnification under subdivision (d) or paragraph (3) of subdivision (e).
A corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to any proceeding (other than an action by or in the right of the corporation to procure a judgment in its favor) by reason of the fact that the person is or was an agent of the corporation, against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with the proceeding if the person acted in good faith and in a manner the person reasonably believed to be in the best interests of the corporation and, in the case of a criminal proceeding, had no reasonable cause to believe the conduct of the person was unlawful. The termination of any proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent shall not, of itself, create a presumption that the person did not act in good faith and in a manner that the person reasonably believed to be in the best interests of the corporation or that the person had reasonable cause to believe that the person’s conduct was unlawful.
A corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action by or in the right of the corporation, to procure a judgment in its favor by reason of the fact that the person is or was an agent of the corporation, against expenses actually and reasonably incurred by the person in connection with the defense or settlement of the action if the person acted in good faith, in a manner the person believed to be in the best interests of the corporation and with that care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances. No indemnification shall be made under this subdivision:
In respect of any claim, issue or matter as to which the person shall have been adjudged to be liable to the corporation in the performance of the person’s duty to the corporation, unless and only to the extent that the court in which the proceeding is or was pending shall determine upon application that, in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for the expenses which the court shall determine;
Of amounts paid in settling or otherwise disposing of a threatened or pending action, with or without court approval; or
Of expenses incurred in defending a threatened or pending action which is settled or otherwise disposed of without court approval.
To the extent that an agent of a corporation has been successful on the merits in defense of any proceeding referred to in subdivision (b) or (c) or in defense of any claim, issue, or matter therein, the agent shall be indemnified against expenses actually and reasonably incurred by the agent in connection therewith.
Except as provided in subdivision (d), any indemnification under this section shall be made by the corporation only if authorized in the specific case, upon a determination that indemnification of the agent is proper in the circumstances because the agent has met the applicable standard of conduct set forth in subdivision (b) or (c), by:
A majority vote of a quorum consisting of directors who are not parties to the proceeding;
Approval of the members (Section 12224), with the persons to be indemnified not being entitled to vote thereon; or
The court in which the proceeding is or was pending upon application made by the corporation or the agent or the attorney or other person rendering services in connection with the defense, whether or not the application by the agent, attorney or other person is opposed by the corporation.
Expenses incurred in defending any proceeding may be advanced by the corporation prior to the final disposition of the proceeding upon receipt of an undertaking by or on behalf of the agent to repay the amount unless it shall be determined ultimately that the agent is entitled to be indemnified as authorized in this section.
No provision made by a corporation to indemnify its or its subsidiary’s directors or officers for the defense of any proceeding, whether contained in the articles, bylaws, a resolution of members or directors, an agreement or otherwise, shall be valid unless consistent with this section. Nothing contained in this section shall affect any right to indemnification to which persons other than the directors and officers may be entitled by contract or otherwise.
No indemnification or advance shall be made under this section, except as provided in subdivision (d) or paragraph (3) of subdivision (e), in any circumstance where it appears:
That it would be inconsistent with a provision of the articles, bylaws, a resolution of the members or an agreement in effect at the time of the accrual of the alleged cause of action asserted in the proceeding in which the expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification; or
That it would be inconsistent with any condition expressly imposed by a court in approving a settlement.
A corporation shall have power to purchase and maintain insurance on behalf of any agent of the corporation against any liability asserted against or incurred by the agent in that capacity or arising out of the agent’s status as such whether or not the corporation would have the power to indemnify the agent against that liability under the provisions of this section.
This section does not apply to any proceeding against any trustee, investment manager, or other fiduciary of a pension, deferred compensation, saving, thrift, or other retirement, incentive, or benefit plan, trust, or provision for any or all of the corporation’s directors, officers, employees, and persons providing services to the corporation or any of its subsidiary or related or affiliated corporations, in the person’s capacity as such, even though the person may also be an agent as defined in subdivision (a) of the employer corporation. A corporation shall have power to indemnify the trustee, investment manager or other fiduciary to the extent permitted by subdivision (e) of Section 12320.
CHAPTER 3. Members [12400. - 12446.]
ARTICLE 1. Issuance of Memberships [12400. - 12405.]
Subject to the articles or bylaws, memberships may be issued by a corporation for no consideration or for such consideration as is determined by the board.
A corporation may issue, but is not required to issue, membership certificates. In the event that membership certificates are issued, the certificates shall state the information required to be contained in the disclosure document described in subdivision (b). Nothing in this section shall restrict a corporation from issuing identity cards or similar devices to members which serve to identify members qualifying to use facilities or services of the corporation.
Except as provided in subdivision (e), prior to issuing a membership, the corporation shall provide the purchaser of a membership with a disclosure document. The disclosure document may be a prospectus, offering circular, brochure, or similar document, a specimen copy of the membership certificate, or a receipt which the corporation proposes to issue. The disclosure document shall contain the following information:
A statement that the corporation is a cooperative corporation.
A statement that a copy of the corporation’s articles and bylaws will be furnished without charge to a member or prospective member upon written request, and the address of the office of the corporation and the address to which such a written request is to be directed.
If there are restrictions imposed by the corporation upon the transfer of membership, a statement to that effect and the restrictions imposed on transfer.
If the corporation may levy dues, assessments, or membership or transfer fees, a statement to that effect and the conditions under which the corporation may make such a levy.
If the member is required to contribute services to the corporation, a statement to that effect and the amount and nature of the services to be contributed to the corporation.
Whether the membership is redeemable and the conditions under which the membership may be redeemed at the option of the corporation or the member.
If the voting power or the proprietary interests of the members is unequal, a statement to that effect and the rule or rules by which the voting power and proprietary rights are to be determined.
In lieu of specifying verbatim in the disclosure document the restrictions on the transfer of a membership, conditions of levy, amount and nature of services to be contributed, conditions under which memberships are redeemable, or the rules by which the voting power and proprietary rights of members are to be determined, the disclosure document may contain a statement that such information will be provided free of charge to a member or prospective member who requests it in writing. If the disclosure document contains such a statement it shall also set forth the address of the office of the corporation and the address to which such a request is to be directed.
If the articles or bylaws are amended so that any statement required by subdivision (a) on outstanding membership certificates is no longer accurate, the board may cancel the outstanding certificates and issue in their place new certificates conforming to the articles or bylaws amendments.
When new membership certificates are issued in accordance with subdivision (c), the board may order holders of outstanding certificates to surrender and exchange them for new certificates within a reasonable time fixed by the board. The board may further provide that the holder of the certificate to be surrendered shall not be entitled to exercise any of the rights of membership until the certificate is surrendered, but such rights shall be suspended only after notice of the order is given to the holder of the certificate and only until the certificate is surrendered. The requirement to surrender outstanding certificates may be enforced by civil action.
A corporation shall issue a membership certificate, receipt, or written advice of purchase to anyone purchasing a membership upon the member’s first purchase of a membership of any class. No disclosure document need be provided to an existing member prior to the purchase of additional memberships if that member has previously been provided with a disclosure document which is accurate and correct as of the date of the purchase of the additional memberships.
If a corporation does not issue new certificates as contemplated by subdivisions (c) and (d), and if a transferee of a membership certificate has not previously been provided with a disclosure statement which is accurate and correct as of the date of registration of the transfer, then the corporation shall provide a disclosure document to the transferee upon registration with the corporation of the transfer of the certificate.
A corporation may issue a new membership certificate in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the corporation may require the owner of the lost, stolen or destroyed certificate or the owner’s legal representative to give the corporation a bond (or other adequate security) sufficient to indemnify it against any claim that may be made against it (including any expense or liability) on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate.
If a corporation refuses to issue a new membership certificate or other certificate in place of one theretofore issued by it, or by any corporation of which it is the lawful successor, alleged to have been lost, stolen or destroyed, the owner of the lost, stolen or destroyed certificate or the owner’s legal representative may bring an action in the superior court of the proper county for an order requiring the corporation to issue a new certificate in place of the one lost, stolen or destroyed.
Except as provided in subdivision (b), or in its articles or bylaws, a corporation may admit any person to membership.
A corporation may not admit its subsidiary to membership.
The worker-members of a worker cooperative shall have voting power as provided in subdivision (a) of Section 12253.
Community investors have voting power only as provided in subdivision (c) of Section 12253.
There shall be no voting by proxy.
ARTICLE 2. Transfer of Memberships [12410. - 12410.]
Unless the articles or bylaws otherwise provide:
No member may transfer a membership or any right arising therefrom; and
The articles or bylaws may provide for, or may authorize the board to provide for, the transfer of memberships, or of memberships within any class or classes, with or without restriction or limitation, including transfer upon the death, dissolution, merger, or reorganization of a member.
Where transfer rights have been provided, no restriction of them shall be binding with respect to memberships issued prior to the adoption of the restriction, unless the holders of such memberships voted in favor of the restriction.
ARTICLE 3. Types of Memberships [12420. - 12422.]
Except as provided in subdivision (b), a corporation may issue memberships having different rights, privileges, preferences, restrictions, or conditions, as provided in its articles or bylaws. If the articles or bylaws authorize at least one class of voting memberships, a corporation may also authorize and issue additional classes of memberships, preferred or otherwise, that are divisible into a series or are nonvoting or both.
All worker-members shall have the rights, privileges, preferences, restrictions, or conditions as provided in the articles or bylaws. This membership shall not be divided into partial memberships.
A worker cooperative shall only make patronage distributions to the worker-member class.
Except as provided in the articles or bylaws, all memberships shall have the same rights, privileges, preferences, restrictions and conditions.
Unless the corporation’s articles or bylaws so provide, memberships are not redeemable. A corporation may provide in its articles or bylaws for one or more classes or series of memberships which are redeemable, in whole or in part, for such consideration within such time or upon the happening of one or more specified events and upon the terms and conditions stated in the articles or bylaws. However, no membership shall actually be redeemed if prohibited by Chapter 4 (commencing with Section 12450).
Nothing in this section shall prevent a corporation from creating a sinking fund or similar provision for, or entering into an agreement for, the redemption or purchase of its memberships to the extent permitted by Chapter 4 (commencing with Section 12450).
ARTICLE 4. Termination of Memberships [12430. - 12431.]
A member may resign from membership at any time, although the articles or bylaws may require reasonable notice before the resignation is effective.
This section shall not relieve the resigning member from any obligation for charges incurred, services or benefits actually rendered, dues, assessments or fees, or arising from contract, a condition to ownership of land, an obligation arising out of the ownership of land, or otherwise, and this section shall not diminish any right of the corporation to enforce any such obligation or obtain damages for its breach.
A membership issued for a period of time shall expire when such period of time has elapsed unless the membership is renewed.
No member may be expelled or suspended, and no membership or memberships may be terminated or suspended, except according to procedures satisfying the requirements of this section. An expulsion, termination, or suspension not in accord with this section shall be void and without effect.
Any expulsion, suspension, or termination must be done in good faith and in a fair and reasonable manner. Any procedure that conforms to the requirements of subdivision (c) or (d) is fair and reasonable, but a court may also find other procedures to be fair and reasonable when the full circumstances of the suspension, termination, or expulsion are considered.
A procedure is fair and reasonable if all of the following occur:
The provisions of the procedure have been set forth in the articles or bylaws, or copies of such provisions are sent annually to all the members as required by the articles or bylaws.
It provides the giving of 15 days’ prior notice of the expulsion, suspension, or termination and the reasons therefor.
It provides an opportunity for the member to be heard, orally or in writing, not less than five days before the effective date of the expulsion, suspension, or termination by a person or body authorized to decide that the proposed expulsion, termination, or suspension not take place.
Any notice required under this section may be given by any method reasonably calculated to provide actual notice. Any notice given by mail must be given by first-class or registered mail sent to the last address of the members shown on the corporation’s records.
Any action challenging an expulsion, suspension, or termination of membership, including any claim alleging defective notice, must be commenced within one year after the date of the expulsion, suspension, or termination. In the event such an action is successful the court may order any relief, including reinstatement, it finds equitable under the circumstances, but no vote of the members or of the board may be set aside solely because a person was at the time of the vote wrongfully excluded by virtue of the challenged expulsion, suspension, or termination, unless the court finds further that the wrongful expulsion, suspension, or termination was in bad faith and for the purpose, and with the effect, of wrongfully excluding the member from the vote or from the meeting at which the vote took place, so as to affect the outcome of the vote.
This section governs only the procedures for expulsion, suspension, or termination and not the substantive grounds therefor. An expulsion, suspension, or termination based upon substantive grounds which violate contractual or other rights of the member or are otherwise unlawful is not made valid by compliance with this section.
A member who is expelled or suspended or whose membership is terminated shall be liable for any charges incurred, services or benefits actually rendered, dues, assessments, or fees incurred before expulsion, suspension, or termination or arising from contract or otherwise.
ARTICLE 5. Rights and Obligations of Members and Creditors [12440. - 12446.]
A member of a corporation is not, as such, personally liable for the debts, liabilities, or obligations of the corporation.
No person is liable for any obligation arising from membership unless the person was admitted to membership upon the person’s application or with the person’s consent.
The ownership of an interest in real property, when a condition of its ownership is membership in a corporation, shall be considered consent to such membership for the purpose of this section.
A corporation may levy dues, assessments, or fees upon its members pursuant to its articles or bylaws, but a member upon learning of them may avoid liability for them by promptly resigning from membership, except where the member is liable for them by contract, as a condition to ownership of an interest in real property, as an obligation arising out of the ownership of an interest in real property, or otherwise. Unless called to the attention of the member and agreed to in writing by the member, article or bylaw provisions authorizing such dues, assessments or fees do not, of themselves, create such liability. No action shall be brought by or on behalf of any creditor to levy or to require the levy of dues, assessments or fees upon the members of the corporation.
A person holding a membership as pledgee or a membership as executor, administrator, guardian, trustee, receiver or in any representative or fiduciary capacity is not personally liable for any unpaid balance of the purchase price of the membership, or for any amount owing to the corporation by the member, because the membership is so held, but the estate and funds in the hands of such fiduciary or representative are liable and the membership subject to sale therefor.
No action shall be brought by or on behalf of any creditor to reach and apply the liability, if any, of a member to the corporation to pay the amount due on such member’s membership or otherwise due to the corporation unless final judgment has been rendered in favor of the creditor against the corporation and execution has been returned unsatisfied in whole or in part or unless such proceedings would be useless.
All creditors of the corporation, with or without reducing their claims to judgment, may intervene in any such creditor’s action to reach and apply unpaid amounts due the corporation and any or all members who owe amounts to the corporation may be joined in such action. Several judgments may be rendered for and against the parties to the action or in favor of a receiver for the benefit of the respective parties thereto.
All amounts paid by any member in any such action shall be credited on the unpaid balance due the corporation by such member.
Nothing in this part shall be construed as in derogation of any rights or remedies which any creditor or member may have against any promoter, member, director, officer or the corporation because of participation in any fraud or illegality practiced upon such creditor or member by any such person or by the corporation or in derogation of any rights which the corporation may have by rescission, cancellation or otherwise because of any fraud or illegality practiced on it by any such person.
The articles or bylaws shall prescribe:
The manner of determining each member’s share of the capital of the corporation contributed by the members and, if repayable, the time and manner for its repayment; and
The manner of determining the value, if any, of the member’s interest in the corporation apart from contributed capital and the time and manner of the corporation’s purchase, if required, of such interest from a terminated member.
Subject to subdivision (b), Chapter 7 (commencing with Section 1500) of Title 10 of Part 3 of the Code of Civil Procedure shall not apply to any proprietary interest in a consumer cooperative corporation. Any proprietary interest that would otherwise escheat to the state pursuant to Chapter 7 (commencing with Section 1500) of Title 10 of Part 3 of the Code of Civil Procedure shall instead become the property of the corporation.
Notwithstanding subdivision (a), no proprietary interest shall become the property of the corporation under this section unless the following requirements are satisfied:
The articles or bylaws shall specifically provide for the transfer of ownership of the otherwise escheated proprietary interests to the corporation.
At least 60 days prior notice of the proposed transfer of the proprietary interest to the corporation is given to the affected member by first-class or second-class mail to the last address of the member shown on the corporation’s records, and by publication in a newspaper of general circulation in the county in which the corporation has its principal office. Notice given in the foregoing manner shall be deemed actual notice.
No proprietary interest shall become the property of the corporation under this section if written notice objecting thereto is received by the corporation from the affected member prior to the date of the proposed transfer.
For purposes of this section, a “proprietary interest” shall mean and include any membership, membership certificate, membership share, or share certificate of any class or series representing a proprietary interest in, and issued by, the corporation together with all accrued and unpaid dividends and patronage distributions relating thereto.
CHAPTER 4. Distributions [12450. - 12455.]
ARTICLE 1. Limitations [12450. - 12454.5.]
Distributions (Section 12235) in any fiscal year shall not exceed 15 percent, multiplied by contributions (whether by membership fees, capital credits, or otherwise) to capital.
Neither a corporation nor any of its subsidiaries shall purchase or redeem memberships, or make a patronage distribution to members out of earnings of the corporation on nonmember patronage, or make a distribution, if the corporation or the subsidiary purchasing or redeeming memberships or making the distribution is, or as a result thereof would be, likely to be unable to meet its liabilities (except those whose payment is otherwise adequately provided for) as they mature.
Nothing in this chapter prohibits additional restrictions upon the purchase or redemption of a membership, upon distributions, or upon patronage distributions, by provision in a corporation’s articles or bylaws or agreement entered into by the corporation.
A worker cooperative may create an indivisible reserves account that shall not be distributed to members.
Funds in the indivisible reserves account shall only derive from non-patronage-sourced income, in a manner provided in the articles or bylaws, or by the board, and shall be used as capital for the cooperative.
ARTICLE 2. Liability of Members [12455. - 12455.]
Any person who with knowledge of facts indicating the impropriety thereof receives any distribution, including a payment in redemption of a membership, prohibited by this chapter is liable to the corporation for the amount so received by the person with interest thereon at the legal rate on judgments until paid.
Any person who with knowledge of facts indicating the impropriety thereof receives any distribution, including a payment in redemption of a membership, prohibited by this chapter is liable to the corporation for the benefit of all of the creditors entitled to institute an action under subdivision (c) for the amount so received by the person with interest thereon at the legal rate on judgments until paid, but not exceeding the liabilities of the corporation owed to nonconsenting creditors at the time of the violation.
Suit may be brought in the name of the corporation to enforce the liability to creditors arising under subdivision (b) for a violation of Section 12452 or 12453 against any or all persons liable by any one or more creditors of the corporation whose debts or claims arose prior to the time of the distribution and who have not consented thereto, whether or not they have reduced their claims to judgment.
Any person sued under subdivision (b) may implead all other persons liable under subdivision (b) and may in the absence of fraud by the moving party compel contribution, either in that action or in an independent action against persons not joined in that action.
CHAPTER 5. Meetings and Voting [12460. - 12477.]
ARTICLE 1. General Provisions [12460. - 12466.]
Meetings of members may be held at a place within or without this state that is stated in or fixed in accordance with the bylaws. If no other place is so stated or fixed, meetings of members shall be held at the principal office of the corporation. Subject to any limitations in the articles or bylaws of the corporation, if authorized by the board of directors in its sole discretion, and subject to those guidelines and procedures as the board of directors may adopt, members not physically present in person at a meeting of members may, by electronic transmission by and to the corporation (Sections 20 and 21), electronic video screen communication, conference telephone, or other means of remote communication, participate in a meeting of members, be deemed present in person, and vote at a meeting of members, subject to subdivision (f).
Except as provided in Section 12460.5, a regular meeting of members shall be held annually. In any year in which directors are elected, the election shall be held at the regular meeting unless the directors are chosen in some other manner authorized by law. Any other proper business may be transacted at the meeting.
If a corporation fails to hold the regular meeting for a period of 60 days after the date designated therefor or, if no date has been designated, for a period of 15 months after the formation of the corporation or after its last regular meeting, or if the corporation fails to hold a written ballot for a period of 60 days after the date designated therefor, then the superior court of the proper county may summarily order the meeting to be held or the ballot to be conducted upon the application of a member, after notice to the corporation giving it an opportunity to be heard.
The votes represented at a meeting called or by written ballot ordered pursuant to subdivision (c) and entitled to be cast on the business to be transacted shall constitute a quorum, notwithstanding any provision of the articles or bylaws or provision in this part to the contrary. The court may issue such orders as may be appropriate, including, without limitation, orders designating the time and place of the meeting, the record date for determination of members entitled to vote, and the form of notice of the meeting.
Special meetings of members for any lawful purpose may be called by the board, the chairperson of the board, the president, or other persons, if any, as are specified in the bylaws. In addition, special meetings of members for any lawful purpose may be called by 5 percent or more of the members, however, in a worker cooperative with more than four worker-members, a special meeting may only be called by the greater of three worker-members or 5 percent of the worker-members. In a worker cooperative with fewer than four worker-members, special meetings may be called by one worker-member.
A meeting of the members may be conducted, in whole or in part, by electronic transmission by and to the corporation, by electronic video screen communication, conference telephone, or other means of remote communication if the corporation implements reasonable measures: (1) to provide members a reasonable opportunity to participate in the meeting and to vote on matters submitted to the members, including an opportunity to read or hear the proceedings of the meeting concurrently with those proceedings, (2) if any member votes or takes other action at the meeting by means of electronic transmission to the corporation, electronic video screen communication, conference telephone, or other means of remote communication, to maintain a record of that vote or action in its books and records, and (3) to verify that each person who has voted remotely is a member. A corporation shall not conduct a meeting of members solely by electronic transmission by and to the corporation, electronic video screen communication, conference telephone, or other means of remote communication unless one or more of the following conditions apply: (A) all of the members consent; (B) the board determines it is necessary or appropriate because of an emergency, as defined in paragraph (5) of subdivision (m) of Section 12320; or (C) notwithstanding the absence of consent from all members pursuant to (A) or subdivision (b) of Section 20, the meeting includes a live audiovisual feed for the duration of the meeting. A corporation holding a meeting pursuant to (C) may offer, in addition to remote audiovisual feed, an audio-only means by which a member may participate provided that the choice between participating via audiovisual or via audio-only means is made by the member and the corporation does not impose any barriers to either mode of participation. A de minimis disruption of an audio or audiovisual feed does not require a corporation to end a meeting under, or render the corporation out of compliance with, this subdivision.
Notwithstanding Section 12460, a collective board worker cooperative shall not be required to hold an annual meeting of members.
Whenever members are required or permitted to take any action at a meeting, a written notice of the meeting shall be given not less than 10 nor more than 90 days before the date of the meeting to each member who, on the record date for notice of the meeting, is entitled to vote thereat; provided, however, that if notice is given by mail, and the notice is not mailed by first-class, registered, or certified mail, that notice shall be given not less than 20 days before the meeting. A worker cooperative shall provide notice of the meeting not less than 48 hours before the meeting if the meeting is a meeting of only worker-members, provided that the notice is delivered personally to every worker-member. Subject to subdivision (f), and subdivision (b) of Section 12462, that notice shall state the place, date, and time of the meeting, the means of electronic transmission by and to the corporation (Sections 20 and 21), electronic video screen communication, conference telephone, or other means of remote communication, if any, by which members may participate in that meeting, and (1) in the case of a special meeting, the general nature of the business to be transacted, and no other business may be transacted, or (2) in the case of the regular meeting, those matters which the board, at the time the notice is given, intends to present for action by the members, but, except as provided in subdivision (b) of Section 12462, any proper matter may be presented at the meeting for such action. The notice of any meeting at which directors are to be elected shall include the names of all those who are nominees at the time the notice is given to members.
Notice of a members’ meeting or any report shall be given personally, by electronic transmission by the corporation, or by mail or other means of written communication, addressed to a member at the address of such member appearing on the books of the corporation or given by the member to the corporation for purpose of notice, or if no such address appears or is given, at the place where the principal office of the corporation is located or by publication at least once in a newspaper of general circulation in the county in which the principal office is located. Notwithstanding the foregoing, the notice of a members’ meeting or any report may be sent by electronic communication or other means of remote communication if the board determines it is necessary or appropriate because of an emergency, as defined in paragraph (5) of subdivision (m) of Section 12320. An affidavit of giving of any notice or report as permitted because of an emergency or otherwise in accordance with the provisions of this part, executed by the secretary, assistant secretary, or any transfer agent, shall be prima facie evidence of the giving of the notice or report.
If any notice or report addressed to the member at the address of such member appearing on the books of the corporation is returned to the corporation by the United States Postal Service marked to indicate the United States Postal Service is unable to deliver the notice or report to the member at such address, all future notices or reports shall be deemed to have been duly given without further mailing if the same shall be available for the member upon written demand of the member at the principal office of the corporation for a period of one year from the date of the giving of the notice or report to all other members.
Notice given by electronic transmission by the corporation under this subdivision shall be valid only if it complies with Section 20. Notwithstanding the foregoing, notice shall not be given by electronic transmission by the corporation under this subdivision after either of the following:
The corporation is unable to deliver two consecutive notices to the member by that means.
The inability to so deliver the notices to the member becomes known to the secretary, any assistant secretary, the transfer agent, or other person responsible for the giving of the notice.
This paragraph shall not apply if notices are provided by electronic communication or other means of remote communication as permitted because of an emergency.
Upon request in writing to the corporation addressed to the attention of the chairperson of the board, president, vice president, or secretary by any person (other than the board) entitled to call a special meeting of members, the officer forthwith shall cause notice to be given to the members entitled to vote that a meeting will be held at a time fixed by the board not less than 35 nor more than 90 days after the receipt of the request. If the notice is not given within 20 days after receipt of the request, the persons entitled to call the meeting may give the notice or the superior court of the proper county shall summarily order the giving of the notice, after notice to the corporation giving it an opportunity to be heard. The court may issue such orders as may be appropriate, including, without limitation, orders designating the time and place of the meeting, the record date for determination of members entitled to vote, and the form of notice.
When a members’ meeting is adjourned to another time or place, unless the bylaws otherwise require and except as provided in this subdivision, notice need not be given of the adjourned meeting if the time and place thereof (or the means of electronic transmission by and to the corporation or electronic video screen communication, conference telephone, or other means of remote communication, if any, by which members may participate) are announced at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than 45 days or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each member of record entitled to vote at the meeting.
The transactions of any meeting of members however called and noticed, and wherever held, are as valid as though had at a meeting duly held after regular call and notice, if a quorum is present, and if, either before or after the meeting, each of the persons entitled to vote, not present in person, provides a waiver of notice or consent to the holding of the meeting or an approval of the minutes thereof in writing. All such waivers, consents, and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance of a person at a meeting shall constitute a waiver of notice of and presence at such meeting, except when the person objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened and except that attendance at a meeting is not a waiver of any right to object to the consideration of matters required by this part to be included in the notice but not so included, if such objection is expressly made at the meeting. Neither the business to be transacted at nor the purpose of any regular or special meeting of members need be specified in any written waiver of notice, consent to the holding of the meeting, or approval of the minutes thereof, unless otherwise provided in the articles or bylaws, except as provided in subdivision (f).
A court may find that notice not given in conformity with this section is still valid, if it was given in a fair and reasonable manner.
Subject to the provisions of subdivision (i), and unless prohibited by the articles or bylaws, before any regular or special meeting of members, the board may authorize distribution of a written ballot to every member entitled to vote at the meeting. Such ballot shall set forth the action proposed to be taken at the meeting, shall provide an opportunity to specify approval or disapproval of the proposed action, and shall state that unless revoked by the member voting in person at the meeting, the ballot will be counted if received by the corporation on or before the time of the meeting with respect to which it was sent. If ballots are so distributed with respect to a meeting, the number of members voting at the meeting by unrevoked written ballots shall be deemed present at the meeting for purposes of determining the existence of a quorum pursuant to subdivision (a) of Section 12462 but only with respect to the proposed action referred to in the ballots. These ballots shall be distributed in a manner consistent with the requirements of subdivision (b) and Section 12464.
Unless prohibited by the articles or bylaws, written ballots may be distributed in a manner contemplated by subdivision (h) with respect to the election of directors, except that no ballots may be so distributed with respect to the election of directors if cumulative voting is permitted pursuant to Section 12484.
The lesser of 250 members or members representing 5 percent of the voting power, shall constitute a quorum at a meeting of members, but, subject to subdivisions (b) and (c), a bylaw may set a different quorum. Any bylaw amendment to increase the quorum may be adopted only by approval of the members (Section 12224). If a quorum is present, the affirmative vote of the majority of the voting power represented at the meeting, entitled to vote, and voting on any matter shall be the act of the members unless the vote of a greater number or voting by classes is required by this part or the articles or bylaws.
Where a corporation is authorized to conduct a meeting with a quorum of less than one-third of the voting power, then the only matters that may be voted upon at any regular meeting actually attended by less than one-third of the voting power are matters notice of the general nature of which was given, pursuant to the first sentence of subdivision (a) of Section 12461.
Subject to subdivision (b), the members present at a duly called or held meeting at which a quorum is present may continue to transact business until adjournment notwithstanding the withdrawal of enough members to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the members required to constitute a quorum or, if required by this division or the articles or the bylaws, the vote of the greater number or voting by classes.
In the absence of a quorum, any meeting of members may be adjourned from time to time by the vote of a majority of the votes represented in person, but no other business may be transacted, except as provided in subdivision (c).
Subject to subdivision (e), and unless prohibited in the articles or bylaws any action which may be taken at any regular or special meeting of members may be taken without a meeting if the corporation distributes a written ballot to every member entitled to vote on the matter. Unless otherwise provided by the articles or bylaws and if approved by the board of directors, that ballot and any related material may be sent by electronic transmission by the corporation (Section 20) and responses may be returned to the corporation by electronic transmission to the corporation (Section 21). That ballot shall set forth the proposed action, provide an opportunity to specify approval or disapproval of any proposal, and provide a reasonable time within which to return the ballot to the corporation.
Approval by written ballot pursuant to this section shall be valid only when the number of votes cast by ballot within the time period specified equals or exceeds the quorum required to be present at a meeting authorizing the action, and the number of approvals equals or exceeds the number of votes that would be required to approve at a meeting at which the total number of votes cast was the same as the number of votes cast by ballot.
Ballots shall be solicited in a manner consistent with the requirements of subdivision (b) of Section 12461 and Section 12464. All such solicitations shall indicate the number of responses needed to meet the quorum requirement and, with respect to ballots other than for the election of directors, shall state the percentage of approvals necessary to pass the measure submitted. The solicitation must specify the time by which the ballot must be received in order to be counted.
Unless otherwise provided in the articles or bylaws, a written ballot may not be revoked.
Directors may be elected by written ballot under this section, where authorized by the articles or bylaws, except that election by written ballot may not be authorized where the directors are elected by cumulative voting pursuant to Section 12484. When directors are to be elected by written ballot and the articles or bylaws prescribe a nomination procedure, the procedure may provide for a date for the close of nominations prior to printing and distributing of the written ballots.
The secretary shall cause a vote to be taken by written ballot upon any action or recommendation proposed in writing by 20 percent of the members of the corporation.
Any form of written ballot distributed to 10 or more members of a corporation with 100 or more members shall afford an opportunity on the form of written ballot to specify a choice between approval and disapproval of each matter or group of related matters intended, at the time the written ballot is distributed, to be acted upon by such written ballot, and shall provide, subject to reasonable specified conditions, that where the person solicited specifies a choice with respect to any such matter the vote shall be cast in accordance therewith.
In any election of directors, any form of written ballot in which the directors to be voted upon are named therein as candidates and which is marked by a member “withhold” or otherwise marked in a manner indicating that the authority to vote for the election of directors is withheld shall not be voted for the election of a director.
Failure to comply with this section shall not invalidate any corporate action taken, but may be the basis for challenging any written ballot and the superior court may compel compliance therewith at the suit of any member.
If for any reason it is impractical or unduly difficult for any corporation to call or conduct a meeting of its members, delegates or directors, or otherwise obtain their consent, in the manner prescribed by its articles or bylaws, or this part, then the superior court of the proper county, upon petition of a director, officer, delegate or member, may order that such a meeting be called or that a written ballot or other form of obtaining the vote of members, delegates or directors be authorized, in such a manner as the court finds fair and equitable under the circumstances.
The court shall, in an order issued pursuant to this section, provide for a method of notice reasonably designed to give actual notice to all parties who would be entitled to notice of a meeting held pursuant to the articles, bylaws and this part, whether or not the method results in actual notice to every such person, or conforms to the notice requirements that would otherwise apply. In a proceeding under this section the court may determine who the members or directors are.
The order issued pursuant to this section may dispense with any requirement relating to the holding of and voting at meetings or obtaining of votes, including any requirement as to quorums or as to the number or percentage of votes needed for approval, that would otherwise be imposed by the articles, bylaws, or this part.
Wherever practical any order issued pursuant to this section shall limit the subject matter of the meetings or other forms of consent authorized to items, including amendments to the articles or bylaws, the resolution of which will or may enable the corporation to continue managing its affairs without further resort to this section. However, an order under this section may also authorize the obtaining of whatever votes and approvals are necessary for the dissolution, merger, sale of assets or reorganization of the corporation.
Any meeting or other method of obtaining the vote of members, delegates or directors conducted pursuant to an order issued under this section, and which complies with all the provisions of such order, is for all purposes a valid meeting or vote, as the case may be, and shall have the same force and effect as if it complied with every requirement imposed by the articles, bylaws, and this part.
If the name signed on a ballot, consent or waiver corresponds to the name of a member, the corporation if acting in good faith is entitled to accept the ballot, consent, or waiver and give it effect as the act of the member.
If the name signed on a ballot, consent, or waiver does not correspond to the record name of a member, the corporation if acting in good faith is nevertheless entitled to accept the vote, consent, or waiver and give it effect as the act of the member if any of the following occur:
The member is an entity and the name signed purports to be that of an officer or agent of the entity.
The name signed purports to be that of an attorney-in-fact of the member and if the corporation requests, evidence acceptable to the corporation of the signatory’s authority to sign for the member has been presented with respect to the vote, consent or waiver.
Two or more persons hold the membership as cotenants or fiduciaries and the name signed purports to be the name of at least one of the coholders and the person signing appears to be acting on behalf of all the coholders.
The corporation is entitled to reject a ballot, consent, waiver, or proxy appointment if the secretary or other officer or agent authorized to tabulate votes, acting in good faith, has a reasonable basis for doubt concerning the validity of the signature or the signatory’s authority to sign for the member.
The corporation and any officer or agent thereof who accepts or rejects a ballot, consent, waiver, or proxy appointment in good faith and in accordance with the standards of this section shall not be liable in damages to the member for the consequences of the acceptance or rejection.
Corporate action based on the acceptance or rejection of a ballot, consent, waiver, or proxy appointment under this section is valid unless a court of competent jurisdiction determines otherwise.
ARTICLE 2. Additional Provisions Relating to Election of Directors [12470. - 12477.]
As to directors elected by members, there shall be available to the members reasonable nomination and election procedures given the nature, size and operations of the corporation.
Where a corporation distributes any material soliciting a vote for any nominee for director in any publication owned or controlled by the corporation, it shall make available to each other nominee, in the same material, an equal amount of space, with equal prominence, to be used by the nominee for a purpose reasonably related to the election.
Upon written request by any nominee for election to the board and the payment of the reasonable costs of mailing (including postage), a corporation shall within 10 business days after such request (provided payment has been made) mail to all members, or such portion of them as the nominee may reasonably specify, any material, which the nominee may furnish and which is reasonably related to the election, unless the corporation within five business days after the request allows the nominee, at the corporation’s option, the rights set forth in either paragraph (1) or (2) of subdivision (a) of Section 12600.
Except as provided in subdivision (c), no corporation may decline to publish or mail material, otherwise required to be published or mailed on behalf of any nominee under this article, on the basis of the content of such material.
Neither the corporation, nor its agents, officers, directors, or employees, may be held criminally liable, liable for any negligence (active or passive) or otherwise liable for damages to any person on account of any material which is supplied by a nominee for director and which it mails or publishes pursuant to Section 12473 or 12474 but the nominee on whose behalf such material was published or mailed shall be liable and shall indemnify and hold the corporation, its agents, officers, directors, and employees and each of them harmless from all demands, costs, including reasonable legal fees and expenses, claims, damages and causes of action arising out of such material or any such mailing or publication.
Without authorization of the board, no corporation funds may be expended to support a nominee for director after there are more people nominated for director than can be elected.
An action challenging the validity of any election, appointment or removal of a director or directors must be commenced within nine months after the election, appointment or removal. If no such action is commenced, in the absence of fraud, any election, appointment or removal of a director is conclusively presumed valid nine months thereafter if the only defect in the election, appointment or removal is the failure to give notice as provided in this part or in the corporation’s articles or bylaws.
CHAPTER 6. Voting of Memberships [12480. - 12485.]
The bylaws may provide or, in the absence of such provision, the board may fix, in advance, a date as the record date for the purpose of determining the members entitled to notice of any meeting of members. Such record date shall not be more than 60 nor less than 10 days before the date of the meeting. If no record date is fixed, members at the close of business on the business day preceding the day on which notice is given or, if notice is waived, at the close of business on the business day preceding the day on which the meeting is held are entitled to notice of a meeting of members. A determination of members entitled to notice of a meeting of members shall apply to any adjournment of the meeting unless the board fixes a new record date for the adjourned meeting.
The bylaws may provide or, in the absence of such provision, the board may fix, in advance, a date as the record date for the purpose of determining the members entitled to vote at a meeting of members. Such record date shall not be more than 60 days before the date of the meeting. Such record date shall also apply in the case of an ajournment of the meeting unless the board fixes a new record date for the adjourned meeting. If no record date is fixed, members on the day of the meeting who are otherwise eligible to vote are entitled to vote at the meeting of members or, in the case of an adjourned meeting, members on the day of the adjourned meeting who are otherwise eligible to vote are entitled to vote at the adjourned meeting of members.
The bylaws may provide or, in the absence of such provision, the board may fix, in advance, a date as the record date for the purpose of determining the members entitled to cast written ballots (Section 12463). Such record date shall not be more than 60 days before the day on which the first written ballot is mailed or solicited. If no record date is fixed, members on the day the first written ballot is mailed or solicited who are otherwise eligible to vote are entitled to cast written ballots.
The bylaws may provide or, in the absence of such provision, the board may fix, in advance, a date as the record date for the purpose of determining the members entitled to exercise any rights in respect of any other lawful action. Such record date shall not be more than 60 days prior to such other action. If no record date is fixed, members at the close of business on the day on which the board adopts the resolution relating thereto, or the 60th day prior to the date of such other action, whichever is later, are entitled to exercise such rights.
Unless otherwise provided in the articles or bylaws, if a membership stands of record in the names of two or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, spouses as community property, tenants by the entirety, persons entitled to vote under a voting agreement or otherwise, or if two or more persons have the same fiduciary relationship respecting the same membership, unless the secretary of the corporation is given written notice to the contrary and is furnished with a copy of the instrument or order appointing them or creating the relationship wherein it is so provided, their acts with respect to voting shall have the following effect:
If only one vote, such act binds all; or
If more than one vote, the act of the majority so voting binds all.
In advance of any meeting of members the board may appoint inspectors of election to act at the meeting and any adjournment thereof. If inspectors of election are not so appointed, or if any persons so appointed fail to appear or refuse to act, the chairperson of any meeting of members may, and on the request of any member shall, appoint inspectors of election (or persons to replace those who so fail or refuse) at the meeting. The number of inspectors shall be either one or three. If appointed at a meeting on the request of one or more members, the majority of members represented in person shall determine whether one or three inspectors are to be appointed.
The inspectors of election shall determine the number of memberships outstanding and the voting power of each, the number represented at the meeting, the existence of a quorum, receive votes, ballots or consents, hear and determine all challenges and questions in any way arising in connection with the right to vote, count and tabulate all votes or consents, determine when the polls shall close, determine the result and do such acts as may be proper to conduct the election or vote with fairness to all members.
The inspectors of election shall perform their duties impartially, in good faith, to the best of their ability and as expeditiously as is practical. If there are three inspectors of election, the decision, act or certificate of a majority is effective in all respects as the decision, act or certificate of all. Any report or certificate made by the inspectors of election is prima facie evidence of the facts stated therein.
Except in the case of a central organization, cumulative voting shall not be permitted. In the case of a central organization, if the articles or bylaws authorize cumulative voting, but not otherwise, every member entitled to vote at any election of directors may cumulate such member’s votes and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which the member is entitled, or distribute the member’s votes on the same principle among as many candidates as the member thinks fit. An article or bylaw provision authorizing cumulative voting may be repealed or amended only by approval of the members (Section 12224), except that the governing article or bylaw provision may require the vote of a greater proportion of the members, or of the members of any class, for its repeal.
No member shall be entitled to cumulate votes for a candidate or candidates unless such candidate’s name or candidates’ names have been placed in nomination prior to the voting and the member has given notice at the meeting prior to the voting of the member’s intention to cumulate votes. If any one member has given such notice, all members may cumulate their votes for candidates in nomination.
In any election of directors of a central organization by cumulative voting, the candidates receiving the highest number of votes are elected, subject to any lawful provision specifying election by classes. In any other election of directors, unless otherwise provided in the articles or bylaws, the candidates receiving the highest number of votes are elected.
Elections for directors need not be by ballot unless a member demands election by ballot at the meeting and before the voting begins or unless the bylaws so require.
Upon the filing of an action therefor by any director or member or by any person who had the right to vote in the election at issue, the superior court of the proper county shall determine the validity of any election or appointment of any director of any corporation.
Upon the filing of the complaint, and before any further proceedings are had, the court shall enter an order fixing a date for the hearing, which shall be within five days unless for good cause shown a later date is fixed, and requiring notice of the date for the hearing and a copy of the complaint to be served upon the corporation and upon the person whose purported election or appointment is questioned and upon any person (other than the plaintiff) whom the plaintiff alleges to have been elected or appointed, in the manner in which a summons is required to be served, or, if the court so directs, by registered mail; and the court may make such further requirements as to notice as appear to be proper under the circumstances.
The court, consistent with the provisions of this part and in conformity with the articles and bylaws to the extent feasible, may determine the person entitled to the office of director or may order a new election to be held or appointment to be made, may determine the validity, effectiveness and construction of voting agreements and voting trusts, the validity of the issuance of memberships and the right of persons to vote and may direct such other relief as may be just and proper.
CHAPTER 7. Members’ Derivative Actions [12490. - 12490.]
Subdivisions (c) through (f) notwithstanding, no motion to require security shall be granted in an action brought by the lesser of 100 members or 5 percent of the members.
No action may be instituted or maintained in the right of any corporation by any member of such corporation unless both of the following conditions exist:
The plaintiff alleges in the complaint that plaintiff was a member at the time of the transaction or any part thereof of which plaintiff complains, or that plaintiff’s membership thereafter devolved upon plaintiff by operation of law from a holder who was a holder at the time of transaction or any part thereof complained of; and
The plaintiff alleges in the complaint with particularity plaintiff’s efforts to secure from the board such action as plaintiff desires, or the reasons for not making such effort, and alleges further that plaintiff has either informed the corporation or the board in writing of the ultimate facts of each cause of action against each defendant or delivered to the corporation or the board a true copy of the complaint which plaintiff proposes to file.
Subject to subdivision (a), in any action referred to in subdivision (b), at any time within 30 days after service of summons upon the corporation or upon any defendant who is an officer or director of the corporation, or held such office at the time of the acts complained of, the corporation or such defendant may move the court for an order, upon notice and hearing, requiring the plaintiff to furnish security as hereinafter provided. The motion shall be based upon one or both of the following grounds:
At the hearing upon any motion pursuant to subdivision (c), the court shall consider such evidence, written or oral, by witnesses or affidavit, as may be material (1) to the ground or grounds upon which the motion is based, or (2) to a determination of the probable reasonable expenses, including attorneys’ fees, of the corporation and the moving party which will be incurred in the defense of the action. If the court determines, after hearing the evidence adduced by the parties, that the moving party has established a probability in support of any of the grounds upon which the motion is based, the court shall fix the nature and amount of security, not to exceed fifty thousand dollars ($50,000), to be furnished by the plaintiff for reasonable expenses, including attorneys’ fees, which may be incurred by the moving party and the corporation in connection with the action, including expenses for which the corporation may become liable pursuant to Section 12377. A ruling by the court on the motion shall not be a determination of any issue in the action or of the merits thereof. The amount of the security may thereafter be increased or decreased in the discretion of the court upon a showing that the security provided has or may become inadequate or is excessive, but the court may not in any event increase the total amount of the security beyond fifty thousand dollars ($50,000) in the aggregate for all defendants. If the court, upon any such motion, makes a determination that security shall be furnished by the plaintiff as to any one or more defendants, the action shall be dismissed as to such defendant or defendants, unless the security required by the court shall have been furnished within such reasonable time as may be fixed by the court. The corporation and the moving party shall have recourse to the security in such amount as the court shall determine upon the termination of the action.
If the plaintiff shall, either before or after a motion is made pursuant to subdivision (c), or any order or determination pursuant to such motion, post good and sufficient bond or bonds in the aggregate amount of fifty thousand dollars ($50,000) to secure the reasonable expenses of the parties entitled to make the motion, the plaintiff has complied with the requirements of this section and with any order for security theretofore made pursuant hereto, and any such motion then pending shall be dismissed and no further or additional bond or other security shall be required.
If a motion is filed pursuant to subdivision (c), no pleadings need be filed by the corporation or any other defendant and the prosecution of the action shall be stayed until 10 days after the motion has been disposed of.
CHAPTER 8. Amendment of Articles [12500. - 12510.]
By complying with the provisions of this chapter, a corporation may amend its articles from time to time, in any and as many respects as may be desired, so long as its articles as amended contain only such provisions as it would be lawful to insert in original articles filed at the time of the filing of the amendment or as authorized by Section 12504 and, if a change in the rights of members or an exchange, reclassification or cancellation of memberships is to be made, such provisions as may be necessary to effect such change, exchange, reclassification or cancellation. It is the intent of the Legislature in adopting this section to exercise to the fullest extent the reserve power of the state over corporations and to authorize any amendment of the articles covered by the preceding sentence regardless of whether any provision contained in the amendment was permissible at the time of the original incorporation of the corporation.
A corporation shall not amend its articles to add any statement or to alter any statement which may appear in the original articles of the initial street address and initial mailing address of the corporation, the names and addresses of the first directors, or the name and address of the initial agent, except to correct an error in the statement or to delete the information after the corporation has filed a statement under Section 12570.
Any amendment of the articles may be adopted by a writing signed by a majority of the incorporators so long as:
No directors were named in the original articles;
No directors have been elected; and
The corporation has no members.
Except as provided in this section or Section 12503, amendments may be adopted if approved by the board and approved by the members before or after the approval by the board.
Notwithstanding subdivision (a), the following amendments may be adopted by approval of the board alone:
An amendment extending the corporate existence or making the corporate existence perpetual, if the corporation was organized prior to August 14, 1929.
An amendment deleting the initial street address and initial mailing address of the corporation, the names and addresses of the first directors, or the name and address of the initial agent.
Any amendment, at a time the corporation has no members.
Any amendment authorized in the articles pursuant to subdivision (c) of Section 12313 fixing the rights, privileges, preferences, restrictions, and conditions attaching to any wholly unissued class of memberships.
Any amendment authorized in the articles pursuant to subdivision (c) of Section 12313 fixing the designation, number of memberships and the rights, privileges, preferences, restrictions, and conditions attaching to any wholly unissued series of memberships, or an increase or decrease in the number of memberships of any series.
Whenever the articles require for corporate action the approval of a particular class of members or of a larger proportion of, or all of, the votes of any class, or of a larger proportion of, or all of, the directors, than is otherwise required by this part, the provision in the articles requiring a greater vote shall not be altered, amended or repealed except by the class or the greater vote, unless otherwise provided in the articles.
An amendment shall also be approved by the members (Section 12224) of a class, whether or not the class is entitled to vote thereon by the provisions of the articles, if the amendment would do any of the following:
Materially and adversely affect the rights, privileges, preferences, restrictions or conditions of that class as to voting, dissolution, redemption or transfer, or the obligations of that class, in a manner different than such action affects another class.
Materially and adversely affect such class as to voting, dissolution, redemption or transfer by changing the rights, privileges, preferences, restrictions or conditions of another class.
Increase the number of memberships authorized for the class.
Increase the number of memberships authorized for another class.
Effect an exchange, reclassification or cancellation of all or part of the memberships of the class.
Authorize a new class of memberships.
An amendment shall also be approved by the members of a series whether or not the series is entitled to vote thereon by the articles or bylaws if the series is adversely affected by the amendment in a different manner than other shares of the same class.
A corporation may amend its articles to change its status to that of a nonprofit public benefit corporation, a nonprofit mutual benefit corporation, a nonprofit religious corporation, a business corporation, or a social purpose corporation by complying with this section and the other sections of this chapter.
Except as authorized by Section 12501 or unless the corporation has no members, an amendment to change its status to a nonprofit public benefit corporation or a nonprofit religious corporation shall: (1) be approved by the members (Section 12224), and the fairness of the amendment to the members shall be approved by the Commissioner of Financial Protection and Innovation pursuant to Section 25142; or (2) be approved by the members (Section 12224) in an election conducted by written ballot pursuant to Section 12463 in which no negative votes are cast; or (3) be approved by 100 percent of the voting power.
Amended articles authorized by this section shall include the provisions which would have been required (other than the initial street address and initial mailing address of the corporation and the name of the initial agent for service of process if a statement has been filed pursuant to Section 12570), and may in addition only include those provisions which would have been permitted, in original articles filed by the type of corporation (nonprofit public benefit, nonprofit mutual benefit, nonprofit religious, business, or social purpose) into which the corporation is changing its status.
At the time of filing a certificate of amendment to change status to a nonprofit public benefit corporation, the Secretary of State shall make available the filed certificate to the Attorney General.
Upon adoption of an amendment, the corporation shall file a certificate of amendment, which shall consist of an officers’ certificate stating:
The wording of the amendment or amended articles is in accordance with Section 12507;
That the amendment has been approved by the board;
If the amendment is one for which the approval of the members (Section 12224) or the approval of 100 percent of the voting power is required, that the amendment was approved by the required vote of members; and
If the amendment is one which may be adopted with approval by the board alone, a statement of the facts entitling the board alone to adopt the amendment.
In the event of an amendment of the articles pursuant to a merger, the filing of the officers’ certificate and agreement pursuant to Section 12535 shall be in lieu of any filing required under this chapter.
In the case of amendments adopted by the incorporators under Section 12501, the corporation shall file a certificate of amendment signed and verified by a majority of the incorporators which shall state that the signers thereof constitute at least a majority of the incorporators, that directors were not named in the original articles and have not been elected, that the corporation has no members and that they adopt the amendment or amendments therein set forth.
The certificate of amendment shall establish the wording of the amendment or amended articles by one or more of the following means:
By stating that the articles shall be amended to read as therein set forth in full.
By stating that any provision of the articles, which shall be identified by the numerical or other designation given it in the articles or by stating the wording thereof, shall be striken from the articles or shall be amended to read as set forth in the certificate.
By stating that the provisions set forth therein shall be added to the articles.
If the purpose of the amendment is to reclassify, cancel, exchange, or otherwise change outstanding memberships the amended articles shall state the effect thereof on outstanding memberships.
Upon the filing of the certificate of amendment, the articles shall be amended in accordance with the certificate and any change, reclassification or cancellation of memberships shall be effected, and a copy of the certificate, certified by the Secretary of State, is prima facie evidence of the performance of the conditions necessary to the adoption of the amendment.
A corporation formed for a limited period may at any time subject to the expiration of the term of its corporate existence, extend the term of its existence by an amendment to its articles removing any provision limiting the term of its existence and providing for perpetual existence. If the filing of the certificate of amendment providing for perpetual existence would be prohibited if it were original articles by the provisions of Section 12302, the Secretary of State shall not file such certificate unless, by the same or a concurrently filed certificate of amendment, the articles of such corporation are amended to adopt a new available name. For the purpose of the adoption of any such amendment, persons who have been functioning as directors of such corporation shall be considered to have been validly elected even though their election may have occurred after the expiration of the original term of the corporate existence.
A corporation may restate in a single certificate the entire text of its articles as amended by filing an officers’ certificate entitled “Restated Articles of Incorporation of (insert name of corporation)” which shall set forth the articles as amended to the date of filing of the certificate, except that the signatures and acknowledgments of the incorporators and any statements regarding the effect of any prior amendment upon memberships and any provisions of agreements of merger (other than amendments to the articles of the surviving corporation) and the names, addresses, signatures and acknowledgments of the first directors and the initial street address and initial mailing address of the corporation and of the initial agent for service of process shall be omitted (except that the initial street address and initial mailing address of the corporation and the names and addresses of the initial agent for service of process and the first directors shall not be omitted prior to the time that the corporation has filed a statement under Section 12570). Such omissions are not alterations or amendments of the articles. The certificate may also itself alter or amend the articles in any respect, in which case the certificate must comply with Sections 12505 and 12506, as the case may be, and Section 12507.
If the certificate does not itself alter or amend the articles in any respect, it shall be approved by the board and shall be subject to the provisions of this chapter relating to an amendment of the articles not requiring approval of the members (Section 12224). If the certificate does itself alter or amend the articles, it shall be subject to the provisions of this chapter relating to the amendment or amendments so made.
Restated articles of incorporation filed pursuant to this section shall supersede for all purposes the original articles and all amendments filed prior thereto.
CHAPTER 9. Sales of Assets [12520. - 12522.]
Any mortgage, deed of trust, pledge or other hypothecation of all or any part of the corporation’s property, real or personal, for the purpose of securing the payment or performance of any contract or obligation may be approved by the board. Unless the articles or bylaws otherwise provide, no approval of the members (Section 12224) shall be necessary for such action.
A corporation may sell, lease, convey, exchange, transfer or otherwise dispose of all or substantially all of its assets when the principal terms are:
Approved by the board; and
Unless the transaction is in the usual and regular course of its activities approved by the members (Section 12224) either before or after approval by the board and before or after the transaction.
Notwithstanding approval by the members (Section 12224), the board may abandon the proposed transaction without further action by the members, subject to the contractual rights, if any, of third parties.
Such sale, lease, conveyance, exchange, transfer or other disposition may be made upon such terms and conditions and for such consideration as the board may deem in the best interests of the corporation.
Any deed or instrument conveying or otherwise transferring any assets of a corporation may have annexed to it the certificate of the secretary or an assistant secretary of the corporation, setting forth that the transaction has been validly approved by the board and (a) stating that the property described in such deed or instrument is less than substantially all of the assets of the corporation or that the transfer is in the usual and regular course of the business of the corporation, if such be the case, or (b) if such property constitutes all or substantially all of the assets of the corporation and the transfer is not in the usual and regular course of the business of the corporation, stating the fact of approval thereof by the members (Section 12224) or all the members pursuant to this chapter. Such certificate is prima facie evidence of the existence of the facts authorizing such conveyance or other transfer of the assets and conclusive evidence in favor of any purchaser or encumbrancer for value who, without notice of any trust restriction applicable to the property or any failure to comply therewith, in good faith parted with value.
CHAPTER 10. Mergers [12530. - 12552.]
ARTICLE 1. Merger [12530. - 12540.1.]
Except as provided in Section 12530.5, any corporation may merge with another domestic corporation, foreign corporation, or other business entity. However, a merger with a nonprofit public benefit corporation or a nonprofit religious corporation must have the prior written consent of the Attorney General.
Notwithstanding Section 12530, a worker cooperative that has not revoked its election to be governed as a worker cooperative under Section 12310.5 shall not consolidate or merge with another corporation other than another worker cooperative. Two or more worker cooperatives may merge or consolidate in a manner consistent with this chapter.
The board of each corporation that desires to merge shall approve an agreement of merger. The constituent corporations shall be parties to the agreement of merger and other persons may be parties to the agreement of merger. The agreement shall state all of the following:
The terms and conditions of the merger.
The amendments, subject to Sections 12500 and 12505 to the articles of the surviving corporation to be effected by the merger, if any; if any amendment changes the name of the surviving corporation, the new name may be the same as or similar to the name of a disappearing corporation, subject to subdivision (c) of Section 12302.
The amendments to the bylaws of the surviving corporation to be effected by the merger, if any.
The name and place of incorporation of each constituent corporation and which of the constituent corporations is the surviving corporation.
The manner, if any, of converting memberships or securities of the constituent corporations into memberships or securities of the surviving corporation and, if any memberships or securities of any of the constituent corporations are not to be converted solely into memberships or securities of the surviving corporation, the cash, property, rights or securities of any corporation that the holders of those memberships or securities are to receive in exchange for the memberships or securities, which cash, property, rights or securities of any corporation may be in addition to or in lieu of memberships or securities of the surviving corporation or that the memberships are to be canceled without consideration.
Other details or provisions as are desired, if any, including, without limitation, if not prohibited by this chapter, a provision for the payment of cash in lieu of fractional memberships or for any other arrangement with respect thereto.
Each membership of the same class of any constituent corporation (other than the cancellation of memberships held by a surviving corporation or its parent or a wholly owned subsidiary of either in a constituent corporation) shall be treated equally with respect to any distribution of cash, property, rights, or securities unless: (a) all members of the class consent or (b) the Commissioner of Financial Protection and Innovation has approved the terms and conditions of the transaction and the fairness of such terms pursuant to Section 25142.
The principal terms of the merger shall be approved by the members (Section 12224) of each class of each corporation which desires to merge. The approval by the members may be given before or after the approval by the board.
Any member of any constituent corporation who voted against the merger may, without prior notice, but within 30 days following the effective date of the merger, resign from membership and, in the event of resignation, shall be:
Thereafter excused from all contractual obligations to the corporation which have not accrued prior to resignation; and
Shall be entitled to the same rights as would have existed if there had been no merger and the membership had been terminated.
Each constituent corporation shall sign the agreement by the chairperson of its board, president or a vice president and secretary or an assistant secretary acting on behalf of their respective corporations.
After approval of a merger by the board and any approval by the members under Section 12533, the surviving corporation shall file a copy of the agreement of merger with an officers’ certificate of each constituent corporation attached stating the total number of memberships of each class entitled to vote on the merger, and that the principal terms of the agreement in the form attached were duly approved by the required vote of the members. The merger and any amendment of the articles of the surviving corporation contained in the merger agreement shall thereupon be effective (subject to subdivision (c) of Section 12214 and subject to the provisions of Section 12539) and the several parties thereto shall be one corporation. The Secretary of State may certify a copy of the merger agreement separate from the officers’ certificates attached thereto.
Any amendment to the agreement may be adopted and the agreement so amended may be approved by the board and, if it changes any of the principal terms of the agreement, by the members, as required by Section 12533 of any constituent corporation in the same manner as the original agreement.
If the agreement so amended is approved as provided in subdivision (a), the agreement so amended shall then constitute the agreement of merger.
The board may, in its discretion, abandon a merger, subject to the contractual rights, if any, of third parties, including other constituent corporations, without further approval by the members at any time before the merger is effective.
A copy of an agreement of merger certified on or after the effective date by an official having custody thereof has the same force in evidence as the original and, except as against the state, is conclusive evidence of the performance of all conditions precedent to the merger, the existence on the effective date of the surviving corporation, and the performance of the conditions necessary to the adoption of any amendment to the articles contained in the agreement of merger.
Subject to the provisions of Section 12530, the merger of any number of corporations with any number of foreign corporations, foreign business corporations, or domestic corporations may be effected if the foreign corporations are authorized by the laws under which they are formed to effect the merger. The surviving corporation may be any one of the constituent corporations and shall continue to exist under the laws of the state or place of its incorporation.
If the surviving corporation is a cooperative corporation, the merger proceedings with respect to that corporation and any domestic disappearing corporation shall conform to the provisions of this chapter and other applicable laws of this state, but if the surviving corporation is a foreign corporation, then, subject to the requirements of subdivision (d) and Section 12533, the merger proceedings may be in accordance with the laws of the state or place of incorporation of the surviving corporation.
If the surviving corporation is a cooperative corporation, the agreement and the officers’ certificate of each constituent corporation shall be filed as provided in Section 12535 and thereupon, subject to subdivision (c) of Section 12214, the merger shall be effective as to each corporation; and each foreign disappearing corporation that is qualified for the transaction of intrastate business shall, by virtue of the filing, automatically surrender its right to transact intrastate business.
If the surviving corporation is a foreign corporation, the merger shall become effective in accordance with the law of the jurisdiction in which it is organized, but shall be effective as to any disappearing corporation as of the time of effectiveness in the foreign jurisdiction upon the filing in this state as required by this subdivision. There shall be filed as to the domestic disappearing corporation or corporations the documents described in any one of the following paragraphs:
A copy of the agreement, certificate, or other document filed by the surviving corporation in the state or place of its incorporation for the purpose of effecting the merger, which copy shall be certified by the public officer having official custody of the original.
An executed counterpart of the agreement, certificate, or other document filed by the surviving corporation in the state or place of its incorporation for the purpose of effecting the merger.
A copy of the agreement of merger with an officers’ certificate of the surviving foreign corporation and of each constituent domestic corporation attached.
If the date of the filing in this state pursuant to subdivision (d) is more than six months after the time of the effectiveness in the foreign jurisdiction, or if the powers of the domestic corporation are suspended at the time of effectiveness in the foreign jurisdiction, the merger shall be effective as to the domestic disappearing corporation or corporations as of the date of filing in this state. Each foreign disappearing corporation that is qualified for the transaction of intrastate business shall automatically by the filing pursuant to subdivision (d) surrender its right to transact intrastate business as of the date of the filing in this state regardless of the time of effectiveness as to a domestic disappearing corporation.
If an agreement of merger is entered into between a cooperative corporation and one or more business or nonprofit corporations, Sections 12531, 12532, 12533, 12535, and 12536 shall apply to any constituent cooperative corporation. Sections 8011, 8011.5, 8012, and 8015 shall apply to any constituent mutual benefit corporation. Sections 6011, 6012, 6014, and 6015 shall apply to any constituent public benefit corporation. Sections 6014 and 6015 and subdivisions (c) and (d) of Section 9640 shall apply to any constituent religious corporation and Sections 1101, 1101.1, 1103, and 1104 shall apply to any constituent business corporation.
Any one or more corporations may merge with one or more other business entities (Section 12242.5). Subject to the provisions of Section 12530, one or more other domestic corporations or foreign corporations (Section 12237) may be parties to the merger.
Notwithstanding the provisions of this section, such a merger may be effected only if:
In a merger in which a domestic corporation or domestic other business entity is a party, it is authorized by the laws under which it is organized to effect the merger.
In a merger in which a foreign corporation is a party, it is authorized by the laws under which it is organized to effect the merger.
In a merger in which a foreign other business entity is a party, it is authorized by the laws under which it is organized to effect the merger.
Each corporation, other domestic corporation, foreign corporation, and other business entity which desires to merge shall approve an agreement of merger. The board and the members of each corporation which desires to merge shall approve (Sections 12222 and 12224) the agreement of merger. The agreement of merger shall be approved on behalf of each other constituent party by those persons authorized or required to approve the merger by the laws under which it is organized.
The parties desiring to merge shall be parties to the agreement of merger and other persons, including a parent party (Section 12242.6), may be parties to the agreement of merger. The agreement of merger shall state all of the following:
The terms and conditions of the merger.
The name and place of incorporation or organization of each party and the identity of the surviving party.
The amendments, if any, subject to Sections 12500 and 12507, to the articles of the surviving corporation, if applicable, to be effected by the merger. The name of the surviving corporation may be, subject to subdivisions (b) and (c) of Section 12302, the same as, or similar to, the name of a disappearing party to the merger.
The manner, if any, of converting the memberships or securities of each of the constituent corporations into shares, memberships, interests, or other securities of the surviving party and, if any memberships or securities of any of the constituent corporations are not to be converted solely into shares, memberships, interests, or other securities of the surviving party, the cash, rights, securities, or other property which the holders of those memberships or securities are to receive in exchange for the memberships or securities, which cash, rights, securities, or other property may be in addition to or in lieu of shares, memberships, interests, or other securities of the surviving party.
Any other details or provisions required by the laws under which any party to the merger is organized, including, if a domestic limited partnership is a party to the merger, subdivision (a) of Section 15911.12, or, if a domestic general partnership is a party to the merger, subdivision (a) of Section 16911, or, if a domestic limited liability company is a party to the merger, subdivision (a) of Section 17710.12.
Any other details or provisions as are desired.
Each membership of the same class of any constituent corporation (other than the cancellation of memberships held by a party to the merger or its parent or a wholly owned subsidiary of either in another constituent corporation) shall be treated equally with respect to any distribution of cash, property, rights, or securities unless (i) all members of the class consent or (ii) the commissioner has approved the terms and conditions of the transaction and the fairness of those terms pursuant to Section 25142.
Notwithstanding its prior approval, an agreement of merger may be amended prior to the filing of the agreement of merger if the amendment is approved by each constituent corporation in the same manner as the original agreement of merger. If the agreement of merger as so amended and approved is also approved by each of the other parties to the agreement of merger, as so amended it shall then constitute the agreement of merger.
The board of a constituent corporation may, in its discretion, abandon a merger, subject to the contractual rights, if any, of third parties, including other parties to the agreement of merger, without further approval by the members (Section 12224), at any time before the merger is effective.
Each constituent corporation shall sign the agreement of merger by its chairperson of the board, president, or a vice president and also by its secretary or an assistant secretary acting on behalf of their respective corporations.
After required approvals of the merger by each constituent corporation and each other party to the merger, the surviving party shall file a copy of the agreement of merger with an officers’ certificate of each constituent domestic and foreign corporation attached stating the total number of outstanding shares or membership interests of each class entitled to vote on the merger (and identifying any other person or persons whose approval is required), that the agreement of merger in the form attached or its principal terms, as required, were approved by that corporation by a vote of a number of shares or membership interests of each class which equaled or exceeded the vote required, specifying each class entitled to vote and the percentage vote required of each class, and, if applicable, by that other person or persons whose approval is required.
If equity securities of a parent party (Section 12242.6) are to be issued in the merger, the officers’ certificate or certificate of merger of the controlled party shall state either that no vote of the shareholders of the parent party was required or that the required vote was obtained. The merger and any amendment of the articles of the surviving corporation, if applicable, contained in the agreement of merger shall be effective upon the filing of the agreement of merger, subject to the provisions of subdivision (i). If a domestic reciprocal insurer organized after 1974 to provide medical malpractice insurance is a party to the merger, the agreement of merger or certificate of merger shall not be filed until there has been filed the certificate issued by the Insurance Commissioner approving the merger pursuant to Section 1555 of the Insurance Code.
In lieu of an officers’ certificate, a certificate of merger, on a form prescribed by the Secretary of State, shall be filed for each constituent other business entity. The certificate of merger shall be executed and acknowledged by each domestic constituent limited liability company by all of the managers of the limited liability company (unless a lesser number is specified in its articles of organization or operating agreement) and by each domestic constituent limited partnership by all general partners (unless a lesser number is provided in its certificate of limited partnership or partnership agreement) and by each domestic constituent general partnership by two partners (unless a lesser number is provided in its partnership agreement) and by each foreign constituent general partnership or foreign constituent limited liability company by one or more managers and by each foreign constituent limited partnership by one or more general partners, and by each constituent reciprocal insurer by the chairperson of the board, president, or vice president, and by the secretary or assistant secretary, or, if a constituent reciprocal insurer has not appointed such officers, by the chairperson of the board, president, or vice president, and by the secretary or assistant secretary of the constituent reciprocal insurer’s attorney-in-fact, and by each other party to the merger by those persons required or authorized to execute the certificate of merger by the laws under which that party is organized, specifying for such party the provision of law or other basis for the authority of the signing persons.
The certificate of merger shall set forth, if a vote of the shareholders, members, partners, or other holders of interests of the constituent other business entity was required, a statement setting forth the total number of outstanding interests of each class entitled to vote on the merger and that the agreement of merger or its principal terms, as required, were approved by a vote of the number of interests of each class which equaled or exceeded the vote required, specifying each class entitled to vote and the percentage vote required of each class, and any other information required to be set forth under the laws under which the constituent other business entity is organized, including, if a domestic limited partnership is a party to the merger, subdivision (a) of Section 15911.14, if a domestic general partnership is a party to the merger, subdivision (b) of Section 16915, and, if a domestic limited liability company is a party to the merger, subdivision (a) of Section 17710.14. The certificate of merger for each constituent foreign other business entity, if any, shall also set forth the statutory or other basis under which that foreign other business entity is authorized by the laws under which it is organized to effect the merger.
The Secretary of State may certify a copy of the agreement of merger separate from the officers’ certificates and certificates of merger attached thereto.
A copy of an agreement of merger certified on or after the effective date by an official having custody thereof has the same force in evidence as the original and, except as against the state, is conclusive evidence of the performance of all conditions precedent to the merger, the existence on the effective date of the surviving party to the merger, the performance of the conditions necessary to the adoption of any amendment to the articles, if applicable, contained in the agreement of merger, and of the merger of the constituent corporations, either by themselves or together with other constituent parties, into the surviving party to the merger.
The merger of domestic corporations with foreign corporations or foreign other business entities in a merger in which one or more other business entities is a party shall comply with subdivisions (a) and (g) and this subdivision.
Subject to subdivision (c) of Section 12214 and paragraph (3), the merger shall be effective as to each domestic constituent corporation and domestic constituent other business entity upon filing of the agreement of merger with attachments as provided in subdivision (g).
If the surviving party is a foreign corporation or foreign other business entity, except as provided in paragraph (4), the merger shall be effective as to any domestic disappearing corporation as of the time of effectiveness in the foreign jurisdiction upon the filing in this state of a copy of the agreement of merger with an officers’ certificate of the surviving foreign corporation and of each constituent foreign and domestic corporation and a certificate of merger of each constituent other business entity attached, which officers’ certificates and certificates of merger shall conform to the requirements of subdivision (g).
If one or more domestic other business entities is a disappearing party in a merger pursuant to this subdivision in which a foreign other business entity is the surviving entity, a certificate of merger required by the laws under which each domestic other business entity is organized, including subdivision (a) of Section 15911.14, subdivision (b) of Section 16915 or subdivision (a) of Section 17710.14, if applicable, shall also be filed at the same time as the filing of the agreement of merger.
If the date of the filing in this state pursuant to this subdivision is more than six months after the time of the effectiveness in the foreign jurisdiction, or if the powers of a domestic disappearing corporation are suspended at the time of effectiveness in the foreign jurisdiction, the merger shall be effective as to the domestic disappearing corporation as of the date of filing in this state.
Each foreign disappearing corporation that is qualified for the transaction of intrastate business shall automatically by the filing pursuant to subdivision (g) surrender its right to transact intrastate business as of the date of filing in this state or, if later, the effective date of the merger. With respect to each foreign disappearing other business entity previously registered for the transaction of intrastate business in this state, the filing of the agreement of merger pursuant to subdivision (g) automatically has the effect of a cancellation of registration for that foreign other business entity without the necessity of the filing of a certificate of cancellation.
ARTICLE 2. Effect of Merger [12550. - 12552.]
Upon merger pursuant to this chapter the separate existences of the disappearing parties to the merger cease and the surviving party to the merger shall succeed, without other transfer, to all the rights and property of each of the disappearing parties to the merger and shall be subject to all the debts and liabilities of each and trust obligations upon the property of a disappearing party in the same manner as if incurred by the surviving party to the merger.
All rights of creditors and all liens and trusts upon or arising from the property of each of the constituent corporations and other parties to the merger shall be preserved unimpaired, provided that these liens and trust obligations upon property of a disappearing party shall be limited to the property affected thereby immediately prior to the time the merger is effective.
Any action or proceeding pending by or against any disappearing corporation or other party to the merger may be prosecuted to judgment, which shall bind the surviving party to the merger, or the surviving party to the merger may be proceeded against or substituted in its place.
Upon merger pursuant to this chapter, a surviving domestic or foreign corporation or other business entity shall be deemed to have assumed the liability of each disappearing domestic or foreign corporation or other business entity that is taxed under Part 10 (commencing with Section 17001) of, or under Part 11 (commencing with Section 23001) of, Division 2 of the Revenue and Taxation Code for the following:
To prepare and file, or to cause to be prepared and filed, tax and information returns otherwise required of that disappearing entity as specified in Chapter 2 (commencing with Section 18501) of Part 10.2 of Division 2 of the Revenue and Taxation Code.
To pay any tax liability determined to be due.
If the surviving entity is a domestic limited liability company, domestic corporation, or registered limited liability partnership or a foreign limited liability company, foreign limited liability partnership, or foreign corporation that is registered or qualified to do business in California, the Secretary of State shall notify the Franchise Tax Board of the merger.
Whenever a domestic or foreign corporation or other business entity (Section 12242.5) having any real property in this state merges with another domestic or foreign corporation or other business entity pursuant to the laws of this state or of the state or place in which any constituent party to the merger was organized, and the laws of the state or place of organization (including this state) of any disappearing party to the merger provide substantially that the making and filing of the agreement of merger vests in the surviving party to the merger all the real property of any disappearing party to the merger, the filing for record in the office of the county recorder of any county in this state in which any of the real property of the disappearing party to the merger is located of either (a) a certificate prescribed by the Secretary of State, or (b) a copy of the agreement of merger or certificate of merger, certified by the Secretary of State or an authorized public official of the state or place pursuant to the laws of which the merger is effected, shall evidence record ownership in the surviving party to the merger of all interest of the disappearing party to the merger in and to the real property located in that county.
Any bequest, devise, gift, grant, or promise contained in a will or other instrument of donation, subscription, or conveyance, which is made to a constituent corporation and which takes effect or remains payable after the merger, inures to the surviving party to the merger.
CHAPTER 11. Bankruptcy Reorganizations and Arrangements [12560. - 12560.]
Any proceeding, initiated with respect to a corporation, under any applicable statute of the United States, as now existing or hereafter enacted, relating to reorganizations of corporations, shall be governed by the provisions of Chapter 14 (commencing with Section 1400) of Division 1 of Title 1, and for this purpose the reference in Chapter 14 to “shareholders” shall be deemed to be a reference to members and the reference to “this division” shall be deemed to be a reference to this part.
CHAPTER 12. Required Filings by Corporation or Its Agent [12570. - 12576.]
Every corporation shall, within 90 days after the filing of its original articles and annually thereafter during the applicable filing period in each year, file, on a form prescribed by the Secretary of State, a statement containing: (1) the name of the corporation and the Secretary of State’s file number; (2) the names and complete business or residence addresses of its chief executive officer or general manager, secretary, and chief financial officer; (3) the street address of its principal office in California, if any; (4) the mailing address of the corporation, if different from the street address of its principal office in California; and (5) if the corporation chooses to receive renewal notices and any other notifications from the Secretary of State by electronic mail instead of by United States mail, the corporation shall include a valid electronic mail address for the corporation or for the corporation’s designee to receive those notices.
The statement required by subdivision (a) shall also designate, as the agent of the corporation for the purpose of service of process, a natural person residing in this state or any domestic or foreign corporation that has complied with Section 1505 and whose capacity to act as an agent has not terminated. If a natural person is designated, the statement shall set forth the person’s complete business or residence street address. If a corporate agent is designated, no address for it shall be set forth.
For the purposes of this section, the applicable filing period for a corporation shall be the calendar month during which its original articles were filed and the immediately preceding five calendar months. The Secretary of State shall provide a notice to each corporation to comply with this section approximately three months before the close of the applicable filing period. The notice shall state the due date for compliance and shall be sent to the last address of the corporation according to the records of the Secretary of State or to the last electronic mail address according to the records of the Secretary of State if the corporation has elected to receive notices from the Secretary of State by electronic mail. Neither the failure of the Secretary of State to send the notice nor the failure of the corporation to receive it is an excuse for failure to comply with this section.
Whenever any of the information required by subdivision (a) is changed, the corporation may file a current statement containing all the information required by subdivisions (a) and (b). In order to change its agent for service of process or the address of the agent, the corporation must file a current statement containing all the information required by subdivisions (a) and (b). Whenever any statement is filed pursuant to this section, it supersedes any previously filed statement and the statement in the articles as to the agent for service of process and the address of the agent.
The Secretary of State may destroy or otherwise dispose of any statement filed pursuant to this section after it has been superseded by the filing of a new statement.
This section does not place any person dealing with the corporation on notice of, or under any duty to inquire about, the existence or content of a statement filed pursuant to this section.
An agent designated for service of process pursuant to Section 12570 may deliver to the Secretary of State, on a form prescribed by the Secretary of State for filing, a signed and acknowledged written statement of resignation as an agent for service of process containing the name of the corporation, the Secretary of State’s file number of the corporation, the name of the resigning agent for service of process, and a statement that the agent is resigning. Thereupon the authority of the agent to act in that capacity shall cease and the Secretary of State forthwith shall mail or otherwise provide written notice of the filing of the statement of resignation to the corporation at its principal office.
The resignation of an agent may be effective if, on a form prescribed by the Secretary of State containing the name of the corporation, the Secretary of State’s file number for the corporation, and the name of the resigning agent for service of process, the agent disclaims having been properly appointed as the agent. Similarly, a person named as an officer or director may indicate that the person was never properly appointed as the officer or director.
The Secretary of State may destroy or otherwise dispose of any resignation filed pursuant to this section after a new form is filed pursuant to Section 12570 replacing the agent for service of process that has resigned.
If a natural person who has been designated agent for service of process pursuant to Section 12570 dies or resigns or no longer resides in the state or if the corporate agent for such purpose resigns, dissolves, withdraws from the state, forfeits its right to transact intrastate business, has its corporate rights, powers and privileges suspended, or ceases to exist, the corporation shall forthwith file a designation of a new agent conforming to the requirements of Section 12570.
Upon request of an assessor, a corporation owning, claiming, possessing or controlling property in this state subject to local assessment shall make available at the corporation’s principal office in California or at a place mutually acceptable to the assessor and the corporation a true copy of business records relevant to the amount, cost and value of all property that it owns, claims, possesses or controls within the county.
Any officers, directors, employees or agents of a corporation who do any of the following are liable jointly and severally for all the damages resulting therefrom to the corporation or any person injured thereby who relied thereupon or to both:
Make, issue, deliver or publish any prospectus, report, circular, certificate, financial statement, balance sheet, public notice, or document respecting the corporation or its memberships, assets, liabilities, capital, dividends, distributions, patronage distributions, business, earnings, or accounts which is false in any material respect, knowing it to be false, or participate in the making, issuance, delivery, or publication thereof with knowledge that the same is false in a material respect.
Make or cause to be made in the books, minutes, records, or accounts of a corporation any entry which is false in any material particular knowing such entry is false.
Remove, erase, alter, or cancel any entry in any books or records of the corporation, with intent to deceive.
The Attorney General, upon complaint of a member, director, or officer, that a corporation is failing to comply with the provisions of this chapter, Chapter 5 (commencing with Section 12460), Chapter 6 (commencing with Section 12480) or Chapter 13 (commencing with Section 12580) may, in the name of the people of the State of California, send to the principal office of such corporation, (or, if there is no such office, to the office or residence of the chief executive officer, general manager, or secretary, of the corporation, as set forth in the most recent statement filed pursuant to Section 12570) notice of the complaint. If the answer is not satisfactory, or if there is no answer within 30 days, the Attorney General may institute, maintain, or intervene in such suits, actions, or proceedings of any type in any court or tribunal of competent jurisdiction or before any administrative agency for such relief by way of injunction, the dissolution of entities, the appointment of receivers, or any other temporary, preliminary, provisional, or final remedies as may be appropriate to protect the rights of members or to undo the consequences of failure to comply with such requirements. In any such action, suit or proceeding there may be joined as parties all persons and entities responsible for or affected by such activity.
CHAPTER 13. Records, Reports and Rights of Inspection [12580. - 12608.]
ARTICLE 1. General Provisions [12580. - 12583.]
If any record subject to inspection pursuant to this chapter is not maintained in written form, a request for inspection is not complied with unless and until the corporation at its expense makes such record available in written form. For purposes of this chapter, “written” or “in writing” includes cathode ray tube and similar electronic communications methods.
Any inspection under this chapter may be made in person or by agent or attorney and the right of inspection includes the right to copy and make extracts.
Any right of inspection created by this chapter extends to the records of each subsidiary of a corporation.
The rights of members provided in this chapter may not be limited by contract or the articles or bylaws.
ARTICLE 2. Required Records, Reports to Directors and Members [12590. - 12594.]
Each corporation shall keep:
Adequate and correct books and records of account;
Minutes of the proceedings of its members, board, and committees of the board; and
A record of its members giving their names and addresses and the class of membership and number of membership units held by each.
Those minutes and other books and records shall be kept either in written form or in any other form capable of being converted into clearly legible tangible form or in any combination of the foregoing. When minutes and other books and records are kept in a form capable of being converted into clearly legible paper form, the clearly legible paper form into which those minutes and other books and records are converted shall be admissible in evidence, and accepted for all other purposes, to the same extent as an original paper record of the same information would have been, provided that the paper form accurately portrays the record.
A corporation shall notify each member yearly of the member’s right to receive a financial report pursuant to this subdivision. Except as provided in subdivision (c), upon written request of a member, the board shall promptly cause the most recent annual report to be sent to the requesting member. An annual report shall be prepared not later than 120 days after the close of the corporation’s fiscal year. Unless otherwise provided by the articles or bylaws and if approved by the board of directors, that report and any accompanying material sent pursuant to this section may be sent by electronic transmission by the corporation (Section 20). That report shall contain in appropriate detail the following:
A balance sheet as of the end of that fiscal year and an income statement and a statement of cashflows for that fiscal year.
A statement of the place where the names and addresses of the current members are located.
Any information required by Section 12592.
The report required by subdivision (a) shall be accompanied by any report thereon of independent accountants, or, if there is no report, the certificate of an authorized officer of the corporation that the statements were prepared without audit from the books and records of the corporation.
This section does not apply to corporations that do not have more than 25 members at any time during the fiscal year.
Any provision of the articles or bylaws notwithstanding, every corporation shall furnish annually to its members and directors a statement of any transaction or indemnification of a kind described in subdivision (d) or (e), if any such transaction or indemnification took place. If the corporation issues an annual report to all members, this subdivision shall be satisfied by including the required information in the annual report. A corporation which does not issue an annual report to all members, pursuant to subdivision (c) of Section 12591, shall satisfy this section by mailing or delivering to its members the required statement within 120 days after the close of the corporation’s fiscal year. Unless otherwise provided by the articles or bylaws and if approved by the board of directors, that statement may be sent by electronic transmission by the corporation (Section 20).
Except as provided in subdivision (c), a covered transaction under this section is a transaction in which the corporation, its parent, or its subsidiary was a party, and in which either of the following had a direct or indirect material financial interest:
Any director or officer of the corporation, or its parent or subsidiary.
Any holder of more than 10 percent of the voting power of the corporation, its parent or its subsidiary.
For the purpose of subdivision (d), an “interested person” is any person described in paragraph (1) or (2).
Transactions approved by the members of a corporation, under subdivision (a) of Section 12373, are not covered transactions. For the purpose of subdivision (b), neither a mere common directorship nor a member-patron relationship on terms available to all members constitutes a material financial interest.
The statement required by subdivision (a) shall describe briefly:
The statement required by subdivision (a) shall describe briefly the amount and circumstances of any loans, guaranties, indemnifications, or advances aggregating more than one thousand dollars ($1,000) paid or made during the fiscal year to any officer or director of the corporation pursuant to Section 12377; provided that no such report need be made in the case of a loan, guaranty, or indemnification approved by the members under paragraph (2) of subdivision (e) of Section 12377 or a loan or guaranty not subject to the provisions of subdivision (a) of Section 12375.
The superior court of the proper county shall enforce the duty of making and mailing or delivering the information and financial statements required by this article and, for good cause shown, may extend the time therefor.
In any action or proceeding under this section, if the court finds the failure of the corporation to comply with the requirements of this article to have been without justification, the court may award the member reasonable expenses, including attorneys’ fees, in connection with such action or proceeding.
For a period of 60 days following the conclusion of an annual, regular, or special meeting of members, a corporation shall, upon written request from a member, forthwith inform the member of the result of any particular vote of members taken at the meeting, including the number of memberships voting for, the number of memberships voting against, and the number of memberships abstaining or withheld from voting. If the matter voted on was the election of directors, the corporation shall report the number of memberships, or votes if voted cumulatively, cast for each nominee for director. If more than one class or series of memberships voted, the report shall state the appropriate numbers by class and series of memberships.
ARTICLE 3. Rights of Inspection [12600. - 12608.]
Inspect and copy the record of all the members’ names, addresses, and voting rights, at reasonable times, upon five business days’ prior written demand upon the corporation which demand shall state the purpose for which the inspection rights are requested; or
Obtain from the secretary of the corporation, upon written demand and tender of a reasonable charge, a list of the names, addresses, and voting rights of those members entitled to vote for the election of directors, as of the most recent record date for which it has been compiled or as of a date specified by the member subsequent to the date of demand. The demand shall state the purpose for which the list is requested. The membership list shall be made available on or before the later of 10 business days after the demand is received or after the date specified therein as the date as of which the list is to be compiled.
The rights set forth in subdivision (a) may be exercised by:
A member or members possessing 5 percent or more of the voting power for a purpose reasonably related to the members’ interest as members. Where the corporation reasonably believes that the information will be used for another purpose, or where it provides a reasonable alternative pursuant to subdivision (c), it may deny the member access to the list. In any subsequent action brought by the member under Section 12606 the court shall enforce the rights set forth in subdivision (a) unless the corporation proves that the member will allow use of the information for purposes unrelated to the person’s interest as a member or that the alternative method offered reasonably achieves the proper purpose set forth in the demand.
The corporation may, within 10 business days after receiving a demand under subdivision (a), deliver to the person or persons making the demand a written offer of an alternative method of achieving the purpose identified in the demand without providing access to or a copy of the membership list. An alternative method which reasonably and in a timely manner accomplishes the proper purpose set forth in a demand made under subdivision (a) shall be deemed a reasonable alternative, unless within a reasonable time after acceptance of the offer the corporation fails to do those things which it offered to do. Any rejection of the offer shall be in writing and shall indicate the reasons the alternative proposed by the corporation does not meet the proper purpose of the demand made pursuant to subdivision (a).
Where the corporation, in good faith, and with a substantial basis, believes that the membership list, demanded by a member or members under Section 12600, will be used for a purpose not reasonably related to the interests as members of the person or persons making the demand (hereinafter called the requesting parties) or provides a reasonable alternative pursuant to subdivision (c) of Section 12600 it may petition the superior court of the proper county for an order setting aside the demand.
Except as provided in subdivision (c), a petition for an order to show cause why a protective order pursuant to subdivision (d) should not issue shall be filed within 10 business days after a demand by a member or members under Section 12600 or receipt of a written rejection by the member or members of an offer made pursuant to subdivision (c) of Section 12600 whichever is later. The petition shall be accompanied by an application for a hearing on the petition. Upon the filing of the petition, the court shall issue a protective order staying production of the list demanded until the hearing on the order to show cause. The court shall set the hearing on the order to show cause not more than 20 days from the date of the filing of the petition. The order to show cause shall be granted unless the court finds that there is no reasonable probability that the corporation will make the showing required under subdivision (f).
A corporation may file a petition under this section more than 10 business days after the demand or rejection under Section 12600 but only upon a showing the delay was caused by excusable neglect. In no event, however, may any petition under this section be considered if filed more than 30 days after the requesting party’s demand or rejection, whichever is later.
Upon the return day of the order to show cause, the court may issue a protective order staying production of the list demanded until final adjudication of the petition filed pursuant to this section. No protective order shall issue under this subdivision unless the court finds that the rights of the requesting parties can reasonably be preserved and that the corporation is likely to make the showing required by subdivision (f) or the court is likely to issue a protective order pursuant to subdivision (g).
If the corporation fails to file a petition within the time allowed by subdivision (b) or (c), whichever is applicable, or fails to obtain a protective order under subdivision (d), then the corporation shall comply with the demand, and no further action may be brought by the corporation under this section.
The court shall issue the final order setting aside the demand only if the corporation proves:
That there is a reasonable probability that the requesting parties will permit use of the membership list for a purpose unrelated to their interests as members; or
That the method offered by the corporation is a reasonable alternative in that it reasonably achieves the proper purpose set forth in the requesting parties’ demand and that the corporation intends and is able to effectuate the reasonable alternative.
The court shall award reasonable costs and expenses including reasonable attorneys’ fees, to requesting parties who successfully oppose any petition or application filed pursuant to this section.
Where the corporation has neither, within the time allowed, complied with a demand by a member or members under Section 12600, nor obtained a protective order staying production of the list, or a final order setting aside the demand, which is then in effect, the requesting parties may petition the superior court of the proper county for a writ of mandamus pursuant to Section 1085 of the Code of Civil Procedure compelling the corporation to comply with the demand. At the hearing, the court shall hear the parties summarily, by affidavit or otherwise, and shall issue a peremptory writ of mandamus unless it appears that the demand was not made by a member or members possessing sufficient voting power, that the demand has been complied with, that the corporation, pursuant to subdivision (c) of Section 12600, made an offer which was not rejected in writing within a reasonable time, or that a protective or final order properly issued under subdivision (d), (f) or (g) is then in effect. No inquiry may be made in such proceeding into the use for which the list is sought.
The court shall award reasonable costs and expenses, including reasonable attorneys’ fees, to persons granted an order under this subdivision.
Nothing in this section shall be construed to limit the right of the corporation to obtain damages for any misuse of a membership list obtained under Section 12600, or otherwise, or to obtain injunctive relief necessary to restrain misuse of a member list. A corporation shall be entitled to recover reasonable costs and expenses, including reasonable attorneys’ fees, incurred in successfully bringing any such action.
Upon petition of the corporation or any member, the superior court of the proper county may limit or restrict the rights set forth in Section 12600 where, and only where, such limitation or restriction is necessary to protect the rights of any member under the Constitution of the United States or the Constitution of the State of California. An order issued pursuant to this subdivision shall provide, insofar as possible, for alternative mechanisms by which the persons seeking to exercise rights under Section 12600 may communicate with members for purposes reasonably related to their interests as members.
Upon the filing of a petition under subdivision (a), the court may, if requested by the person making the petition, issue a temporary order suspending the running of any time limit specified in Section 12600 for compliance with that section. Such an order may be extended, after notice and hearing, until final adjudication of the petition, wherever it appears that the petitioner may prevail on the merits, and it is otherwise equitable to do so.
The accounting books and records and minutes of proceedings of the members and the board and committees of the board shall be open to inspection upon the written demand on the corporation of any member at any reasonable time, for a purpose reasonably related to such person’s interests as a member.
Every director shall have the absolute right at any reasonable time to inspect and copy all books, records and documents of every kind and to inspect the physical properties of the corporation of which such person is a director.
Where the proper purpose of the person or persons making a demand pursuant to Section 12600 is frustrated by (a) any delay by the corporation in complying with a demand under Section 12600 beyond the time limits specified therein, or (b) any delay caused by the filing of a petition under Section 12601 or Section 12602, or (c) any delay caused by the alternative proposed under subdivision (c) of Section 12600, the person or persons properly making the demand shall have, in the discretion of the court, a right to obtain from the superior court an order postponing any members’ meeting previously noticed for a period equal to the period of such delay. The members may obtain such an order in a proceeding brought pursuant to Section 12601 upon the filing of a verified complaint in the proper county and after a hearing, notice of which shall be given to such persons and in such manner as the court may direct. Such right shall be in addition to any other legal or equitable remedies to which the member may be entitled.
Upon refusal of a lawful demand for inspection under this chapter, or a lawful demand pursuant to Section 12600 or Section 12603, the superior court of the proper county, or the county where the books or records in question are kept, may enforce the demand or right of inspection with just and proper conditions or may, for good cause shown, appoint one or more competent inspectors or independent accountants to audit the financial statements kept in this state and investigate the property, funds and affairs of any corporation and of any subsidiary corporation thereof, domestic or foreign, keeping records in this state and to report thereon in such manner as the court may direct.
All officers and agents of the corporation shall produce to the inspectors or accountants so appointed all books and documents in their custody or power, under penalty of punishment for contempt of court.
All expenses of the investigation or audit shall be defrayed by the applicant unless the court orders them to be paid or shared by the corporation.
In any action or proceeding under this article, and except as required by Section 12601, if the court finds the failure of the corporation to comply with a proper demand thereunder was without justification, the court may award the member reasonable costs and expenses, including reasonable attorneys’ fees, in connection with such action or proceeding.
A membership list is a corporate asset. Without consent of the board a membership list or any part thereof may not be obtained or used by any person for any purpose not reasonably related to a member’s interest as a member. Without limiting the generality of the foregoing, without the consent of the board a membership list or any part thereof may not be:
Used to solicit money or property unless such money or property will be used solely to solicit the vote of the members in an election to be held by their corporation; or
Used for any purpose which the user does not reasonably and in good faith believe will benefit the corporation; or
Used for any commercial purpose or purpose in competition with the corporation; or
Sold to or purchased by any person.
Any person who violates the provisions of subdivision (a) shall be liable for any damage such violation causes the corporation and shall account for and pay to the corporation any profit derived as a result of said violation. In addition, a court in its discretion may award exemplary damages for a fraudulent or malicious violation of subdivision (a).
Nothing in this article shall be construed to limit the right of a corporation to obtain injunctive relief necessary to restrain misuse of a membership list or any part thereof.
In any action or proceeding under this section, a court may award the corporation reasonable costs and expenses, including reasonable attorneys’ fees in connection with such action or proceeding.
As used in this section, the term “membership list” means the record of all the members’ names and addresses.
CHAPTER 14. Service of Process [12610. - 12610.]
Service of process upon a corporation shall be governed by Chapter 17 (commencing with Section 1700) of Division 1 of Title 1.
CHAPTER 15. Involuntary Dissolution [12620. - 12629.]
A complaint for involuntary dissolution of a corporation on any one or more of the grounds specified in subdivision (b) may be filed in the superior court of the proper county by any of the following persons:
One-half or more of the directors in office.
A person or persons holding or authorized in writing by persons holding not less than 3313 percent of the voting power exclusive of memberships held by persons who have personally participated in any of the transactions enumerated in paragraph (5) of subdivision (b).
Any member if the ground for dissolution is that the period for which the corporation was formed has terminated without extension thereof.
Any other person expressly authorized to do so in the articles.
The grounds for involuntary dissolution are that:
The corporation has abandoned its activity for more than one year.
The corporation has an even number of directors who are equally divided and cannot agree as to the management of its affairs, so that its activities can no longer be conducted to advantage or so that there is danger that its property will be impaired or lost or its activities impaired, and the members are so divided into factions that they cannot elect a board consisting of an uneven number.
There is internal dissension and two or more factions of members in the corporation are so deadlocked that its activities can no longer be conducted with advantage.
When during any four-year period or when all voting power has been exercised at two consecutive meetings or in two written ballots for the election of directors, whichever period is shorter, the members have failed to elect successors to directors whose terms have expired or would have expired upon election of their successors.
Those in control of the corporation have been guilty of or have knowingly countenanced persistent and pervasive fraud, mismanagement or abuse of authority or persistent unfairness toward any member or the corporation’s property is being misapplied or wasted by its directors or officers.
The period for which the corporation was formed has terminated without extension of such period.
At any time prior to the trial of the action any member or creditor may intervene therein.
This section does not apply to any corporation subject to:
The Attorney General may bring an action against any corporation or purported corporation in the name of the people of this state, upon the Attorney General’s own information or upon complaint of a private party, to procure a judgment dissolving the corporation and annulling, vacating or forfeiting its corporate existence upon any of the following grounds:
The corporation has seriously offended against any provision of the statutes regulating corporations.
The corporation has fraudulently abused or usurped corporate privileges or powers.
The corporation has violated any provision of law by any act or default which under the law is a ground for forfeiture of corporate existence.
The corporation has failed to pay to the Franchise Tax Board for a period of five years any tax imposed upon it by the Bank and Corporation Tax Law.
If the ground of the action is a matter or act which the corporation has done or omitted to do that can be corrected by amendment of its articles or by other corporate action, such suit shall not be maintained unless (1) the Attorney General, at least 30 days prior to the institution of suit, has given the corporation written notice of the matter or act done or omitted to be done; and (2) the corporation has failed to institute proceedings to correct it within the 30-day period or thereafter fails to duly and properly make such amendment or take the corrective corporate action.
In any such action the court may order dissolution or such other or partial relief as it deems just and expedient. The court also may appoint a receiver for winding up the affairs of the corporation or may order that the corporation be wound up by its board subject to the supervision of the court.
Service of process on the corporation may be made pursuant to Chapter 17 (commencing with Section 1700) of Division 1 or by written notice to the president or secretary of the corporation at the address indicated in the corporation’s last tax return filed pursuant to the Bank and Corporation Tax Law. The Attorney General shall also publish one time in a newspaper of general circulation in the proper county a notice to the members of the corporation.
If the ground for the complaint for involuntary dissolution of the corporation is a deadlock in the board as set forth in paragraph (2) of subdivision (b) of Section 12620 the court may appoint a provisional director. The provisions of subdivision (d) of Section 12365 apply to any such provisional director so appointed.
If, at the time of the filing of a complaint for involuntary dissolution or at any time thereafter, the court has reasonable grounds to believe that unless a receiver of the corporation is appointed the interests of the corporation or its members will suffer pending the hearing and determination of the complaint, upon the application of the plaintiff, and after a hearing upon such notice to the corporation as the court may direct and upon the giving of security pursuant to Sections 566 and 567 of the Code of Civil Procedure (except that the Attorney General shall not be required to give security), the court may appoint a receiver to take over and manage the affairs of the corporation and to preserve its property pending the hearing and determination of the complaint for dissolution.
After hearing the court may decree a winding up and dissolution of the corporation if cause therefor is shown or, with or without winding up and dissolution, may make such orders and decrees and issue such injunctions in the case as justice and equity require.
Involuntary proceedings for winding up a corporation commence when the order for winding up is entered under Section 12624.
When an involuntary proceeding for winding up has commenced, the board shall conduct the winding up of the affairs of the corporation, subject to the supervision of the court, unless other persons are appointed by the court, on good cause shown, to conduct the winding up. The directors or such other persons may, subject to any restrictions imposed by the court, exercise all their powers through the executive officers without any order of court.
When an involuntary proceeding for winding up has commenced, the corporation shall cease to conduct its activities except to the extent necessary for the beneficial winding up thereof and except during such period as the board may deem necessary to preserve the corporation’s goodwill or going-concern value, pending a sale or other disposition of its assets, or both, in whole or in part. The directors shall cause written notice of the commencement of the proceeding for involuntary winding up to be given by mail to all members and to all known creditors and claimants whose addresses appear on the records of the corporation, unless the order for winding up has been stayed by appeal therefrom or otherwise or the proceeding or the execution of the order has been enjoined.
When an involuntary proceeding for winding up has been commenced, the jurisdiction of the court includes:
The requirement of the proof of all claims and demands against the corporation, whether due or not yet due, contingent, unliquidated, or sounding only in damages, and the barring from participation of creditors and claimants failing to make and present claims and proof as required by any order.
The determination or compromise of all claims of every nature against the corporation or any of its property, and the determination of the amount of money or assets required to be retained to pay or provide for the payment of claims.
The determination of the rights of members and of all classes of members in and to the assets of the corporation.
The presentation and filing of intermediate and final accounts of the directors or other persons appointed to conduct the winding up and hearing thereon, the allowance, disallowance, or settlement thereof, and the discharge of the directors or such other persons from their duties and liabilities.
The appointment of a commissioner to hear and determine any or all matters, with such power or authority as the court may deem proper.
The filing of any vacancies on the board which the directors or the members are unable to fill.
The removal of any director if it appears that the director has been guilty of dishonesty, misconduct, neglect, or breach of trust in conducting the winding up or if the director is unable to act. The court may order an election to fill the vacancy so caused, and may enjoin, for such time as it considers proper, the reelection of the director so removed; or the court, in lieu of ordering an election, may appoint a director to fill the vacancy caused by such removal. Any director so appointed by the court shall serve until the next regular meeting of members or until a successor is elected or appointed.
The staying of the prosecution of any suit, proceeding, or action against the corporation and requiring the parties to present and prove their claims in the manner required of other creditors.
The determination of whether adequate provision has been made for payment or satisfaction of all debts and liabilities not actually paid.
The making of orders for the withdrawal or termination of proceedings, to wind up and dissolve, subject to conditions for the protection of members and creditors.
The making of an order, upon the allowance or settlement of the final accounts of the directors or such other persons, that the corporation has been duly wound up and is dissolved. Upon the making of such order, the corporate existence shall cease except for purposes of further winding up if needed.
The making of orders for the bringing in of new parties as the court deems proper for the determination of all questions and matters.
The disposition of assets held in charitable trust.
All creditors and claimants may be barred from participation in any distribution of the general assets if they fail to make and present claims and proofs within such time as the court may direct, which shall not be less than four nor more than six months after the first publication of notice to creditors unless it appears by affidavit that there are no claims, in which case the time limit may be three months. If it is shown that a claimant did not receive notice because of absence from the state or other cause, the court may allow a claim to be filed or presented at any time before distribution is completed.
Such notice to creditors shall be published not less than once a week for three consecutive weeks in a newspaper of general circulation published in the county in which the proceeding is pending or, if there is no such newspaper published in that county, in such newspaper as may be designated by the court, directing creditors and claimants to make and present claims and proofs to the person, at the place and within the time specified in the notice. A copy of the notice shall be mailed to each person shown as a creditor or claimant on the books of the corporation, at such person’s last known address.
Holders of secured claims may prove for the whole debt in order to realize any deficiency. If such creditors fail to present their claims they shall be barred only as to any right to claim against the general assets for any deficiency in the amount realized on their security.
Before any distribution is made the amount of any unmatured, contingent or disputed claim against the corporation which has been presented and has not been disallowed, or such part of any such claim as the holder would be entitled to if the claim were due, established, or absolute, shall be paid into court and there remain to be paid over to the party when the party becomes entitled thereto or, if the party fails to establish a claim, to be paid over or distributed with the other assets of the corporation to those entitled thereto; or such other provision for the full payment of such claim, if and when established, shall be made as the court may deem adequate. A creditor whose claim has been allowed but is not yet due shall be entitled to its present value upon distribution.
Suits against the corporation on claims which have been rejected shall be commenced within 30 days after written notice of rejection thereof is given to the claimant.
Upon the final settlement of the accounts of the directors or other persons appointed pursuant to Section 12625 and the determination that the corporation’s affairs are in condition for it to be dissolved, the court may make an order declaring the corporation duly wound up and dissolved. The order shall declare:
That the corporation has been duly wound up, that a final franchise tax return, as described by Section 23332 of the Revenue and Taxation Code, has been filed with the Franchise Tax Board, as required under Part 10.2 (commencing with Section 18401) of Division 2 of the Revenue and Taxation Code and that its known debts and liabilities have been paid or adequately provided for, or that those debts and liabilities have been paid as far as its assets permitted, as the case may be. If there are known debts or liabilities for payment of which adequate provision has been made, the order shall state what provision has been made, setting forth the name and address of the corporation, person, or governmental agency that has assumed or guaranteed the payment, or the name and address of the depositary with which deposit has been made or such other information as may be necessary to enable the creditor or other person to whom payment is to be made to appear and claim payment of the debt or liability.
That its known assets have been distributed to the persons entitled thereto or that it acquired no known assets, as the case may be.
That the accounts of directors or such other persons have been settled and that they are discharged from their duties and liabilities to creditors and members.
That the corporation is dissolved.
The court may make such additional orders and grant such further relief as it deems proper upon the evidence submitted.
Upon the making of the order declaring the corporation dissolved, corporate existence shall cease except for the purposes of further winding up if needed; and the directors or such other persons shall be discharged from their duties and liabilities, except in respect to completion of the winding up.
Whenever a corporation is dissolved or its existence forfeited by order, decree, or judgment of a court, a copy of the order, decree or judgment, certified by the clerk of court, shall forthwith be filed. The Secretary of State shall notify the Franchise Tax Board of the dissolution.
CHAPTER 16. Voluntary Dissolution [12630. - 12638.]
Any corporation which comes within one of the following descriptions may elect by approval of the board to wind up and dissolve:
A corporation which has been the subject of an order for relief in bankruptcy.
A corporation which has disposed of all of its assets and has not conducted any activity for a period of five years immediately preceding the adoption of the resolution electing to dissolve the corporation.
A corporation which has no members.
If a corporation comes within one of the descriptions in subdivision (b) and if the number of directors then in office is less than a quorum, it may elect to voluntarily wind up and dissolve by any of the following:
If a corporation elects to voluntarily wind up and dissolve pursuant to subdivision (c), references to the board in this chapter and Chapter 17 (commencing with Section 12650) shall be deemed to be to a board consisting solely of those directors or that sole director and action by the board shall require at least the same consent or vote as would be required under subdivision (c) for an election to wind up and dissolve.
Whenever a corporation has elected to wind up and dissolve a certificate evidencing that election shall forthwith be filed.
The certificate shall be an officers’ certificate or shall be signed and verified by at least a majority of the directors then in office or by one or more members authorized to do so by approval of a majority of all members (Section 12223) and shall set forth:
That the corporation has elected to wind up and dissolve.
If the election was made by the vote of members alone, the number of votes for the election and that the election was made by persons holding at least a majority of the voting power.
If the certificate is executed by a member or members, that the subscribing person or persons were authorized to execute the certificate by persons representing at least a majority of the voting power.
If the election was made by the board pursuant to subdivision (b) of Section 12630, the certificate shall also set forth the circumstances showing the corporation to be within one of the categories described in that subdivision.
If an election to dissolve made pursuant to subdivision (a) of Section 12630 is made by the vote of all the members of a corporation with members or by a vote of all members of the board of a corporation without members pursuant to subdivision (b) of Section 12630 and a statement to that effect is added to the certificate of dissolution pursuant to Section 12635, the separate filing of the certificate of election pursuant to this section is not required.
A voluntary election to wind up and dissolve may be revoked prior to distribution of any assets: (1) if the election was made pursuant to paragraph (1) of subdivision (a) of Section 12630, by the approval of a majority of all members; (2) if the election was made pursuant to paragraph (2) of subdivision (a) of Section 12630, by approval of the board and approval of the members; or (3) if the election was by the board pursuant to subdivision (b) of Section 12630, by approval of the board. Thereupon a certificate evidencing the revocation shall be signed, verified and filed in the manner prescribed by Section 12631.
The certificate shall set forth:
That the corporation has revoked its election to wind up and dissolve.
That no assets have been distributed pursuant to the election.
If the revocation was made by the vote of members alone, the number of votes for the revocation and that the revocation was made by persons representing at least a majority of the voting power.
If the revocation was made by the approval of the board and the approval of the members, the certificate shall so state.
If the revocation was made by the board alone, the certificate shall so state.
Voluntary proceedings for winding up the corporation commence upon the adoption of the resolution required by Section 12630 by the members or by the board, electing to wind up and dissolve.
When a voluntary proceeding for winding up has commenced, the board shall continue to act as a board and shall have full powers to wind up and settle its affairs, both before and after the filing of the certificate of dissolution.
When a voluntary proceeding for winding up has commenced, the corporation shall cease to conduct its activities except to the extent necessary for the beneficial winding up thereof, to the extent necessary to carry out its purposes, and except during such period as the board may deem necessary to preserve the corporation’s goodwill or going-concern value pending a sale or other disposition of its assets, or both, in whole or in part. The board shall cause written notice of the commencement of the proceeding for voluntary winding up to be given by mail to all its members (except no notice need be given to the members who voted in favor of winding up and dissolving the corporation), to all known creditors, and claimants whose addresses appear on the records of the corporation.
If a corporation is in the process of voluntary winding up, the superior court of the proper county, upon the petition of (a) the corporation, or (b) a member or members possessing 5 percent or more of the voting power, or (c) three or more creditors, and upon such notice to the corporation and to other persons interested in the corporation as members and creditors as the court may order, may take jurisdiction over such voluntary winding up proceeding if that appears necessary for the protection of any parties in interest. The court, if it assumes jurisdiction, may make such orders as to any and all matters concerning the winding up of the affairs of the corporation and the protection of its members and creditors as justice and equity may require. The provisions of Chapter 15 (commencing with Section 12620) (except Sections 12620 and 12621) shall apply to such court proceedings.
When a corporation has been completely wound up without court proceedings therefor, a majority of the directors then in office shall sign and verify a certificate of dissolution stating:
That the corporation has been completely wound up.
That its known debts and liabilities have been actually paid, or adequately provided for, or paid or adequately provided for as far as its assets permitted, or that it has incurred no known debts or liabilities, as the case may be. If there are known debts or liabilities for payment of which adequate provision has been made, the certificate shall state what provision has been made, setting forth the name and address of the corporation, person or governmental agency that has assumed or guaranteed the payment, or the name and address of the depositary with which deposit has been made or such other information as may be necessary to enable the creditor or other person to whom payment is to be made to appear and claim payment of the debt or liability.
That its known assets have been distributed to the persons entitled thereto or that it acquired no known assets, as the case may be.
That the corporation is dissolved.
That a final franchise tax return, as described by Section 23332 of the Revenue and Taxation Code, has been or will be filed with the Franchise Tax Board, as required under Part 10.2 (commencing with Section 18401) of Division 2 of the Revenue and Taxation Code.
The certificate of dissolution shall be filed and thereupon the corporate existence shall cease, except for the purpose of further winding up if needed. The Secretary of State shall notify the Franchise Tax Board of the dissolution.
Except as otherwise provided by law, if the term of existence for which any corporation was organized expires without renewal or extension thereof, the board shall terminate its activities and wind up its affairs; and when the affairs of the corporation have been wound up a majority of the directors shall execute and file a certificate conforming to the requirements of Section 12635.
The board, in lieu of filing the certificate of dissolution, may petition the superior court of the proper county for an order declaring the corporation duly wound up and dissolved. Such petition shall be filed in the name of the corporation.
Upon the filing of the petition, the court shall make an order requiring all interested persons to show cause why an order shall not be made declaring the corporation duly wound up and dissolved and shall direct that the order be served by notice to all creditors, claimants, and members in the same manner as the notice given under subdivision (b) of Section 12627.
Any person claiming to be interested as member, creditor, or otherwise may appear in the proceeding at any time before the expiration of 30 days from the completion of publication of the order to show cause and contest the petition, and upon failure to appear such person’s claim shall be barred.
A corporation in the process of winding up may dispose of the known claims against it by following the procedure described in this section.
The written notice to known creditors and claimants required by subdivision (c) of Section 12633 shall comply with all of the following requirements:
Describe any information that must be included in a claim.
Provide a mailing address where a claim may be sent.
State the deadline, which shall not be fewer than 120 days from the effective date of the written notice, by which the corporation must receive the claim.
State that the claim will be barred if not received by the deadline.
A claim against the corporation is barred if any of the following occur:
For purposes of this section, “claim” does not include a contingent liability or a claim based on an event occurring after the effective date of dissolution.
CHAPTER 17. General Provisions Relating to Dissolution [12650. - 12663.]
The powers and duties of the directors (or other persons appointed by the court pursuant to Section 12625) and officers after commencement of a dissolution proceeding include, but are not limited to, the following acts in the name and on behalf of the corporation:
To elect officers and to employ agents and attorneys to liquidate or wind up its affairs.
To continue the conduct of the affairs of the corporation insofar as necessary for the disposal or winding up thereof.
To carry out contracts and collect, pay, compromise, and settle debts and claims for or against the corporation.
To defend suits brought against the corporation.
To sue, in the name of the corporation, for all sums due or owing to the corporation or to recover any of its property.
To collect any amounts remaining unpaid on memberships or to recover unlawful distributions.
To sell at public or private sale, exchange, convey, or otherwise dispose of all or any part of the assets of the corporation for an amount deemed reasonable by the board without compliance with the provisions of Section 12521, and to execute bills of sale and deeds of conveyance in the name of the corporation.
In general, to make contracts and to do any and all things in the name of the corporation which may be proper or convenient for the purposes of winding up, settling, and liquidating the affairs of the corporation.
A vacancy on the board may be filled during a winding up proceeding in the manner provided in Section 12364.
When the identity of the directors or their right to hold office is in doubt, or if they are dead or unable to act, or they fail or refuse to act or their whereabouts cannot be ascertained, any interested person may petition the superior court of the proper county to determine the identity of the directors or, if there are no directors, to appoint directors to wind up the affairs of the corporation, after hearing upon such notice to such persons as the court may direct.
If the winding up is by court proceeding or subject to court supervision, the distribution shall not be made until after the expiration of any period for the presentation of claims that has been prescribed by order of the court.
Anything to the contrary notwithstanding, assets, if any, that are not subject to attachment, execution, or sale for the corporation’s debts and liabilities may be distributed pursuant to Sections 12655, 12656, and 12656.5 even though all debts and liabilities have not been paid or adequately provided for.
The payment of a debt or liability, whether the whereabouts of the creditor is known or unknown, has been adequately provided for if the payment has been provided for by either of the following means:
Payment thereof has been assumed or guaranteed in good faith by one or more financially responsible persons or by the United States government or any agency thereof, and the provision (including the financial responsibility of such persons) was determined in good faith and with reasonable care by the board to be adequate at the time of any distribution of the assets by the board pursuant to this chapter.
The amount of the debt or liability has been deposited as provided in Section 12659.
This section does not prescribe the exclusive means of making adequate provision for debts and liabilities.
After complying with the provisions of Section 12653 assets held by a corporation upon a valid condition requiring return, transfer, or conveyance, which condition has occurred or will occur, shall be returned, transferred, or conveyed in accordance with the condition.
If the articles or bylaws provide the manner of disposition, the assets shall be disposed of in that manner.
If the articles or bylaws do not provide the manner of disposition, the assets shall be distributed among the members in accordance with their respective rights therein.
After complying with the provisions of Section 12653, and except as otherwise provided in Section 12655, upon dissolution of a worker cooperative the majority of the unallocated capital account shall be distributed to members on the basis of any of the following, as specified in the articles of incorporation or bylaws of the cooperative:
Patronage.
Capital contributions.
A combination of patronage and capital contributions.
A worker cooperative is authorized to include patronage provided by past and current members in its distribution of the unallocated capital account.
Subdivision (a) shall not apply to any amounts in the indivisible reserve account. Any amount in the indivisible reserve account shall, upon dissolution, be allocated to a cooperative development organization designated in the articles of incorporation or the bylaws.
Distribution may be made either in money or in property or securities and either in installments from time to time or as a whole, if this can be done fairly and ratably and in conformity with the provisions of the articles and bylaws and shall be made as soon as reasonably consistent with the beneficial liquidation of the corporation assets.
If a corporation in process of winding up has more than one class of memberships outstanding, a plan of distribution of the memberships, obligations, or securities of any other corporation, domestic or foreign, or assets other than money which is not in accordance with the liquidation rights of any class or classes as specified in the articles or bylaws may nevertheless be adopted if approved by (1) the board and (2) by approval by the members (Section 12224) of each class. The plan may provide that such distribution is in complete or partial satisfaction of the rights of any of such members upon distribution and liquidation of the assets.
A plan of distribution so approved shall be binding upon all the members. The board shall cause notice of the adoption of the plan to be given by mail within 20 days after its adoption to all holders of memberships having a liquidation preference.
If any members, creditors, or other persons are unknown or fail or refuse to accept their payment or distribution in cash or property or their whereabouts cannot be ascertained after diligent inquiry, or the existence or amount of a claim of a creditor, member, or other person is contingent, contested, or not determined, or if the ownership of any memberships is in dispute, the corporation may deposit any such payment, distribution, or the maximum amount of the claim with the Controller in trust for the benefit of those lawfully entitled to the payment, distribution, or the amount of the claim. The payment or distribution shall be paid over by the depositary to the lawful owners, their representatives or assigns, upon satisfactory proof of title.
For the purpose of providing for the transmittal, receipt, accounting for, claiming, management, and investment of all money or other property deposited with the Controller under subdivision (a), the money or other property shall be deemed to be paid or delivered for deposit with the Controller under Chapter 7 (commencing with Section 1500) of Title 10 of Part 3 of the Code of Civil Procedure, and may be recovered in the manner prescribed in that chapter.
Whenever in the process of winding up a corporation any distribution of assets has been made, otherwise than under an order of court, without prior payment or adequate provision for payment of any of the debts and liabilities of the corporation, any amount so improperly distributed to any person may be recovered by the corporation. Any of such persons may be joined as defendants in the same action or be brought in on the motion of any other defendant.
Suit may be brought in the name of the corporation to enforce the liability under subdivision (a) against any or all persons receiving the distribution by any one or more creditors of the corporation, whether or not they have reduced their claims to judgment.
Members who satisfy any liability under this section shall have the right of ratable contribution from other distributees similarly liable. Any member who has been compelled to return to the corporation more than the member’s ratable share of the amount needed to pay the debts and liabilities of the corporation may require that the corporation recover from any or all of the other distributees such proportion of the amounts received by them upon the improper distribution as to give contribution to those held liable under this section and make the distribution of the assets fair and ratable, according to the respective rights and preferences of the memberships, after payment or adequate provision for payment of all the debts and liabilities of the corporation.
As used in this section, “process of winding up” includes proceedings under Chapters 15 (commencing with Section 12630) and 16 (commencing with Section 12630) and also any other distribution of assets to persons made in contemplation of termination or abandonment of the corporate business.
A corporation which is dissolved nevertheless continues to exist for the purpose of winding up its affairs, prosecuting and defending actions by or against it, and enabling it to collect and discharge obligations, dispose of and convey its property and collect, and divide its assets, but not for the purpose of continuing its activities except so far as necessary for the winding up thereof.
No action or proceeding to which a corporation is a party abates by the dissolution of the corporation or by reason of proceedings for winding up and dissolution thereof.
Any assets inadvertently or otherwise omitted from the winding up continue in the dissolved corporation for the benefit of the persons entitled thereto upon dissolution of the corporation and on realization shall be distributed accordingly.
Causes of action against a dissolved corporation, whether arising before or after the dissolution of the corporation, may be enforced against any of the following:
Against the dissolved corporation, to the extent of its undistributed assets; including, without limitation, any insurance assets held by the corporation that may be available to satisfy claims.
If any of the assets of the dissolved corporation have been distributed to other persons, against those persons to the extent of their pro rata share of the claim or to the extent of the corporate assets distributed to them upon dissolution of the corporation, whichever is less.
The total liability of a person under this section may not exceed the total amount of assets of the dissolved corporation distributed to that person upon dissolution of the corporation.
Except as set forth in subdivision (c), all causes of action against a person to whom assets were distributed arising under this section are extinguished unless the claimant commences a proceeding to enforce the cause of action against that person prior to the earlier of the following:
The expiration of the statute of limitations applicable to the cause of action.
Four years after the effective date of the dissolution of the corporation.
As a matter of procedure only, and not for purposes of determining liability, persons to whom assets of a dissolved corporation are distributed may be sued in the name of the corporation upon any cause of action against the corporation. This section does not affect the rights of the corporation or its creditors under Section 2009, or the rights, if any, of creditors under the Uniform Voidable Transactions Act, which may arise against persons to whom those assets are distributed.
This subdivision applies to corporations dissolved on or after January 1, 2000. Corporations dissolved prior to that date are subject to the law in effect prior to that date.
Summons or other process against a dissolved corporation may be served by delivering a copy thereof to an officer, director, or person having charge of its assets or, if that person cannot be found, to any agent upon whom process might be served at the time of dissolution. If none of these persons can be found with due diligence and it is so shown by affidavit to the satisfaction of the court, then the court may make an order that summons or other process be served upon the dissolved corporation by personally delivering a copy thereof, together with a copy of the order, to the Secretary of State or an assistant or deputy secretary of state.
Every dissolved corporation shall survive and continue to exist indefinitely for the purpose of being sued in any quiet title action. Any judgment rendered in any quiet title action shall bind each and all of its members or other persons having any equity or other interest in that corporation, to the extent of their interest therein, and that action shall have the same force and effect as an action brought under the provisions of Sections 410.50 and 410.60 of the Code of Civil Procedure. Service of summons or other process in any quiet title action may be made as provided in Chapter 4 (commencing with Section 413.10) of Title 5 of Part 2 of the Code of Civil Procedure or as provided in subdivision (b).
Upon receipt of that process and the fee therefor, the Secretary of State forthwith shall give notice to the corporation as provided in Section 1702.
Without the approval of 100 percent of the members, any contrary provision in this part or the articles or bylaws notwithstanding, so long as there is any lot, parcel, area, apartment or unit for which an owners’ association, created in connection with any of the forms of development referred to in Section 11004.5 of the Business and Professions Code, is obligated to provide management, maintenance, preservation, or control, the following shall apply:
The owners’ association or any person acting on its behalf shall not do either of the following:
Transfer all or substantially all of its assets.
File a certificate of dissolution.
No court shall enter an order declaring the owners’ association duly wound up and dissolved.
CHAPTER 18. Crimes and Penalties [12670. - 12679.]
Upon the failure of a corporation to file the statement required by Section 12570, the Secretary of State shall provide a notice of that delinquency to the corporation. The notice shall also contain information concerning the application of this section, and shall advise the corporation of the penalty imposed by Section 19141 of the Revenue and Taxation Code for failure to timely file the required statement after notice of delinquency has been provided by the Secretary of State. If, within 60 days after providing notice of the delinquency, a statement pursuant to Section 12570 has not been filed by the corporation, the Secretary of State shall certify the name of the corporation to the Franchise Tax Board.
Upon certification pursuant to subdivision (a), the Franchise Tax Board shall assess against the corporation a penalty of fifty dollars ($50) pursuant to Section 19141 of the Revenue and Taxation Code.
The penalty herein provided shall not apply to a corporation which on or prior to the date of certification pursuant to subdivision (a) has dissolved, has been converted to another type of business entity, or has been merged into another corporation or other business entity.
The penalty herein provided shall not apply and the Secretary of State need not provide a notice of the delinquency to a corporation the corporate powers, rights, and privileges of which have been suspended by the Franchise Tax Board pursuant to Section 23301, 23301.5, or 23775 of the Revenue and Taxation Code on or prior to, and remain suspended on, the last day of the filing period pursuant to Section 12570. The Secretary of State need not provide notice of the filing requirement pursuant to Section 12570, to a corporation the corporate powers, rights, and privileges of which have been so suspended by the Franchise Tax Board on or prior to, and remain suspended on, the day the Secretary of State prepares the notice for sending.
If, after certification pursuant to subdivision (a) the Secretary of State finds the required statement was filed before the expiration of the 60-day period after providing notice of the delinquency, the Secretary of State shall promptly decertify the name of the corporation to the Franchise Tax Board. The Franchise Tax Board shall then promptly abate any penalty assessed against the corporation pursuant to Section 19141 of the Revenue and Taxation Code.
If the Secretary of State determines that the failure of a corporation to file a statement required by Section 12570 is excusable because of reasonable cause or unusual circumstances which justify the failure, the Secretary of State may waive the penalty imposed by this section and by Section 19141 of the Revenue and Taxation Code, in which case the Secretary of State shall not certify the name of the corporation to the Franchise Tax Board, or if already certified, the Secretary of State shall promptly decertify the name of the corporation.
Any promoter, director, or officer of a corporation who knowingly and willfully issues or consents to the issuance of memberships or membership certificates with intent to defraud present or future members or creditors is guilty of a misdemeanor punishable by a fine of not more than one thousand dollars ($1,000) or by imprisonment in county jail for not more than one year or by both such fine and imprisonment.
Any director of any corporation who concurs in any vote or act of the directors of the corporation or any of them, knowingly and with dishonest or fraudulent purpose, to make any distribution of assets, except in the case and in the manner allowed by this part, either with the design of defrauding creditors or members or of giving a false appearance to the value of the membership and thereby defrauding purchasers is guilty of a crime. Each such crime is punishable by imprisonment pursuant to subdivision (h) of Section 1170 of the Penal Code, or by a fine of not more than one thousand dollars ($1,000), or imprisonment in a county jail for not more than one year, or by both that fine and imprisonment.
Every director or officer of any corporation is guilty of a crime if such director or officer knowingly concurs in making or publishing, either generally or privately, to members or other persons (1) any materially false report or statement as to the financial condition of the corporation, or (2) any willfully or fraudulently exaggerated report, prospectus, account, or statement of operations, financial condition, or prospects, or (3) any other paper intended to give, and having a tendency to give, a membership in such corporation a greater or lesser value than it really possesses.
Every director or officer of any corporation is guilty of a crime who refuses to make or direct to be made any book entry or the posting of any notice required by law in the manner required by law.
A violation of subdivision (a) or (b) of this section shall be punishable by imprisonment in state prison or by a fine of not more than one thousand dollars ($1,000) or imprisonment in the county jail for not more than one year or both such fine and imprisonment.
Every director, officer or agent of any corporation, who knowingly receives or acquires possession of any property of the corporation, otherwise than in payment of a just demand, and, with intent to defraud, omits to make, or to cause or direct to be made, a full and true entry thereof in the books or accounts of the corporation is guilty of a crime.
Every director, officer, agent or member of any corporation who, with intent to defraud, destroys, alters, mutilates or falsifies any of the books, papers, writings, or securities belonging to the corporation or makes or concurs in omitting to make any material entry in any book of accounts or other record or document kept by the corporation is guilty of a crime.
Each crime specified in this section is punishable by imprisonment in state prison, or by imprisonment in a county jail for not exceeding one year, or a fine not exceeding one thousand dollars ($1,000), or both such fine and imprisonment.
Every director, officer or agent of any corporation, or any person proposing to organize such a corporation who knowingly exhibits any false, forged, or altered book, paper, voucher, security, or other instrument of evidence to any public officer or board authorized by law to examine the organization of such corporation or to investigate its affairs, with intent to deceive such officer or board in respect thereto, is punishable by imprisonment pursuant to subdivision (h) of Section 1170 of the Penal Code, or by imprisonment in a county jail for not exceeding one year.
Every person who, without being authorized so to do, subscribes the name of another to or inserts the name of another in any prospectus, circular or other advertisement or announcement of any corporation, whether existing or intended to be formed, with intent to permit the document to be published and thereby to lead persons to believe that the person whose name is so subscribed is an officer, agent or promoter of such corporation, when in fact no such relationship exists to the knowledge of such person, is guilty of a misdemeanor.
Nothing in this chapter limits the power of the state to punish any person for any conduct which constitutes a crime under any other statute.
Any person may be enjoined from violating the provisions of Section 12311. Any corporation may be enjoined from carrying on business outside of the purpose for which it was formed.
Any person violating Section 12311, and any corporation carrying on business outside the purpose for which it was formed, is guilty of a misdemeanor punishable by a fine of five hundred dollars ($500), or by imprisonment for not more than one year, or by both such fine and imprisonment.
CHAPTER 19. Foreign Corporations [12680. - 12680.]
CHAPTER 20. Transition Provisions [12690. - 12704.]
As used in Sections 12690 to 12704, inclusive, of this part:
“New law” means Part 2 (commencing with Section 12200) of Division 3 of Title 1 of the Corporations Code enacted by the California Legislature during the 1981–82 Regular Session and operative January 1, 1984.
“Prior law” means Part 2 (commencing with Section 12220) of Division 3 of Title 1 of the Corporations Code in effect on December 31, 1983.
“Subject corporation” means any corporation described in subdivision (a) of Section 12202 and subject to the prior law.
The new law shall apply to all corporations which are incorporated on or after January 1, 1984, under Part 2 (commencing with Section 12200) of this division or which are expressly governed by Part 2 pursuant to a particular provision of this division or other specific statutory provision.
Except as otherwise expressly provided in this chapter, the new law shall apply to all subject corporations and to all actions taken by the directors, officers, or members of such corporations, on or after January 1, 1984.
Except as otherwise expressly provided in this chapter, all of the sections of the new law governing acts, contracts, or other transactions by a subject corporation or its directors, officers, or members, shall apply only to the acts, contracts, or transactions occurring on or after January 1, 1984, and the prior law shall govern acts, contracts, or transactions occurring before January 1, 1984.
Except as otherwise expressly provided in this chapter, any vote or consent by the directors or members of a subject corporation prior to January 1, 1984, in accordance with the prior law, shall be effective in accordance with that law. If any certificate or document is required to be filed in any public office of this state relating to such vote or consent, it may be filed on or after January 1, 1984, in accordance with the prior law.
The provisions of Sections 12310 and 12313 of the new law relating to the contents of articles of incorporation do not apply to subject corporations unless and until an amendment of the articles is filed stating that the corporation elects to be governed by all of the provisions of the new law not otherwise applicable to it under this chapter.
The amendment described in subdivision (a) may be adopted by the board alone, except that if such amendment makes any change in the articles other than conforming the statement of purposes of the subject corporation to Section 12310, deleting any references to the location of its principal office, deleting any statement of par value or any statement regarding the number of directors, or conforming any such statement to Section 12331 (subject to Section 12694), the amendment shall also be approved by the members (Section 12224) if such approval is otherwise required for the changes made.
The amendment shall not name the corporation’s initial agent for service of process if a report required by Section 12570 has been filed.
Section 12320 of the new law shall apply to subject corporations, but any statement in the articles of these corporations prior to an amendment thereof pursuant to Section 12692, relating to the powers of the corporation, shall not be construed as a limitation unless it is expressly stated as such.
Subdivision (a) of Section 12353 of the new law shall apply to subject corporations, but the treasurer of these corporations shall be deemed to be the chief financial officer unless otherwise provided in the articles or bylaws.
Section 12377 governs any proposed indemnification by a subject corporation after January 1, 1984, whether the events upon which the indemnification is based occurred before or after January 1, 1984. Any statement relating to indemnification contained in the articles or bylaws of a subject corporation shall not be construed as limiting the indemnification permitted by Section 12377, unless it is expressly stated as so intended.
The provisions of Chapter 5 (commencing with Section 12460) and Chapter 6 (commencing with Section 12480) of the new law shall apply to any meeting of members of a subject corporation, held on or after January 1, 1984, and to any action by such members pursuant to a written ballot, which becomes effective on or after January 1, 1984, and to any vote cast at such a meeting or ballot, given for such action, whether or not a ballot was executed by the member prior to January 1, 1984.
Notwithstanding subdivision (a), the prior law shall apply to any meeting of members and to any vote cast at such a meeting if the meeting was initially called for a date prior to January 1, 1984, and notice thereof was given to members entitled to vote at the meeting.
Section 12490 of the new law shall apply to actions commenced on or after January 1, 1984, with respect to a subject corporation. The prior law shall govern actions which are commenced prior to January 1, 1984, but are still pending on January 1, 1984.
Chapter 9 (commencing with Section 12520) and Chapter 10 (commencing with Section 12530) of the new law shall apply to transactions consummated by a subject corporation on or after January 1, 1984, unless the approval required by the prior law has been given prior to January 1, 1984, or has been given on or after January 1, 1984, at a meeting of members initially called for a date prior to January 1, 1984, in which case the transaction shall be governed by the prior law.
Chapter 15 (commencing with Section 12620) and Chapter 17 (commencing with Section 12650) of the new law shall apply to acts for involuntary dissolution of a subject corporation commenced on or after January 1, 1984. The prior law shall govern any of these actions which are commenced prior to January 1, 1984, but are still pending on January 1, 1984.
Chapter 16 (commencing with Section 12630) and Chapter 17 (commencing with Section 12650) of the new law shall apply to any voluntary dissolution proceeding initiated with respect to a subject corporation by the filing on or after January 1, 1984, of an election to wind up and dissolve. The prior law shall govern any of these proceedings so initiated prior to January 1, 1984.
When any corporate agent has been designated for service of process prior to January 1, 1984, and such designation of an agent included a name of a city, town, or village where the corporate agent maintained an office, service on such an agent may be effected at any office of the agent set forth in the certificate of the corporate agent filed pursuant to Section 1505, 6213, 8213, or 12573, or filed pursuant to Section 3301.5, 3301.6, 6403.5, or 6403.6 as in effect prior to January 1, 1977.
Any subject corporation that existed on the first day of January 1873, was formed under the laws of this state, and which has not already elected to continue its existence under the prior law, may at any time elect to continue its existence under the provisions of this code applicable thereto, (a) by the unanimous vote of all its directors, (b) by the vote of the members representing a majority of the voting power of the corporation at an election held at any annual meeting of the members or at any meeting called by the directors for the express purpose of considering this subject, or (c) by action of the directors upon the written consent of the members representing a majority of the voting power of the corporation.
A certificate of the action of the directors, signed by the directors and the secretary, shall be filed in the office of the Secretary of State when the election is made by the unanimous vote of the directors or upon the written consent of the members. A certificate of the proceedings of the meeting of the members when the election is made at any such meeting, signed by the chairperson and secretary of the meeting and a majority of the directors, shall be filed in the office of the Secretary of State. Thereafter, the corporation shall continue its existence under the provisions of this code which are applicable thereto, and shall possess all the rights and powers, and shall be subject to all the obligations, restrictions, and limitations, prescribed thereby.
If the corporate rights, privileges, and powers of a subject corporation have been suspended and are still suspended immediately prior to January 1, 1984 pursuant to the prior law, as a result of its incorporation of the General Nonprofit Corporation Law (commencing with Section 9000) in effect on December 31, 1979, and the incorporation by the General Nonprofit Corporation Law of Sections 5700 through 5908 of the prior law (Section 2300), such sections and provisions continue to apply to such corporation until restoration by the controller pursuant to such sections.
PART 3. FISH MARKETING [13200. - 13356.]
CHAPTER 1. General Provisions and Definitions [13200. - 13208.]
This part shall be known as “the Fish Marketing Act.”
This part is enacted in order to promote, foster, and encourage the intelligent and orderly marketing of fish and fishery products through cooperation; to eliminate speculation and waste; to make the distribution of fish and fishery products between producer and consumer as direct as can be efficiently done; and to stabilize the marketing of fish and fishery products.
As used in this part:
“Fishery products” includes fish, crustaceans, mollusks, and marine products for human consumption.
“Member” includes members of associations without capital stock and holders of common stock in associations organized with shares of stock.
“Association” means any corporation organized under this part.
Associations shall be deemed “nonprofit,” inasmuch as they are not organized to make profit for themselves, as such, or for their members, as such, but only for their members as producers of fishery products.
The provisions of the General Corporation Law and all powers and rights thereunder, apply to associations, except where such provisions are in conflict with or inconsistent with the express provisions of this part.
No association is subject in any manner to the terms of the Corporate Securities Law and all associations may issue their membership certificates or stock or other securities as provided in this division without the necessity of any permit from the Commissioner of Financial Protection and Innovation.
An association shall be deemed not to be a conspiracy nor a combination in restraint of trade nor an illegal monopoly; nor an attempt to lessen competition or to fix prices arbitrarily or to create a combination or pool in violation of any law of the State; and the marketing contracts and agreements between the association and its members and any agreements authorized in this part shall be considered not to be illegal nor in restraint of trade nor contrary to the provisions of any statute enacted against pooling or combinations.
Any provisions of law which are in conflict with this part shall not be construed as applying to associations. Any exemptions under any laws applying to fishery products in the possession or under the control of the individual producer shall apply similarly and completely to such fishery products delivered by its members, in the possession or under the control of the association.
Any two or more associations may be merged into one such constituent association or consolidated into a new association. Such merger or consolidation shall be made in the manner prescribed by the General Corporation Law for domestic corporations.
CHAPTER 2. Formation, Articles, and By-laws [13220. - 13251.]
ARTICLE 1. Formation [13220. - 13220.]
Five or more persons, a majority of whom are residents of this State, engaged in the production of fishery products, may form an association, with or without shares of stock, under the provisions of this division.
ARTICLE 2. Articles of Incorporation [13225. - 13230.]
Articles of incorporation shall be signed, acknowledged, and filed in the manner prescribed by the General Corporation Law for domestic corporations.
The articles of incorporation shall state:
The name of the association.
The purposes for which it is formed.
The county where the principal office for the transaction of business of the corporation is to be located.
The number of directors thereof, which shall be not less than three and may be any number in excess thereof; the term of office of such directors; and the names and residence of those who are to serve as directors for the first year, or until election and qualification of their successors.
The initial street address of the association.
The initial mailing address of the association, if different from the initial street address.
The name and street address in this state of the association’s initial agent for service of process in accordance with subdivision (b) of Section 1502.
If the association is organized with shares of stock, the articles shall state the number of shares which may be issued and if the shares are to have a par value, the par value of each share, and the aggregate par value of all shares; and if the shares are to be without par value it shall be so stated.
If the shares are to be classified, the articles shall contain a description of the classes of shares and a statement of the number of shares of each kind or class and the nature and extent of the preferences, rights, privileges and restrictions granted to or imposed upon the holders of the respective classes of stock.
If the association is organized without shares of stock, the articles shall state whether the voting power and the property rights and interest of each member are equal or unequal; and if unequal the general rule or rules applicable to all members by which the voting power and the property rights and interests, respectively, of each member may be and are determined and fixed; and shall also provide for the admission of new members who shall be entitled to vote and to share in the property of the association with the old members, in accordance with such general rule or rules.
The articles of incorporation of any association may be altered or amended in the manner and for the purposes prescribed by the General Corporation Law for domestic corporations.
ARTICLE 3. By-laws [13240. - 13251.]
Each association shall within 30 days after its incorporation, adopt for its government and management, a code of by-laws, not inconsistent with this part. A majority vote of the members or shares of stock issued and outstanding and entitled to vote, or the written assent of a majority of the members or of stockholders representing a majority of all the shares of stock issued and outstanding and entitled to vote, is necessary to adopt such by-laws and is effectual to repeal or amend any by-laws, or to adopt additional by-laws. The power to repeal and amend the by-laws, and adopt new by-laws, may, by a similar vote, or similar written assent, be delegated to the board of directors, which authority may, by a similar vote, or similar written assent, be revoked.
The by-laws shall prohibit the transfer of the common stock or membership certificates of the associations to persons not engaged in the production of the products handled by the association.
The by-laws may provide:
The number of members constituting a quorum.
The right of members to vote by proxy or by mail or both, and the conditions, manner, form and effects of such votes; the right of members to cumulate their votes and the prohibition, if desired, of cumulative voting.
The number of directors constituting a quorum.
The qualifications, compensation and duties and term of office of directors and officers and the time of their election.
Penalties for violations of the by-laws.
The by-laws may provide:
The amount of entrance, organization and membership fees, if any; the manner and method of collection of the same; and the purposes for which they may be used.
The amount which each member shall be required to pay annually, or from time to time, if at all, to carry on the business of the association; the charge, if any, to be paid by each member for services rendered by the association to him and the time of payment and the manner of collection; and the marketing contract between the association and its members which every member may be required to sign.
The amount of any dividends which may be declared on the stock or membership capital, which dividends shall not exceed 8 percent per annum and which dividends shall be in the nature of interest and shall not affect the nonprofit character of any association organized hereunder.
The by-laws may provide:
The number and qualification of members of the association and the conditions precedent to membership or ownership of common stock.
The method, time and manner of permitting members to withdraw or the holders of common stock to transfer their stock.
The manner of assignment and transfer of the interest of members and of the shares of common stock.
The conditions upon which and time when membership of any member shall cease.
For the automatic suspension of the rights of a member when he ceases to be eligible to membership in the association; and the mode, manner and effect of the expulsion of a member.
The manner of determining the value of a member’s interest and provision for its purchase by the association upon the death or withdrawal of a member or upon the expulsion of a member or forfeiture of his membership, or at the option of the association, the purchase at a price fixed by conclusive appraisal by the board of directors; and the conditions and terms for the repurchase by the corporation from its stockholders of their stock upon their disqualification as stockholders.
The by-laws may provide for the time, place, and manner of calling and conducting meetings of the association.
The by-laws may provide that the territory in which the association has members shall be divided into districts and that directors shall be elected from the several districts. In such case, the by-laws shall specify the number of directors to be elected by each district, the manner and method of reapportioning the directors and of redistricting the territory covered by the association.
The by-laws may provide that the territory in which the association has members shall be divided into districts, and that the directors shall be elected by representatives or advisers, who themselves have been elected by the members from the several territorial districts. In such case, the by-laws shall specify the number of representatives or advisers to be elected by each district, the manner and method of reapportioning the representatives or advisers and of redistricting the territory covered by the association.
The by-laws may provide that primary elections shall be held to nominate directors. Where the by-laws provide that the territory in which the association has members shall be divided into districts, the by-laws may also provide that the results of the primary elections in the various districts shall be final and shall be ratified at the annual meeting of the association.
The by-laws may provide that one or more directors may be nominated by any public official or commission or by the other directors selected by the members. Such directors shall represent primarily the interest of the general public in such associations. The directors so nominated need not be members of the association, but shall have the same powers and rights as other directors. Such directors shall not number more than one-fifth of the entire number of directors.
The by-laws may provide that directors shall be elected for terms of from one to five years; provided, that at each annual election the same fraction of the total number of directors shall be elected as one year bears to the number of years of the term of office.
The by-laws may provide for an executive committee and may allot to such committee all the functions and powers of the board of directors, subject to the general direction and control of the board.
CHAPTER 3. Officers [13275. - 13293.]
ARTICLE 1. Generally [13275. - 13279.]
The affairs of the association shall be managed by a board of not less than three directors, elected by the members from their own number.
Meetings of the board of directors may be held at any place within or without the State fixed by a quorum thereof unless otherwise provided in the articles of incorporation or by-laws.
When a vacancy on the board of directors occurs other than by expiration of term, the remaining members of the board, by a majority vote, shall fill the vacancy, provided that when the by-laws provide for an election of directors by districts, the vacancy shall be filled by the election of a director from the district in which the vacancy occurs; or the board of directors may call a special meeting of the members in that district to fill the vacancy.
The directors shall elect from their number a president and one or more vice presidents. They shall also elect a secretary and a treasurer, who need not be directors or members of the association; and they may combine the two latter offices and unite both functions and titles in one person. The treasurer may be a bank or any depository and, as such, shall not be considered as an officer, but as a function of the board of directors. In such case, the secretary shall perform the usual accounting duties of the treasurer, excepting that the funds shall be deposited only as and where authorized by the board of directors. Any vacancy in any office, other than that of director, shall be filled by the board of directors.
An association may provide a fair remuneration for the time actually spent by its officers and directors in its service and for the service of the members of its executive committee.
ARTICLE 2. Removal of Officers [13290. - 13293.]
Any member may bring charges against an officer or director by filing them in writing with the secretary of the association, together with a petition signed by 5 percent of the members, requesting the removal of the officer or director in question.
Except as provided in Section 13293, the removal shall be voted upon at the next regular or special meeting of the association and, by a vote of a majority of the members, the association may remove the officer or director.
The director or officer, against whom such charges have been brought, shall be informed in writing of the charges previous to the meeting and shall have an opportunity at the meeting to be heard in person or by counsel and to present witnesses; and the person or persons bringing the charges against him shall have the same opportunity.
If the by-laws provide for election of directors by districts with primary elections in each district, the petition for removal of a director shall be signed by 20 percent of the members residing in the district from which he was elected. The board of directors shall call a special meeting of the members residing in that district to consider the removal of the director; and by a vote of the majority of the members of that district, the director in question shall be removed from office.
CHAPTER 4. Members [13300. - 13304.]
Under the terms and conditions prescribed in the by-laws, an association may admit as members, or issue common stock to, only such persons as are engaged in the production of fishery products to be handled by or through the association, including the lessees and tenants of boats and equipment used for the production of such fishery products and any lessors and landlords who receive as rent all or part of the fish produced by such leased equipment.
If a member of a nonstock association is other than a natural person, such member may be represented by any individual duly authorized in writing.
One association may become a member or stockholder of any other association.
When a member of an association established without shares of stock has paid his membership fee in full, he shall receive a certificate of membership.
No member shall be liable for the debts of the association to an amount exceeding the sum remaining unpaid on his membership fee or his subscription to the capital stock, including any unpaid balance on any promissory note given in payment thereof.
Meetings of members shall be held at the place as provided in the by-laws; and if no provision is made, in the city where the principal place of business is located at a place designated by the board of directors.
In case of the expulsion of a member, and where the by-laws do not provide any procedure or penalty, the board of directors shall equitably and conclusively appraise his property interest in the association and shall fix the amount thereof in money, which shall be paid to him within one year after such expulsion.
CHAPTER 5. Stock [13310. - 13316.]
No association shall issue a certificate for stock to a member until it has been fully paid for. The promissory notes of the members may be accepted by the association as full or partial payment. The association shall hold the stock as security for the payment of the note; but such retention as security shall not affect the member’s right to vote. An association, in its by-laws, may limit the amount of common stock which one member may own.
One class of stock shall always be known as common stock and voting power may be restricted to holders of common stock.
There shall be printed upon each common stock certificate a statement that the transfer thereof to any person not engaged in the production of the products handled by the association is prohibited by the by-laws of the association.
Except as to the matters and things stated in the articles of incorporation no distinction shall exist between classes of stock or the holders thereof.
If an association issues nonpar value stock the issuance of such stock shall be governed by the terms of the General Corporation Law covering the issuance of nonpar value stock in domestic corporations.
An association may, at any time, as specified in the by-laws, except when the debts of the association exceed 50 percent of its assets, buy in or purchase its common stock at the book value thereof, as conclusively determined by the board of directors and pay for it in cash within one year thereafter.
Whenever an association, organized with preferred shares of stock, purchases the stock or any property, or any interest in any property of any person, it may discharge the obligations so incurred, wholly or in part, by exchanging for the acquired interest, shares of its preferred stock to an amount which at par value would equal the fair market value of the stock or interest so purchased, as determined by the board of directors. In that case the transfer to the association of the stock or interest purchased shall be equivalent to payment in cash for the shares of stock issued.
CHAPTER 6. Powers [13325. - 13335.]
An association may:
Engage in any activity in connection with the marketing, selling, preserving, harvesting, drying, processing, manufacturing, canning, packing, grading, storing, handling, or utilization of any fishery products produced or delivered to it by its members; or the manufacturing or marketing of the by-products thereof; or any activity in connection with the purchase, hiring, or use by its members of supplies, machinery, or equipment, or in the financing of any such activities.
An association may borrow without limitation as to amount of corporate indebtedness or liability and may make advances to members.
An association may act as the agent or representative of any member or members in any of the two next preceding sections.
An association may establish reserves and invest the funds thereof in bonds or in such other property as may be provided in the by-laws.
An association may purchase or otherwise acquire, hold, own, and exercise all rights of ownership in, sell, transfer, pledge, or guarantee the payment of dividends or interest on, or the retirement or redemption of, shares of the capital stock or bonds of any corporation or association engaged in any related activity or in the warehousing or handling or marketing or packing or manufacturing or processing or preparing for market of any of the fishery products handled by the association.
An association may buy, hold and exercise all privileges or ownership, over such real or personal property as may be necessary or convenient for the conduct and operation of any of the business of the association, or incidental thereto.
An association may levy assessments in the manner and in the amount provided in its by-laws.
An association may do each and every thing necessary, suitable or proper for the accomplishment of any one of the purposes or the attainment of any one or more of the objects enumerated in this article; or conducive to or expedient for the interest or benefit of the association; and contract accordingly; and in addition exercise and possess all powers, rights and privileges necessary or incidental to the purposes for which the association is organized or to the activities in which it is engaged; and, in addition, any other rights, powers and privileges granted by the laws of this State to ordinary corporations, except such as are inconsistent with the express provisions of this act; and do any such thing anywhere.
An association may use or employ any of its facilities for any purpose; provided, the proceeds arising from such use and employment go to reduce the cost of operation for its members; but the fishery products of nonmembers shall not be dealt in to an amount greater in value than such as are handled by it for its members.
An association may organize, form, operate, own, control, have an interest in, own stock of, or be a member of any other corporation or corporations, with or without capital stock and engaged in preserving, drying, processing, canning, packing, storing, handling, shipping, utilizing, manufacturing, marketing, or selling of the fishery products handled by the association, or the by-products thereof.
If such corporations are warehousing corporations, they may issue legal warehouse receipts to the association against the commodities delivered by it, or to any other person and such legal warehouse receipts shall be considered as adequate collateral to the extent of the usual and current value of the commodity represented thereby. In case such warehouse is licensed or licensed and bonded under the laws of this State or the United States, its warehouse receipt delivered to the association on commodities of the association or its members, or delivered by the association or its members, shall not be challenged or discriminated against because of ownership or control, wholly or in part, by the association.
Any association may, upon resolution adopted by its board of directors, enter into all necessary and proper contracts and agreements and make all necessary and proper stipulations, agreements and contracts and arrangements with any other cooperative or other corporation, association, or associations, formed in this or in any other State, for the cooperative and more economical carrying on of its business or any part or parts thereof. Any two or more associations may, by agreement between them, unite in employing and using or may separately employ and use the same personnel, methods, means, and agencies for carrying on and conducting their respective business.
CHAPTER 7. Marketing Contracts [13350. - 13356.]
An association and its members may make and execute marketing contracts, requiring the members to sell, for any period of time, not over 15 years, all or any specified part of their fishery products or specified commodities exclusively to or through the association or any facilities to be created by the association.
If the members contract a sale to the association, it shall be conclusively held that title to the products passes absolutely and unreservedly, except for recorded liens, to the association upon delivery or at any other time expressly and definitely specified in the contract.
The contract may provide that the association may sell or resell the fishery products delivered by its members, with or without taking title thereto; and pay over to its members the resale price, after deducting all necessary selling, overhead, and other costs and expenses, including interest on preferred stock, not exceeding 8 percent per annum, and reserves for retiring the stock, if any; and other proper reserves; and interest not exceeding 8 percent per annum upon common stock.
The marketing contract may fix, as liquidated damages, specific sums to be paid by the member to the association upon the breach by him of any provision of the marketing contract regarding the sale or delivery or withholding of fishery products; and may further provide that the member will pay all costs, premiums for bonds, expenses and fees, in case any action is brought upon the contract by the association; and any such provisions shall be valid and enforceable in the courts of this State; and such clauses providing for liquidated damages shall be enforceable as such and shall not be regarded as penalties.
In the event of any such breach or threatened breach of such marketing contract by a member the association shall be entitled to an injunction to prevent the further breach of the contract and to a decree of specific performance thereof. Pending the adjudication of such an action and upon filing a verified complaint showing the breach or threatened breach, and upon filing sufficient bond, the association shall be entitled to a temporary restraining order and preliminary injunction against the member.
In any action upon such marketing agreements, it shall be conclusively presumed that a landlord or lessor is able to control the delivery of fishery products produced by his equipment by tenants, or others, whose tenancy or possession or work on such equipment or the terms of whose tenancy or possession or labor thereon were created or changed after execution by the landlord or lessor, of such a marketing agreement; and in such actions, the foregoing remedies for nondelivery or breach shall lie and be enforceable against such landlord or lessor.
A contract entered into by a member of an association, providing for the delivery to such association of products produced or acquired by the member, may be specifically enforced by the association to secure the delivery to it of such fishery products, any provisions contained in the Civil Code to the contrary notwithstanding.
PART 4. PROFESSIONAL CORPORATIONS [13400. - 13410.]
This part shall be known and may be cited as the “Moscone-Knox Professional Corporation Act.”
As used in this part:
“Professional services” means any type of professional services that may be lawfully rendered only pursuant to a license, certification, or registration authorized by the Business and Professions Code, the Chiropractic Act, or the Osteopathic Act.
“Professional corporation” means a corporation organized under the General Corporation Law or pursuant to subdivision (b) of Section 13406 that is engaged in rendering professional services in a single profession, except as otherwise authorized in Section 13401.5, pursuant to a certificate of registration issued by the governmental agency regulating the profession as herein provided and that in its practice or business designates itself as a professional or other corporation as may be required by statute. However, any professional corporation or foreign professional corporation rendering professional services by persons duly licensed by the Medical Board of California or any examining committee under the jurisdiction of the board, the Podiatric Medical Board of California, the Osteopathic Medical Board of California, the Dental Board of California, the Dental Hygiene Board of California, the California State Board of Pharmacy, the Veterinary Medical Board, the California Architects Board, the Court Reporters Board of California, the Board of Behavioral Sciences, the Speech-Language Pathology and Audiology and Hearing Aid Dispensers Board, the Board of Registered Nursing, the State Board of Optometry, or the California Board of Occupational Therapy shall not be required to obtain a certificate of registration in order to render those professional services.
“Foreign professional corporation” means a corporation organized under the laws of a state of the United States other than this state that is engaged in a profession of a type for which there is authorization in the Business and Professions Code for the performance of professional services by a foreign professional corporation.
“Licensed person” means any natural person who is duly licensed under the provisions of the Business and Professions Code, the Chiropractic Act, or the Osteopathic Act to render the same professional services as are or will be rendered by the professional corporation or foreign professional corporation of which the person is, or intends to become, an officer, director, shareholder, or employee.
“Disqualified person” means a licensed person who for any reason becomes legally disqualified (temporarily or permanently) to render the professional services that the particular professional corporation or foreign professional corporation of which they are an officer, director, shareholder, or employee is or was rendering.
As used in this part, “professional services” also means any type of professional services that may be lawfully rendered only pursuant to a license, certification, or registration authorized by the Yacht and Ship Brokers Act (Article 2 (commencing with Section 700) of Chapter 5 of Division 3 of the Harbors and Navigation Code).
Notwithstanding subdivision (d) of Section 13401 and any other provision of law, the following licensed persons may be shareholders, officers, directors, or professional employees of the professional corporations designated in this section so long as the sum of all shares owned by those licensed persons does not exceed 49 percent of the total number of shares of the professional corporation so designated herein, and so long as the number of those licensed persons owning shares in the professional corporation so designated herein does not exceed the number of persons licensed by the governmental agency regulating the designated professional corporation. This section does not limit employment by a professional corporation designated in this section to only those licensed professionals listed under each subdivision. Any person duly licensed under Division 2 (commencing with Section 500) of the Business and Professions Code, the Chiropractic Act, or the Osteopathic Act may be employed to render professional services by a professional corporation designated in this section.
Medical corporation.
Licensed doctors of podiatric medicine.
Licensed psychologists.
Registered nurses.
Licensed optometrists.
Licensed marriage and family therapists.
Licensed clinical social workers.
Licensed physician assistants.
Licensed chiropractors.
Licensed acupuncturists.
Naturopathic doctors.
Licensed professional clinical counselors.
Licensed physical therapists.
Licensed pharmacists.
Licensed midwives.
Licensed occupational therapists.
Podiatric medical corporation.
Licensed physicians and surgeons.
Licensed psychologists.
Registered nurses.
Licensed optometrists.
Licensed chiropractors.
Licensed acupuncturists.
Naturopathic doctors.
Licensed physical therapists.
Psychological corporation.
Naturopathic doctors.
Licensed professional clinical counselors.
Licensed midwives.
Speech-language pathology corporation.
Audiology corporation.
Licensed speech-language pathologists.
Nursing corporation.
Licensed physicians and surgeons.
Licensed doctors of podiatric medicine.
Licensed psychologists.
Licensed optometrists.
Licensed marriage and family therapists.
Licensed clinical social workers.
Licensed physician assistants.
Licensed chiropractors.
Licensed acupuncturists.
Naturopathic doctors.
Licensed professional clinical counselors.
Licensed midwives.
Marriage and family therapist corporation.
Licensed physicians and surgeons.
Licensed psychologists.
Licensed clinical social workers.
Registered nurses.
Licensed chiropractors.
Licensed acupuncturists.
Naturopathic doctors.
Licensed professional clinical counselors.
Licensed midwives.
Licensed clinical social worker corporation.
Licensed physicians and surgeons.
Licensed psychologists.
Licensed marriage and family therapists.
Registered nurses.
Licensed chiropractors.
Licensed acupuncturists.
Naturopathic doctors.
Licensed professional clinical counselors.
Physician assistants corporation.
Optometric corporation.
Licensed physicians and surgeons.
Licensed doctors of podiatric medicine.
Licensed psychologists.
Registered nurses.
Licensed chiropractors.
Licensed acupuncturists.
Naturopathic doctors.
Chiropractic corporation.
Licensed physicians and surgeons.
Licensed doctors of podiatric medicine.
Licensed psychologists.
Registered nurses.
Licensed optometrists.
Licensed marriage and family therapists.
Licensed clinical social workers.
Licensed acupuncturists.
Naturopathic doctors.
Licensed professional clinical counselors.
Licensed midwives.
Acupuncture corporation.
Licensed midwives.
Naturopathic doctor corporation.
Licensed midwives.
Dental corporation.
Licensed physicians and surgeons.
Dental assistants.
Registered dental assistants.
Registered dental assistants in extended functions.
Registered dental hygienists.
Registered dental hygienists in extended functions.
Registered dental hygienists in alternative practice.
Professional clinical counselor corporation.
Licensed physicians and surgeons.
Licensed psychologists.
Licensed clinical social workers.
Licensed marriage and family therapists.
Registered nurses.
Licensed chiropractors.
Licensed acupuncturists.
Naturopathic doctors.
Licensed midwives.
Physical therapy corporation.
Licensed physicians and surgeons.
Licensed doctors of podiatric medicine.
Licensed acupuncturists.
Naturopathic doctors.
Licensed occupational therapists.
Licensed speech-language therapists.
Licensed audiologists.
Registered nurses.
Licensed psychologists.
Licensed physician assistants.
Licensed midwives.
Registered dental hygienist in alternative practice corporation.
Registered dental assistants.
Licensed dentists.
Registered dental hygienists.
Registered dental hygienists in extended functions.
Licensed midwifery corporation.
Licensed physicians and surgeons.
Licensed psychologists.
Registered nurses.
Licensed marriage and family therapists.
Licensed clinical social workers.
Licensed physician assistants.
Licensed chiropractors.
Licensed acupuncturists.
Licensed naturopathic doctors.
Licensed professional clinical counselors.
Licensed physical therapists.
Occupational therapy corporation.
Licensed physicians and surgeons.
Licensed doctors of podiatric medicine.
Licensed acupuncturists.
Naturopathic doctors.
Licensed physical therapists.
Licensed speech-language therapists.
Licensed audiologists.
Registered nurses.
Licensed psychologists.
Licensed physician assistants.
Licensed midwives.
Licensed clinical social workers.
Licensed marriage and family therapists.
Licensed occupational therapy assistants.
This part shall not apply to any corporation now in existence or hereafter organized which may lawfully render professional services other than pursuant to this part, nor shall anything herein contained alter or affect any right or privilege, whether under any existing or future provision of the Business and Professions Code or otherwise, in terms permitting or not prohibiting performance of professional services through the use of any form of corporation permitted by the General Corporation Law.
The conduct of a business in this state by a corporation pursuant to a license or registration issued under any state law, except laws relating to taxation, shall not be considered to be the conduct of a business as a professional corporation if the business is conducted by, and the license or registration is issued to, a corporation which is not a professional corporation within the meaning of this part, whether or not a professional corporation could conduct the same business, or portions of the same business, as a professional corporation.
The provisions of the General Corporation Law shall apply to professional corporations, except where such provisions are in conflict with or inconsistent with the provisions of this part. A professional corporation which has only one shareholder need have only one director who shall be such shareholder and who shall also serve as the president and treasurer of the corporation. The other officers of the corporation in such situation need not be licensed persons. A professional corporation which has only two shareholders need have only two directors who shall be such shareholders. The two shareholders between them shall fill the offices of president, vice president, secretary and treasurer.
A professional medical corporation may establish in its articles or bylaws the manner in which its directors are selected and removed, their powers, duties, and compensation. Each term of office may not exceed three years. Notwithstanding the foregoing, the articles or bylaws of a professional medical corporation with more than 200 shareholders may provide that directors who are officers of the corporation or who are responsible for the management of all medical services at one or more medical centers may have terms of office, as directors, of up to six years; however, no more than 50 percent of the members of the board, plus one additional member of the board, may have six-year terms of office.
A corporation may be formed under the General Corporation Law or pursuant to subdivision (b) of Section 13406 for the purposes of qualifying as a professional corporation in the manner provided in this part and rendering professional services. The articles of incorporation of a professional corporation shall contain a specific statement that the corporation is a professional corporation within the meaning of this part. Except as provided in subdivision (b) of Section 13401, no professional corporation shall render professional services in this state without a currently effective certificate of registration issued by the governmental agency regulating the profession in which such corporation is or proposes to be engaged, pursuant to the applicable provisions of the Business and Professions Code or the Chiropractic Act expressly authorizing such professional services to be rendered by a professional corporation.
A foreign professional corporation may qualify as a foreign corporation to transact intrastate business in this state in accordance with Chapter 21 (commencing with Section 2100) of Division 1. A foreign professional corporation shall be subject to the provisions of the General Corporation Law applicable to foreign corporations, except where those provisions are in conflict with or inconsistent with the provisions of this part. The statement and designation filed by the foreign professional corporation pursuant to Section 2105 shall contain a specific statement that the corporation is a foreign professional corporation within the meaning of this part.
No foreign professional corporation shall render professional services in this state without a currently effective certificate of registration issued by the governmental agency regulating the profession in which that corporation proposes to be engaged, pursuant to the applicable provisions of the Business and Professions Code expressly authorizing those professional services to be rendered by a foreign professional corporation.
If the California board, commission, or other agency that prescribes the rules or regulations governing a particular profession either now or hereafter requires that the shareholders of the professional corporation bear any degree of personal liability for the acts of the corporation, either by personal guarantee or in some other form that the governing agency prescribes, the shareholders of a foreign corporation that has been qualified to do business in this state in the same profession shall, as a condition of doing business in this state, be subject, with regard to the rendering of professional services by the professional corporation in California, or for California residents, to the same degree of personal liability, if any, as is prescribed by the governing agency for shareholders of a California professional corporation rendering services in the same profession.
Each application by a foreign professional corporation to qualify to do business in this state shall contain the following statement:
“The shareholders of the undersigned foreign professional corporation shall be subject, with regard to the rendering of professional services by the professional corporation in California, or for California residents, to the same degree of personal liability, if any, in California as is from time to time prescribed by the agency governing the profession in this state for shareholders in a California professional corporation rendering services in the same profession. This application accordingly constitutes a submission to the jurisdiction of the courts of California to the same extent, but only to the same extent, as applies to the shareholders of a California professional corporation in the same profession. The foregoing submission to jurisdiction is a condition of qualification to do business in this state.”
Subject to the provisions of Section 13404, a professional corporation may lawfully render professional services in this state, but only through employees who are licensed persons. The corporation may employ persons not so licensed, but such persons shall not render any professional services rendered or to be rendered by that corporation in this state. A professional corporation may render professional services outside of this state, but only through employees who are licensed to render the same professional services in the jurisdiction or jurisdictions in which the person practices. Nothing in this section is intended to prohibit the rendition of occasional professional services in another jurisdiction as an incident to the licensee’s primary practice, so long as it is permitted by the governing agency that regulates the particular profession in the jurisdiction. Nothing in this section is intended to prohibit the rendition of occasional professional services in this state as an incident to a professional employee’s primary practice for a foreign professional corporation qualified to render professional services in this state, so long as it is permitted by the governing agency that regulates the particular profession in this state.
Subject to Section 13404.5, a foreign professional corporation qualified to render professional services in this state may lawfully render professional services in this state, but only through employees who are licensed persons, and shall render professional services outside of this state only through persons who are licensed to render the same professional services in the jurisdiction or jurisdictions in which the person practices. The foreign professional corporation may employ persons in this state who are not licensed in this state, but those persons shall not render any professional services rendered or to be rendered by the corporation in this state.
Nothing in this section or in this part is intended to, or shall, augment, diminish or otherwise alter existing provisions of law, statutes or court rules relating to services by a California attorney in another jurisdiction, or services by an out-of-state attorney in California. These existing provisions, including, but not limited to, admission pro hac vice and the taking of depositions in a jurisdiction other than the one in which the deposing attorney is admitted to practice, shall remain in full force and effect.
Subject to the provisions of subdivision (b), shares of capital stock in a professional corporation may be issued only to a licensed person or to a person who is licensed to render the same professional services in the jurisdiction or jurisdictions in which the person practices, and any shares issued in violation of this restriction shall be void. Unless there is a public offering of securities by a professional corporation or by a foreign professional corporation in this state, its financial statements shall be treated by the Commissioner of Financial Protection and Innovation as confidential, except to the extent that such statements shall be subject to subpoena in connection with any judicial or administrative proceeding, and may be admissible in evidence therein. A shareholder of a professional corporation or of a foreign professional corporation qualified to render professional services in this state shall not enter into a voting trust, proxy, or any other arrangement vesting another person (other than another person who is a shareholder of the same corporation) with the authority to exercise the voting power of any or all of the shareholder’s shares, and any purported voting trust, proxy, or other arrangement shall be void.
A professional law corporation may be incorporated as a nonprofit public benefit corporation under the Nonprofit Public Benefit Corporation Law under either of the following circumstances:
The corporation is a qualified legal services project or a qualified support center within the meaning of subdivisions (a) and (b) of Section 6213 of the Business and Professions Code.
The professional law corporation otherwise meets all of the requirements and complies with all of the provisions of the Nonprofit Public Benefit Corporation Law, as well as all of the following requirements:
All of the members of the corporation, if it is a membership organization as described in the Nonprofit Corporation Law, are persons licensed to practice law in California.
All of the members of the professional law corporation’s board of directors are persons licensed to practice law in California.
Seventy percent of the clients to whom the corporation provides legal services are lower income persons as defined in Section 50079.5 of the Health and Safety Code, and to other persons who would not otherwise have access to legal services.
The corporation shall not enter into contingency fee contracts with clients.
A professional law corporation incorporated as a nonprofit public benefit corporation that is a recipient in good standing as defined in subdivision (c) of Section 6213 of the Business and Professions Code shall be deemed to have satisfied all of the filing requirements of a professional law corporation under Sections 6161.1, 6162, and 6163 of the Business and Professions Code.
Shares in a professional corporation or a foreign professional corporation qualified to render professional services in this state may be transferred only to a licensed person, to a shareholder of the same corporation, to a person licensed to practice the same profession in the jurisdiction or jurisdictions in which the person practices, or to a professional corporation, and any transfer in violation of this restriction shall be void, except as provided herein.
A professional corporation may purchase its own shares without regard to any restrictions provided by law upon the repurchase of shares, if at least one share remains issued and outstanding.
If a professional corporation or a foreign professional corporation qualified to render professional services in this state shall fail to acquire all of the shares of a shareholder who is disqualified from rendering professional services in this state or of a deceased shareholder who was, on his or her date of death, licensed to render professional services in this state, or if such a disqualified shareholder or the representative of such a deceased shareholder shall fail to transfer said shares to the corporation, to another shareholder of the corporation, to a person licensed to practice the same profession in the jurisdiction or jurisdictions in which the person practices, or to a licensed person, within 90 days following the date of disqualification, or within six months following the date of death of the shareholder, as the case may be, then the certificate of registration of the corporation may be suspended or revoked by the governmental agency regulating the profession in which the corporation is engaged. In the event of such a suspension or revocation, the corporation shall cease to render professional services in this state.
Notwithstanding any provision in this part, upon the death or incapacity of a dentist, any individual named in subdivision (a) of Section 1625.3 of the Business and Professions Code may employ licensed dentists and dental assistants and charge for their professional services for a period not to exceed 12 months from the date of death or incapacity of the dentist. The employment of licensed dentists and dental assistants shall not be deemed the practice of dentistry within the meaning of Section 1625 of the Business and Professions Code, provided that all of the requirements of Section 1625.4 of the Business and Professions Code are met. If an individual listed in Section 1625.3 of the Business and Professions Code is employing licensed persons and dental assistants, then the shares of a deceased or incapacitated dentist shall be transferred as provided in this section no later than 12 months from the date of death or incapacity of the dentist.
The following shall be grounds for the suspension or revocation of the certificate of registration of a professional corporation or a foreign professional corporation qualified to render professional services in this state: (a) if all shareholders who are licensed persons of such corporation shall at any one time become disqualified persons, or (b) if the sole shareholder shall become a disqualified person, or (c) if such corporation shall knowingly employ or retain in its employment a disqualified person, or (d) if such corporation shall violate any applicable rule or regulation adopted by the governmental agency regulating the profession in which such corporation is engaged, or (e) if such corporation shall violate any statute applicable to a professional corporation or to a foreign professional corporation, or (f) any ground for such suspension or revocation specified in the Business and Professions Code relating to the profession in which such corporation is engaged. In the event of such suspension or revocation of its certificate of registration such corporation shall cease forthwith to render professional services in this state.
A professional corporation shall not be formed so as to cause any violation of law, or any applicable rules and regulations, relating to fee splitting, kickbacks, or other similar practices by physicians and surgeons or psychologists, including, but not limited to, Section 650 or subdivision (e) of Section 2960 of the Business and Professions Code. A violation of any such provisions shall be grounds for the suspension or revocation of the certificate of registration of the professional corporation. The Commissioner of Financial Protection and Innovation or the Director of the Department of Managed Health Care may refer any suspected violation of those provisions to the governmental agency regulating the profession in which the corporation is, or proposes to be engaged.
Subject to Section 201, a professional corporation may adopt any name permitted by a law expressly applicable to the profession in which the corporation is engaged or by a rule or regulation of the governmental agency regulating that profession. The Secretary of State may require proof by affidavit or otherwise establishing that the name of the professional corporation complies with the requirements of this section and of the law governing the profession in which that professional corporation is engaged. The statements of fact in those affidavits may be accepted by the Secretary of State as sufficient proof of the facts.
Subject to Section 201, a foreign professional corporation qualified to render professional services in this state may transact intrastate business in this state by any name permitted by a law expressly applicable to the profession in which the corporation is engaged, or by a rule or regulation of the governmental agency regulating the rendering of professional services in this state by the corporation. The Secretary of State may require proof by affidavit or otherwise establishing that the name of the foreign professional corporation qualified to render professional services in this state complies with the requirements of this section and of the law governing the profession in which the foreign professional corporation qualified to render professional services in this state proposes to engage in this state. The statements of fact in those affidavits may be accepted by the Secretary of State as sufficient proof of the facts.
A professional corporation or a foreign professional corporation qualified to render professional services in this state shall be subject to the applicable rules and regulations adopted by, and all the disciplinary provisions of the Business and Professions Code expressly governing the practice of the profession in this state, and to the powers of, the governmental agency regulating the profession in which such corporation is engaged. Nothing in this part shall affect or impair the disciplinary powers of any such governmental agency over licensed persons or any law, rule or regulation pertaining to the standards for professional conduct of licensed persons or to the professional relationship between any licensed person furnishing professional services and the person receiving such services.
With respect to any foreign professional corporation qualified to render professional services in this state, each such governmental agency shall adopt rules, regulations, and orders as appropriate to restrict or prohibit any disqualified person from doing any of the following:
Being a shareholder, director, officer, or employee of the corporation.
Rendering services in any profession in which he or she is a disqualified person.
Participating in the management of the corporation.
Sharing in the income of the corporation.
PART 5. SMALL BUSINESSES [14000. - 14024.]
CHAPTER 1. California Small Business Financial Development Corporations [14000. - 14024.]
ARTICLE 1. Introduction [14000. - 14002.]
This chapter shall be known and may be cited as the California Small Business Financial Development Corporation Law.
It is the intent of the Legislature in enacting this chapter to promote the economic development of small businesses through the California Small Business Finance Center by making available capital, general management assistance, and other resources, including financial services, personnel, and business education to small business entrepreneurs, including women, veteran, and minority-owned businesses, for the purpose of promoting the health, safety, and social welfare of the citizens of California, to eliminate unemployment of the economically disadvantaged of the state, and to stimulate economic development and entrepreneurship.
It is the further intent of the Legislature to provide a flexible means to mobilize and commit all available and potential resources in the various regions of the state to fulfill these objectives, including federal, state, and local public resources, and private debt and equity investment.
It is the further intent of the Legislature that corporations operating pursuant to this law shall, to the maximum extent feasible, coordinate with other job and business development efforts within their region directed toward implementing the purpose of this chapter.
It is the further intent of the Legislature to provide expanded resources allowing participation by small and emerging contractors in state public works contracts. Increased access to surety bonding resources will assist in supporting participation by those firms in public works contracts, and by stimulating increased participation by small firms, the state will benefit from increased competition and lower bid costs.
If any provision of this chapter or the application thereof to any person or circumstances is held invalid, this invalidity shall not affect other provisions or applications of the chapter which can be given effect without the invalid provision or application, and to this end the provisions of this chapter are severable.
ARTICLE 2. Definitions [14003. - 14003.]
Unless the context otherwise requires, the definitions in this section shall govern the construction of this chapter.
“Bank” means the California Infrastructure and Economic Development Bank.
“Bank board” means the board of directors of the California Infrastructure and Economic Development Bank.
“Board of directors” means the board of directors of the corporation.
“California Small Business Board” means the advisory board established pursuant to Section 14004.1 for the purpose of advising on issues and programs affecting small business.
“California Small Business Finance Center” means the governmental unit within the bank, which is located within the Governor’s Office of Business and Economic Development, with the administrative responsibility for the programs and activities authorized pursuant to Section 8684.2 of the Government Code, the Small Business Financial Assistance Act of 2013 (Chapter 6 (commencing with Section 63088) of Division 1 of Title 6.7 of the Government Code), and this chapter.
“Corporation” means any nonprofit California small business financial development corporation created pursuant to this chapter, or pursuant to Chapter 1 (commencing with Section 32000) of Division 15.5 of the Financial Code.
“Directives and requirements” means a document adopted by the bank board setting forth policy direction as well as key rules governing a particular subject area.
“Executive director” means the executive director of the California Infrastructure and Economic Development Bank.
“Expansion fund” means the California Small Business Expansion Fund authorized pursuant to Section 63089.5 of the Government Code.
“Financial company” means banking organizations, including national banks and trust companies, savings and loan associations, certified community development financial institutions, microbusiness lenders, state insurance companies, mutual insurance companies, and other public and private banking, lending, retirement, and insurance organizations.
“Financial institution” means regulated banking organizations, including national banks and trust companies authorized to conduct business in the state and state-chartered commercial banks, trust companies, credit unions, and savings and loan associations.
“Financial product” means the type of financial assistance described in Section 63088.5 of the Government Code or that the California Small Business Finance Center or a small business financial development corporation is otherwise authorized to provide.
“Loan committee” means a committee appointed by the board of directors of a corporation to determine the course of action on a loan application pursuant to Chapter 6 (commencing with Section 63088) of Division 1 of Title 6.7 of the Government Code.
“Microbusiness lender” means a microbusiness lender as defined in Section 13997.2 of the Government Code.
“Program manager” means the manager of the California Small Business Finance Center as designated to this title by the executive director of the bank.
“Trust fund” means the money from the expansion fund that is held in trust by a financial institution or financial company. A trust fund is not a deposit of state funds and is not subject to the requirements of Section 16506 of the Government Code.
“Trust fund account” means an account within the trust fund that is either allocated to a particular corporation or shared by multiple corporations for the purpose of paying loan defaults and claims on bond guarantees or other financial products and program uses provided in this chapter.
ARTICLE 3. Program Manager [14004. - 14004.2.]
The program manager shall do all of the following:
Administer this chapter.
Make recommendations to the executive director and the bank board on the approval or disapproval of the articles of incorporation. This determination shall be based upon the following:
Review of the articles of incorporation and bylaws of the corporation to determine whether they contain the provisions required by this chapter and conform with the directives and requirements adopted by the bank board pursuant to this chapter.
A determination as to whether the legislative intent expressed in Section 14001 shall be served by the proposed corporation.
A determination as to whether the responsibility, character, and general fitness of the individuals who will manage the corporation are such as to command the confidence of the state and to warrant the belief that the business of the proposed corporation will be honestly and efficiently conducted in accordance with the intent and purpose of this chapter and that they include representatives of the financial and business community, as well as the economically disadvantaged.
A determination by the program manager that there is significant need for a new corporation.
Have the accounts of each corporation formed under this chapter examined and audited as of the close of business on June 30 of each year. Material examination exceptions that are not corrected by the corporation within a reasonable period of time may result in the suspension or termination of the corporation pursuant to Section 63089.3 of the Government Code.
Have the portfolio of each corporation examined a minimum of once a year. Material examination exceptions that are not corrected by the corporation within a reasonable period of time may result in the suspension or termination of the corporation pursuant to Section 63089.3 of the Government Code.
Review reports from the Department of Financial Protection and Innovation and inform corporations as to what corrective action is required.
Examine, or cause to be examined, at any reasonable time, all books, records, and documents of every kind, and the physical properties of a corporation. The inspection shall include the right to make copies, extracts, and search records.
The program manager may attend and participate at corporation meetings. The program manager, or their designee, shall be an ex officio, nonvoting representative on the board of directors and loan committees of each corporation. The program manager shall meet through telecommunication or in person with the board of directors of each corporation at least once each fiscal year, commencing January 1, 2014.
The California Small Business Board is hereby continued and created as an advisory board to the California Infrastructure and Economic Development Bank Board, the executive director, and the program manager. The California Small Business Board may also advise the Governor and the Small Business Advocate regarding issues and programs affecting California’s small business community, including, but not limited to, business innovation and expansion, export finance, state procurement, management and technical assistance, venture capital, and financial assistance.
The California Small Business Board consists of the following membership:
The Director of Finance or his or her designee.
The Director of the Office of the Small Business Advocate or his or her designee.
The Treasurer or his or her designee.
A representative from two different corporations selected by the corporations.
Four members appointed by the Governor, one of whom will serve as chair of the California Small Business Board, who are actively involved in the California small business community.
Two persons actively involved in the business or agricultural communities, one appointed by the Speaker of the Assembly and one appointed by the Senate Committee on Rules.
Two Members of the Legislature, or their designees, one appointed by the Speaker of the Assembly and one appointed by the Senate Committee on Rules, so long as it does not conflict with their duties as legislators.
The California Small Business Board shall advise the program manager on matters regarding this chapter and Chapter 6 (commencing with Section 63088) of Division 1 of Title 6.7 of the Government Code.
The public members of the California Small Business Board, at the discretion of the bank board, may be reimbursed per diem and travel expenses pursuant to state law.
The bank board shall approve new corporations recommended by the program manager, based on an examination of each of the following:
Review of the articles of incorporation and bylaws of the corporation to determine whether they contain the provisions required by this chapter and conform with the directives and requirements adopted by the bank board pursuant to this chapter.
Determination as to whether the legislative intent expressed in Section 14001 will be served by the proposed corporation.
Determination as to whether the responsibility, character, and general fitness of the individuals who will manage the corporation are able to command the confidence of the state and to warrant the belief that the business of the proposed corporation will be honestly and efficiently conducted in accordance with the intent and purpose of this chapter and that they include representatives of the financial and business community, as well as the economically disadvantaged.
Determination of the program manager that there is significant need for a new corporation.
ARTICLE 4. New Corporations [14005. - 14012.]
Upon approval by the bank board to become a corporation, an entity shall adopt or amend its articles of incorporation to comply with the following:
The name of the corporation shall include the words “small business financial development corporation,” except for those corporations formed pursuant to this chapter prior to 2002, which may also be called “small business development corporations,” or those formed prior to 1985, which may also be called “rural or urban development corporations.”
The purposes for which the corporation is formed, which shall be those specified in Section 14001. This requirement shall not be deemed to preclude a statement of powers.
A geographical description of the corporation’s primary service area.
The name and addresses of seven or more persons who are to act in the capacity of directors until the selection of their successors.
That the corporation is organized pursuant to the California Small Business Financial Development Corporation Law.
If the bank board concurs with the findings of the program manager pursuant to Section 14004, the bank board shall direct the program manager to approve the articles of incorporation and endorse the approval thereon and forward the same to the Secretary of State for his or her approval and filing. Likewise, the program manager shall review all amendments to the articles of incorporation to ensure consistency with the purposes of this chapter.
The corporation’s existence as a small business financial development corporation begins upon the filing of the articles with the Secretary of State and continues perpetually, unless otherwise expressly provided for by law.
If a corporation is terminated from participation in all programs, in order to continue its existence as a nonprofit corporation pursuant to the Nonprofit Public Benefit Corporation Law (Part 2 (commencing with Section 5110) of Division 2 of Title 1 of the Corporations Code), the corporation shall amend its articles of incorporation in accordance with Chapter 8 (commencing with Section 5180) of Part 2 of Division 2 of Title 1 to remove the provisions required by Section 14005, including an amendment to remove the words “small business financial development corporation,” “small business development corporation,” or “rural or urban development corporation,” as applicable, from the corporate name, and shall no longer be registered with the Secretary of State as a small business financial development corporation. A corporation shall not enjoy any of the benefits of a small business financial development corporation following termination.
Each corporation shall have provisions establishing a grievance procedure for employees, clients, or potential clients, to appeal a decision or obtain redress of an action done by the staff or loan committee of the corporation. The procedures shall be established in writing during the probationary period of a new corporation.
The bylaws of the corporation shall authorize the removal of officers only by a two-thirds vote of the directors of the corporation.
The Nonprofit Public Benefit Corporation Law (Part 2 (commencing with Section 5110) of Division 2 of this title) applies to corporations formed under this chapter, except as to matters otherwise provided for in this chapter.
For six months following the establishment of a corporation, commencing upon filing of the articles of incorporation with the Secretary of State, a corporation shall be on probation. While on probation, a corporation may be suspended if suspension is recommended by the program manager and affirmed by the executive director. This suspension is nonappealable and not subject to the procedures for suspension applicable to a corporation not on probation.
ARTICLE 5. Corporation Board [14013. - 14017.]
The corporate powers of a corporation shall be exercised by its board of directors.
The bank shall enter into a contract with each corporation that shall require that:
A person may not serve on a corporation’s board of directors who is not a resident of, or person conducting business in, the primary service area described in the articles of incorporation.
A corporation’s board of directors shall include representatives from all of the following:
The financial community.
The business community.
The economically disadvantaged.
The chief executive officer of a corporation, or his or her designee, is the only employee of the corporation who may serve on its board of directors.
A person who has a financial interest related to a matter over which the board of directors has authority may not make, participate in making, or in any way attempt to influence that matter.
If any director ceases to meet the qualifications established in Section 14014, he or she shall immediately vacate his or her position as a director and the position shall be deemed vacant.
If any vacancy occurs in the elective membership of the board of directors through death, resignation, or otherwise, the remaining directors shall elect a person representing the appropriate category to fill the vacancy for the unexpired term.
The bank board shall direct the program manager to establish new small business financial development corporations pursuant to the directives and requirements. The directives and requirements shall include steps to achieve a goal of ensuring that small businesses in all areas of the state would have reasonable access to the financial products authorized by Chapter 6 (commencing with Section 63088) of Division 1 of Title 6.7 of the Government Code for which they are eligible.
ARTICLE 6. Corporations, Miscellaneous [14018. - 14021.]
Every corporation shall provide for, and maintain a central staff to perform, all administrative requirements of the corporation, including all those functions required of a corporation by the contract and this chapter.
Reasonable costs incurred by a corporation in the creation and maintenance of a central staff shall be paid to the corporation from state funds, including a portion of the interest earned on the expansion fund and the corporation’s trust fund account, if the corporation has a trust fund account, otherwise, on the expansion fund.
A corporation shall report to the program manager, or his or her designated representative, all statistical and other reports required by this chapter and Chapter 6 (commencing with Section 63088) of Division 1 of Title 6.7 of the Government Code, including responses to audit reports, budget requirements, and other information relating to the establishment, monitoring, and suspension or termination of a corporation.
A corporation shall make a report to the program manager, as required by Chapter 6 (commencing with Section 63088) of Division 1 of Title 6.7 of the Government Code.
ARTICLE 7. Conflict of Interest [14022. - 14024.]
It shall be unlawful for a member of the bank board or for the executive director, program manager, or any person who is an officer, director, contractor, or employee of a corporation, or who is a member of a loan committee, or who is an employee of the California Infrastructure and Economic Development Bank to do any of the following:
Ask for, consent, or agree to receive, any commission, emolument, gratuity, money, property, or thing of value for his or her own use, benefit, or personal advantage, for procuring or endeavoring to procure for any person, partnership, joint venture, association, or corporation, any loan, guarantee, financial, or other assistance from any corporation.
Borrow money, property, or to benefit knowingly, directly or indirectly, from the use of the money, credit, or property of any corporation.
Make, maintain, or attempt to make or maintain, a deposit of the funds of a corporation with any other corporation or association on condition, or with the understanding, expressed or implied, that the corporation or association receiving the deposit shall pay any money or make a loan or advance, directly or indirectly, to any person, partnership, joint venture, association, or corporation, other than to a corporation formed under this chapter.
It shall be unlawful for a member of the bank board or for the executive director, program manager, or any person who is an officer or director of a corporation, or who is an employee of the California Infrastructure and Economic Development Bank to purchase or receive, or to be otherwise interested in the purchase or receipt, directly or indirectly, of any asset of a corporation, without paying to the corporation the fair market value of the asset at the time of the transaction.
Violation of any provision of this article shall constitute a felony.
PART 6. EMPLOYEE-OWNED BUSINESSES [14200. - 14200.]
The Legislature finds and declares that the formation of employee-owned businesses and the participation of employees in the management of businesses in this state will promote the stabilization of local economies, anchor business activity, and increase productivity. The Legislature further finds that the encouragement of employee-owned businesses will increase and broaden community investments in this state and encourage new capital formation through employee ownership.
PART 7. GENERAL PROVISIONS APPLICABLE TO CERTAIN CORPORATIONS [14300. - 14318.]
CHAPTER 1. Water Companies [14300. - 14307.]
Any corporation organized for or engaged in the business of selling, distributing, supplying, or delivering water for irrigation purposes may provide, and any corporation organized for or engaged in the business of selling, distributing, supplying, or delivering water for domestic use shall provide, in its articles or bylaws that water shall be sold, distributed, supplied, or delivered only to owners of its shares and that the shares shall be appurtenant to certain lands when the same are described in the certificate issued therefor; and when the certificate is so issued and a certified copy of the articles or bylaws recorded in the office of the county recorder in the county where the lands are situated the shares of stock shall become appurtenant to the lands and shall only be transferred therewith, except after sale or forfeiture for delinquent assessments thereon as provided in Section 14303. Notwithstanding this provision in its articles or bylaws, any such corporation may sell water to the state, or any department or agency thereof, or to any school district, or to any public agency, or, to any other mutual water company or, during any emergency resulting from fire or other disaster involving danger to public health or safety, to any person at the same rates as to holders of shares of the corporations; and provided further, that any corporation may enter into a contract with a county fire protection district to furnish water to fire hydrants and for fire suppression or fire prevention purposes at a flat rate per hydrant or other connection. In the event lands to which any stock is appurtenant are owned or purchased by the state, or any department or agency thereof, or any school district, or public agency, the stock shall be canceled by the secretary, but shall be reissued to any person later acquiring title to the land from the state department, agency, or school district, or public agency.
A corporation described in subdivision (a) shall be known as a mutual water company.
For purposes of this chapter, “public water system” shall have the same meaning as provided in Section 116275 of the Health and Safety Code.
A corporation, including a nonprofit corporation organized for or engaged in the business of developing, distributing, supplying, or delivering water for irrigation or domestic use, or both, may provide in its articles, or may amend its articles to provide, that its only purpose shall be to develop, distribute, supply, or deliver water for irrigation or domestic use, or both, to its members or shareholders, at actual cost plus necessary expenses.
The amendment of the articles may be accomplished by:
The passage by a three-fourths vote of the members of the board of directors of the corporation of a resolution adopting as the purpose of the corporation the purpose set forth in this section.
The signing, verification, and filing of a certificate setting forth the resolution and the manner of its adoption.
The corporation shall not distribute any gains, profits, or dividends to its members or shareholders except upon the dissolution of the corporation.
No later than December 31, 2012, each mutual water company that operates a public water system shall submit to the local agency formation commission for its county a map depicting the approximate boundaries of the property that the mutual water company serves.
A mutual water company that operates a public water system shall respond to a request from a local agency formation commission, located within a county that the mutual water company operates in, for information in connection with the preparation of municipal service reviews or spheres of influence pursuant to Chapter 4 (commencing with Section 56425) of Part 2 of Division 3 of Title 5 of the Government Code within 45 days of the request. The mutual water company shall provide all reasonably available nonconfidential information relating to the operation of the public water system. The mutual water company shall explain, in writing, why any requested information is not reasonably available. The mutual water company shall not be required to disclose any information pertaining to the names, addresses, or water usage of any specific shareholder. This subdivision shall not be interpreted to require a mutual water company to undertake any study or investigation. A mutual water company may comply with this section by submitting to the local agency formation commission the same information that the mutual water company submitted to the State Department of Public Health.
A mutual water company that operates a public water system shall be subject to the requirements of, and has the powers granted by, subdivision (b) of Section 116755 of the Health and Safety Code.
Each board member of a mutual water company that operates a public water system shall comply with the training requirements set out in subdivision (a) of Section 116755 of the Health and Safety Code.
All construction on public water systems operated by a mutual water company shall be designed and constructed to comply with the applicable California Waterworks standards, as provided in Chapter 16 (commencing with Section 64551) of Division 4 of Title 22 of the California Code of Regulations.
A mutual water company that operates a public water system shall maintain a financial reserve fund for repairs and replacements to its water production, transmission, and distribution facilities at a level sufficient for continuous operation of facilities in compliance with the federal Safe Drinking Water Act (42 U.S.C. Sec. 300f et seq.) and the California Safe Drinking Water Act (Chapter 4 (commencing with Section 116270) of Part 12 of Division 104 of the Health and Safety Code).
Whenever the owner of real property to which water stock by the terms of the certificate thereof is appurtenant at the time of conveyance, by properly executed conveyance, transfers to another the real property with the appurtenances belonging to the property, or whenever title to the property passes by execution sale, or by foreclosure or probate proceedings, the secretary of the water company that issued the stock shall, upon exhibition to him or her of a deed of the land duly recorded, or the necessary court order duly recorded, issue to the grantee named in the conveyance a new certificate of stock for the number of shares appurtenant to the land as shown by the books and records of the company. The secretary of the water company shall enter the name of the grantee upon the books of the company as the owner of the shares of stock and shall cancel on the books the number of former shares of stock so appurtenant to the land in the name of the grantor or of any previous owner of the land, or of any other person.
A corporation organized for or engaged in the business of selling, distributing, supplying, or delivering water for irrigation purposes or domestic use, and not as a public utility, may levy assessments upon its shares, whether or not fully paid, unless otherwise provided in its articles or bylaws. If any shares of the corporation that have been made appurtenant to any land as provided in this chapter, become delinquent in the payment of assessments, the right to receive water or dividends thereon may be denied, and they may be sold and transferred without those lands as if not appurtenant thereto, and the purchaser shall acquire the right to receive water as provided in the articles or bylaws of the corporation, or they may be forfeited to the corporation.
If a shareholder of a mutual water company has not timely paid any rate, charge, or assessment arising from, or related to, water service provided by the mutual water company to the shareholder’s property, and if authorized by its articles or bylaws, then after providing at least 20 days’ written notice to the shareholder, the board of directors of the mutual water company may authorize the recording of a notice of lien against that shareholder’s property to secure the collection of the rates, charges, and assessments owed to the mutual water company by the shareholder.
This section shall be known and may be cited as the Mutual Water Company Open Meeting Act.
This section shall only apply to a mutual water company that operates a public water system.
A board of directors of a mutual water company shall allow an eligible person to personally attend a meeting of the board, if the eligible person gave the board at least 24 hours advance written notice of his or her intent to personally attend the meeting.
Notwithstanding any other law, the board of directors may use teleconferencing to provide any eligible person access to the meeting that otherwise would be denied attendance at a meeting of the board for failure to provide this notice, or because the number of eligible persons having already provided notice of attendance exceeds the room capacity of the place of the meeting described in the notice issued pursuant to subdivision (f). The teleconferenced meeting or proceeding shall comply with this section and all other applicable provisions of law relating to a specific type of meeting or proceeding conducted by a mutual water company. If the board uses teleconferencing, the board shall provide to an eligible person attending a meeting by teleconference, before the meeting begins, an electronic copy or photocopy of all documents not related to an executive session to be discussed at the meeting. A board of directors of a mutual water company shall not prohibit an eligible person from attending a meeting of the board either in person, so long as the eligible person has complied with the notice requirement of paragraph (A), or by teleconference except as provided by paragraph (2). A board of directors may allow an eligible person to attend the meeting personally in lieu of using teleconferencing pursuant to this paragraph.
For purposes of this subdivision, the term “teleconference” means, to the extent it is technologically feasible, any electronic means, that includes either audio or video or both, that allows an eligible person to hear a meeting and verbally interact with the board, including, but not limited to, a telephone, cellular telephone with speaker phone technology, or computer, or a device using internet-based video or audio conference technology.
A board of directors of a mutual water company shall only meet in executive session during a meeting. A board may prohibit an eligible person from attending an executive session to consider pending or potential litigation, matters relating to the formation of contracts with third parties, including matters relating to the potential acquisition of real property or water rights, member or shareholder discipline, personnel matters, or to meet with a member or shareholder, upon the member or shareholder’s request, regarding the member or shareholder’s payment of assessments, as specified in Section 14303.
The board of directors of a mutual water company shall meet in executive session, if requested by a member or shareholder who may be subject to a fine, penalty, or other form of discipline, and the member shall be entitled to attend the executive session.
An eligible person shall be entitled to attend a teleconference meeting, as specified in paragraph (3) of subdivision (o), or the portion of the teleconference meeting that is open to eligible persons, and shall be entitled to attend with or without fulfilling the notice requirement in paragraph (1). The teleconference meeting or portion of the meeting that is open to eligible persons shall be audible to the eligible person in a location specified in the notice of the meeting.
Any matter discussed in executive session shall be generally noted in the minutes of the meeting at which the executive session occurred.
The minutes, minutes proposed for adoption that are marked to indicate draft status, or a summary of the minutes, of any meeting of the board of directors of a mutual water company, conducted on or after January 1, 2014, other than an executive session, shall be available to eligible persons within 30 days of the meeting. The minutes, proposed minutes, or summary minutes shall be provided to any eligible person upon request and upon reimbursement of the mutual water company’s costs for providing the minutes.
The pro forma budget required in Section 14306 shall be available to eligible persons within 30 days of the meeting at which the budget was adopted. The budget shall be provided to any eligible person upon request and upon reimbursement of the mutual water company’s costs.
Unless the bylaws provide for a longer period of notice, eligible persons shall be given notice of the time and place of a meeting as defined in subdivision (o), except for an emergency meeting, at least four days prior to the meeting. Notice shall be given by posting the notice in a prominent, publicly accessible place or places within the territory served by the mutual water company and by mail to any eligible person who had requested notification of board meetings by mail, at the address requested by the eligible person. Eligible persons requesting notice by mail shall pay the costs of reproduction and mailing of the notice in advance. Notice may also be given by mail, by delivery of the notice to each unit served by the mutual water company, or, with the consent of the eligible person, by electronic means. The notice shall contain the agenda for the meeting.
An emergency meeting of the board may be called by the chief executive officer of the mutual water company, or by any two members of the board of directors other than the chief executive officer, if there are circumstances that could not have been reasonably foreseen which require immediate attention and possible action by the board, and which of necessity make it impracticable to provide notice as required by this section.
The board of directors of a mutual water company shall permit any eligible person to speak at any meeting of the mutual water company or the board of directors, except for any portion of a meeting that is held in executive session outside the presence of eligible persons. A reasonable time limit for all eligible persons to speak to the board of directors or before a meeting of the mutual water company shall be established by the board of directors.
Except as described in paragraphs (2) to (4), inclusive, the board of directors of the mutual water company shall not discuss or take action on any item at a nonemergency meeting unless the item was placed on the agenda included in the notice that was posted and distributed pursuant to subdivision (f). This subdivision does not prohibit an eligible person who is not a member of the board from speaking on issues not on the agenda.
Notwithstanding paragraph (1), a member of the board of directors, mutual water company officers, or a member of the staff of the mutual water company, may do any of the following:
Briefly respond to statements made or questions posed by a person speaking at a meeting as described in subdivision (h).
Ask a question for clarification, make an announcement, or make a brief report on his or her own activities, whether in response to questions posed by an eligible person or based upon his or her own initiative.
Notwithstanding paragraph (1), the board of directors or a member of the board of directors, subject to rules or procedures of the board of directors, may do any of the following:
Provide a reference to, or provide other resources for factual information to, the mutual water company’s officers or staff.
Request the mutual water company’s officers or staff to report back to the board of directors at a subsequent meeting concerning any matter, or take action to direct the mutual water company’s officers or staff to place a matter of business on a future agenda.
Direct the mutual water company’s officers or staff to perform administrative tasks that are necessary to carry out this subdivision.
Notwithstanding paragraph (1), the board of directors may take action on any item of business not appearing on the agenda posted and distributed pursuant to subdivision (f) under any of the following conditions:
Upon a determination made by a majority of the board of directors present at the meeting that an emergency situation exists. An emergency situation exists if there are circumstances that could not have been reasonably foreseen by the board, that require immediate attention and possible action by the board, and that, of necessity, make it impracticable to provide notice.
Upon a determination made by the board by a vote of two-thirds of the members present at the meeting, or, if less than two-thirds of total membership of the board is present at the meeting, by a unanimous vote of the members present, that there is a need to take immediate action and that the need for action came to the attention of the board after the agenda was posted and distributed pursuant to subdivision (f).
The item appeared on an agenda that was posted and distributed pursuant to subdivision (f) for a prior meeting of the board of directors that occurred not more than 30 calendar days before the date that action is taken on the item and, at the prior meeting, action on the item was continued to the meeting at which the action is taken.
Before discussing any item pursuant to this paragraph, the board of directors shall openly identify the item to the members in attendance at the meeting.
Notwithstanding any other law, the board of directors shall not take action on any item of business outside of a meeting.
Notwithstanding any other provision of law, the board of directors shall not conduct a meeting via a series of electronic transmissions, including, but not limited to, electronic mail, except as specified in subparagraph (B).
Electronic transmissions may be used as a method of conducting an emergency meeting if all members of the board, individually or collectively, consent in writing to that action, and if the written consent or consents are filed with the minutes of the meeting of the board. These written consents may be transmitted electronically.
An eligible person may bring a civil action for declaratory or equitable relief for a violation of this section by a mutual water company for which he or she is defined as an eligible person for a judicial determination that an action taken by the board is null and void under this section.
Prior to the commencement of an action pursuant to paragraph (1), the eligible person shall make a demand on the board to cure or correct the action alleged to be taken in violation of this section. The demand shall be in writing, and submitted within 90 days from the date the action was taken. The demand shall state the challenged action of the board and the nature of the alleged violation.
Within 30 days of receipt of the demand, the board shall cure or correct the challenged action and inform the demanding party in writing of its actions to cure or correct, or inform the demanding party in writing of its decision not to cure or correct the challenged action.
Within 15 days of receipt of the written notice of the board’s decision to cure or correct or not to cure or correct, or within 15 days of the expiration of the 30-day period to cure or correct, whichever is earlier, the demanding party shall commence the action pursuant to paragraph (1). If the demanding party fails to commence the action pursuant to paragraph (1), that party shall be barred from commencing the action thereafter.
A board action that is alleged to have been taken in violation of this section shall not be determined to be void if the action taken was in substantial compliance with this section.
The fact that the board of directors of a mutual water company takes subsequent action to cure or correct an action taken pursuant to this section shall not be construed as, or admissible as evidence of, a violation of this section.
An eligible person who prevails in a civil action to enforce his or her rights pursuant to this section shall be entitled to reasonable attorney’s fees and court costs. A prevailing mutual water company shall not recover any costs, unless the court finds the action to be frivolous, unreasonable, or without foundation.
As used in this section:
“Eligible person” means a person who is any of the following:
A shareholder or member of the mutual water company.
A person who is an occupant, pursuant to a lease or a rental agreement, of commercial space or a dwelling unit to which the mutual water company sells, distributes, supplies, or delivers drinking water.
An elected official of a city or county who represents people who receive drinking water directly from the mutual water company on a retail basis.
Any other person eligible to participate in the mutual water company’s meetings under provisions of the company’s articles or bylaws.
“Item of business” means any action within the authority of the board, except those actions that the board has validly delegated to any other person or persons, officer of the mutual water company, or committee of the board comprising less than a majority of the directors.
“Meeting” means either of the following:
A congregation of a majority of the members of the board at the same time and place to hear, discuss, or deliberate upon any item of business that is within the authority of the board.
A teleconference in which a majority of the members of the board, in different locations, are connected by electronic means, through audio or video or both. A teleconference meeting shall be conducted in a manner that protects the rights of members of the mutual water company and otherwise complies with the requirements of this title. The notice of the teleconference meeting shall identify at least one physical location so that members of the mutual water company may attend and at least one member of the board of directors or a person designated by the board shall be present at that location. Participation by board members in a teleconference meeting constitutes presence at that meeting as long as all board members participating in the meeting are able to hear one another and members of the mutual water company speaking on matters before the board.
The board of a mutual water company that operates a public water system shall adopt, in an open meeting, an annual budget on or before the start of each fiscal year of the mutual water company.
The board of a mutual water company that operates a public water system shall contract with a certified public accountant or public accountant to conduct an annual review of the financial records and reports of the mutual water company. The review shall be subject to generally accepted accounting standards.
Eligible persons may request a copy of the report, and shall reimburse the mutual water company for the costs of providing the report.
For purposes of this section, the term “eligible persons” has the same meaning as that term is defined in subdivision (o) of Section 14305.
Unless its governing documents impose more stringent standards, a mutual water company that operates a public water system shall make the following records promptly available upon written request to an eligible person upon payment of fees covering direct costs of duplication:
Agendas and minutes of board meetings conducted on or after January 1, 2014.
A copy of an annual budget adopted pursuant to subdivision (a) of Section 14306.
A copy of an accounting report prepared pursuant to subdivision (b) of Section 14306.
A copy of any records reporting the results of a water quality test.
A copy of an annual report that has been distributed to the mutual water company’s shareholder or members.
Any request for records pursuant to this subdivision shall be limited to the three calendar years preceding the written request for the records.
For the purposes of this section, “eligible person” means a person who is any of the following:
A stockholder or member of the mutual water company.
A person who is an occupant, pursuant to a lease or a rental agreement, of commercial space or a dwelling unit to which the mutual water company sells, distributes, supplies, or delivers drinking water.
An elected official of a city or county who represents people who receive drinking water directly from the mutual water company on a retail basis.
Any other person eligible to obtain copies of the records listed in subdivision (a) under provisions of the mutual water company’s articles or bylaws.
CHAPTER 2. Mutual Water Companies Formed in Connection With Subdivided Lands [14310. - 14318.]
It is the intent of the Legislature to ensure both of the following:
That adequate disclosure and protection to the security holders exist with respect to rights and duties arising from their security holdings in a mutual water company.
A mutual water company formed on or after January 1, 1998, in connection with the offering for sale or lease, or with the sale or lease, of lots within a subdivision and organized to sell, distribute, supply, or deliver water for domestic use to owners of lots in the subdivision shall meet all the requirements of this chapter. A mutual water company described in this section and formed before January 1, 1998, may elect to meet all the requirements of this chapter.
Any person who intends to offer for sale or lease lots within a subdivision within this state and to provide water for domestic use to purchasers of the lots within a subdivision through the formation of a mutual water corporation described in Section 14311, shall include as part of the application for a public report, as described in Section 11010 of the Business and Professions Code, a separate document containing all of the following information, representations, and assurances:
That the provisions of this chapter have been complied with.
That the area in which the mutual water company proposes to deliver water encompasses and includes the entire subdivision and, when applicable, will include parcels to be annexed to the subdivision.
That the mutual water company has contacted the Public Utilities Commission and the county local agency formation commission to determine if the proposed area described in paragraph (2) will overlap an existing water service area or if an existing water service area could more appropriately serve the subdivision.
That the mutual water company has a source of, and title to, a water supply, distribution, and fire protection system sufficient to satisfy expected demands for water from the subdivision.
That copies of the contracts and other documents relating to the acquisition by the mutual water company of the water supply, distribution, and fire protection system have been delivered to, and are on file with, the mutual water company and that these contracts and documents evidence the mutual water company’s title to the water supply, distribution, and fire protection system.
That the subdivider or applicant has executed and entered into a written contract with the mutual water company wherein the subdivider or applicant has agreed to pay monthly a proportional part of the repair and replacement fund according to a ratio of the number of lots owned or controlled by the subdivider or applicant to the total number of lots in the subdivision.
That an engineer’s report has been prepared in accordance with this chapter and Sections 260.504.2 to 260.504.2.4, inclusive, of Title 10 of the California Code of Regulations and is on file with the mutual water company.
That the mutual water company will distribute potable water for domestic use and has obtained, and has on file, a copy of the permit issued by the State Water Resources Control Board, as required pursuant to Section 116540 of the Health and Safety Code, or by a local primacy agency that has been delegated the authority to issue permits to small water systems, with the concurrence of the State Water Resources Control Board.
That the securities of the mutual benefit water corporation will be sold or issued only to purchasers of lots in the subdivision, or to successors in interest of purchasers of lots in the subdivision, and not sold or issued to the subdivider, applicant, or to the successor in interest of the subdivider or applicant, and that the securities will be sold or issued only after a public report for the subdivision has been issued by the Real Estate Commissioner.
That the securities to be issued by the mutual water company are appurtenant to the land pursuant to Section 14300.
That the water supply and distribution system will serve each lot in the subdivision and be completed prior to the issuance of the public report by the Real Estate Commissioner.
That there is a statement, signed by either the engineer who prepared the engineer’s report referred to in paragraph (7) or a person employed or acting on behalf of a public agency or other independent qualified person, that the water supply and distribution system has been examined and tested and that the water supply and distribution system operates in accordance with the design standards of the water supply and distribution system required by this chapter, and that a copy of this statement is on file with the mutual water company.
That the articles of incorporation or bylaws of the mutual water company contain all of the following:
A statement to the effect that the mutual water company shall provide water to all members or shareholders. If there will be an owners’ association of the subdivision, an additional statement that water shall also be provided to the common areas.
A provision directing the board of directors to establish a rate structure that will result in the accumulation and maintenance of a fund for the repair, administration, maintenance, and replacement of the water supply, distribution, and fire protection system, that the rate charged shall bear a reasonable relationship to the cost of furnishing water and maintaining the system, and that unimproved lots included within the area to be served shall bear a proportionate share of the cost of repair and replacement of the water supply, distribution, and fire protection system, as well as a proportionate share of the cost of maintaining the fund.
A statement evidencing a reasonable relationship between each unit of the securities to be issued and each unit of the area to be served, such as one share of common stock issued for each subdivision lot purchased.
A prohibition on the issuance of fractional shares or securities.
A statement, meeting the requirements of Section 14300, that the securities are appurtenant to the land within the area to be served.
Provision for the transfer of the securities, voting rights of the security holders, inspection of books and records by security holders, necessary or contemplated expansion of the facilities of the mutual water company, and further subdivision, where applicable, of the area to be served.
The limitation on the salaries paid to the persons operating, or employed by, the mutual water company, including officers and directors.
A provision for annual meetings of the security holders accompanied by a provision for adequate notice.
A provision for the annual distribution to each security holder of fiscal yearend financial statements within 105 days of the close of the fiscal year.
In the case of a mutual water company that purchases water for distribution from a public utility, municipal water company, or water district, a provision for charging all security holders a pro rata amount of the cost of water supplied to an entity providing fire protection service.
A provision that a share certificate shall be issued to each lot purchased.
In the case of a mutual water company serving a residential subdivision, the following statements: (i) the mutual water company shall be a separate corporation formed and organized for the purpose described in Section 14311; and (ii) if a shareholder becomes delinquent in paying assessments, the right to receive water or dividends may be denied or forfeited but those rights shall not be sold or transferred without the land.
That an offering circular has been prepared and will be used in any offer and sale of the securities of the mutual water company.
That the writings and documents evidencing compliance with all of the above provisions of the subdivision are on file as part of the permanent record of the mutual water company.
The contracts and documents described in paragraph (5) of subdivision (a) shall include all of the following:
Any bill of sale transferring all personal property used and usable in the operation of the mutual water company.
A copy of any recorded deed to the wells and water tanks to be used by the mutual water company in the supply, distribution, and fire protection system.
Copies of any recorded deeds granting easements for construction, repair, maintenance, and improvements of the water supply, distribution, and fire protection system.
The written contract described in paragraph (6) of subdivision (a) shall provide that, in consideration of the transfer by the subdivider or applicant to the mutual water company of the water supply, distribution, and fire protection system, the mutual water company agrees to do all of the following:
The offering circular described in paragraph (14) of subdivision (a) shall be delivered to each prospective purchaser of the securities and shall include, among other things, all of the following:
A discussion of the rights and duties of the security holders of the mutual water company as set forth in its articles of incorporation and bylaws, including the consequence of failure to pay for water or assessments.
The fact that the articles of incorporation or bylaws provide that the shares or securities of the mutual water company may not be sold separately from the right to water evidenced by the security of the mutual water company and prohibit issuance of fractional shares or securities of the mutual water company.
A discussion of the certificate issued by the State Water Resources Control Board certifying that the water is fit for domestic use.
The limitation imposed on salaries to be paid to personnel operating, or employed by, the mutual water company, including officers and directors.
A discussion of the transferability of the securities, the voting rights of the security holders, access to books and records, necessary or contemplated expansion of the facilities of the mutual water company, and further subdivision of the area to be served, if applicable.
A discussion of the subdivider’s duties with respect to maintenance and repair or replacement of the water supply, distribution, or fire protection system; and a discussion of the establishment and maintenance of the operating, repair, and replacement fund.
The following exhibits shall also be attached to the offering circular:
A copy of the articles of incorporation and bylaws of the mutual water company, including the articles of incorporation or bylaws recorded under Section 14300.
A copy of financial statements of the mutual water company. If the mutual water company has not yet commenced operations, a detailed operating budget for the first six months of operations should be included as an exhibit to the offering circular. The operating budget must include estimated monthly fees to be charged to the water users.
A specimen certificate evidencing the security to be issued and meeting the requirements of Section 14300.
The Real Estate Commissioner shall prescribe the form and content of the document required by this section.
The engineer’s report prepared pursuant to the document under Section 14312 shall contain all relevant information pertaining to the proposed water supply, distribution, and fire protection system, including, but not limited to, the following:
A system map of the area to be served showing all of the following:
The total acreage.
The number and location of lots into which the area is or can be subdivided and the location of the connection for water service.
The location of all sources of supply, principal pumping stations, diversion works, water treatment and filter plants, and storage facilities.
The size, character, and location of all mains and ditches.
The location of all valves and gates, gauges, interconnections with other systems, and fire hydrants.
The location, size, and kind of each service pipe.
The layout of all principal pumping stations and water treatment and filter plants to show size, location, and character of all major equipment, pipelines, connections, valves, and other equipment used in connection therewith.
The date of construction and condition of all principal items of plant and extensions of all mains.
A description of the sources of supply, including, in the case of wells, information on the depth, diameter, and casing of the well, and a statement indicating that the proposed water supply and distribution system complies with this section, supported by reports showing the sustained capacity of source of supply, or, if all or some water is to be obtained from another source, copies of contracts for obtaining such water, together with estimates of the present and ultimate water consumption in the area to be served.
A statement indicating in detail the cost of the water supply, distribution, and fire protection system, and indicating the cost of any required repairs or replacement.
An opinion by the engineer to the effect that the water supply, distribution, and fire protection system will adequately, dependably, and safely meet the total requirements for all water consumers under maximum consumption and will meet the requirements of Section 14314. The opinion shall have attached to it the calculations and data used in estimating the water requirements.
A statement by the engineer of the estimated cost of maintenance of the system, the estimated useful life of the components of the system, the estimated cost of replacement of the system, and the monthly or annual amount which should be charged to establish a reasonable reserve for maintenance and replacement of the system based on these estimates.
The water supply and distribution system of a mutual water company described in Section 14311 that proposes to distribute water for domestic use pursuant to this chapter shall comply with all of the following design standards:
The system shall be adequate to maintain normal operating pressure of not less than 25 pounds per square inch, nor more than 125 pounds per square inch, at the service connection; provided, however, that during periods of hourly maximum demand, or at the time of peak seasonal loads, the pressure may be reduced to not less than 20 pounds per square inch, and during periods of hourly minimum demand the pressure may increase to not more than 150 pounds per square inch. Variations in pressure under normal operation shall not exceed 50 percent of the average operating pressure. The average operating pressure shall be determined by computing the arithmetical average of at least 24 consecutive hourly pressure readings.
The quantity of water delivered to the distribution system from all source facilities shall be sufficient to supply adequately, dependably, and safely the total requirements of all water consumers under maximum consumption, and shall be sufficient to maintain the pressure specified by subdivision (a).
The distribution system shall provide at least one connection per service and, to the extent feasible, shall be designed in a property segmented grid so as to do both of the following:
Minimize the extent of interruption in water service when repairs are necessary.
Avoid dead ends in its water mains.
The mutual water company described in Section 14311 shall provide at least a minimum level of water service to its customers for fire protection purposes as an inherent part of the water system design in accordance with the standards set forth in this section. The standards set forth in this section are the minimum levels of water service that the mutual water company shall provide and shall not preclude the mutual water company from designing a fire protection system that meets higher standards, nor preclude any governmental agency from setting higher standards in any area subject to its jurisdiction. A mutual water company may request a fire protection agency to approve a fire protection system that does not meet the standards set forth in this chapter upon a showing by the mutual water company that the proposed system is adequate for fire protection purposes.
In the initial construction, extension, or modification of a water system, any one of which is required to serve (1) a new user or (2) a change in use, the facilities constructed, extended, or modified shall be designed to be capable of providing, for a sustained period of at least two hours, in addition to the requirements of the average daily demand within the area to be served, the minimum flow requirements set forth below opposite the classification of land use to be served:
The water supply and distribution system of a mutual water company described in Section 14311 that proposes to distribute water for domestic use shall be constructed to conform with currently accepted engineering practices, and shall comply with the following construction standards where possible:
Water mains to be installed below the frost level or otherwise protected to prevent freezing and shall not have less than 30 inches of cover over the top of the pipe in public streets or alleys except where such depth is rendered impossible by underground obstructions or rocky or hardpan conditions.
The size, design, material, and installation of service pipes shall conform to the reasonable requirements of the mutual water company; provided, however, that the minimum size of the pipe shall be 34 inch or greater nominal size. Except where services are not intended for use during freezing weather and arrangements are made to drain service pipes prior to freezing weather, and except at terminations in connection with the meter or water consumer’s piping, all service pipes shall be laid at a depth sufficient to prevent freezing.
The fire protection system of a mutual water company shall be constructed to conform with currently accepted engineering practices, and shall comply with the following construction standards:
The flows set forth in Section 14315 shall be calculated on the basis of a residual pressure of 20 p.s.i.g. in the distribution system under flowing conditions.
Fire hydrants shall be attached to the distribution systems at the locations designated by the entity responsible for their use for firefighting purposes. Any new mains to which a hydrant may be attached shall not be less than six inches in diameter.
Each separately operated water system shall not have less than two independent sources of supply.
The mutual water company shall be financially responsible for the maintenance, repair, or replacement of fire hydrants. A mutual water company shall perform and record annual flow tests pursuant to Section 14317 or, in lieu of the annual flow test under Section 14317, any test to determine available flow performed by a fire protection agency. The recorded test results shall become part of the mutual water company’s books and records.
PART 9. CABLE TELEVISION CORPORATIONS [14400. - 14400.]
Any person who willfully and maliciously does any injury to any property of a cable television corporation is liable to the corporation for three times the amount of actual damages sustained thereby, to be recovered in any court of competent jurisdiction.
PART 11. SOCIETIES FOR THE PREVENTION OF CRUELTY TO ANIMALS [14500. - 14505.]
This title extends to all corporations heretofore formed and existing for the prevention of cruelty to animals, but does not extend or apply to any association, society, or corporation that uses or specifies a name or style of the same, or substantially the same, as that of any previously existing society or corporation in this state organized for a like purpose.
Every society incorporated and organized for the prevention of cruelty to animals may enter into a contract with any city, city and county, or county, where the society is located, to enforce the provisions of laws of this state for the prevention of cruelty to animals, or arresting or prosecuting offenders thereunder, or preventing cruelty to animals. A humane society may perform those actions in the absence of a contract with a city, city and county, or county.
On and after July 1, 1996, no entity, other than a humane society or society for the prevention of cruelty to animals, shall be eligible to petition for confirmation of an appointment of any individual as a humane officer, the duty of which shall be the enforcement of the laws for the prevention of cruelty to animals.
On and after July 1, 1996, only a person who meets the requirements of this section may be appointed as, or perform the duties of, a humane officer.
Any person appointed as a humane officer before July 1, 1996, may continue to serve as a humane officer until the expiration of the term of appointment only if the appointing society maintains records pursuant to subparagraph (B) documenting that both the appointing society and the humane officer meet the requirements of this section.
Each humane society or society for the prevention of cruelty to animals for which an individual is acting as a humane officer shall maintain complete and accurate records documenting that the individual has successfully completed all requirements established in this section and shall make those records available, upon request, to the superior court, the Attorney General, or any entity duly authorized to review that information, including the California Animal Welfare Association. The records shall include the full name and address of each humane officer.
The humane society or society for the prevention of cruelty to animals shall possess insurance of at least one million dollars ($1,000,000) for liability for bodily injury or property damage.
Each appointment of a humane officer shall be by separate resolution by the board of directors or trustees of the humane society or society for the prevention of cruelty to animals duly entered in its minutes. The resolution shall state the full name and address of the principal office of the appointing society, the full name of the person so appointed, the fact that the person so appointed is a citizen of the State of California, that the person so appointed has met the training requirements set forth in subdivision (h), and whether the person so appointed is authorized to carry a weapon pursuant to this section. The resolution shall also designate the number of the badge to be allotted to the officer, and the date on which the term of office shall expire.
A humane society or a society for the prevention of cruelty to animals seeking confirmation of a humane officer’s appointment shall comply with each of the following provisions:
Before filing a Petition for Order Confirming Appointment of a Humane Officer under paragraph (3), a humane officer applicant shall undergo a fingerprint-based criminal history background check.
A city, county, and city and county humane society or society for the prevention of cruelty to animals shall submit to the Department of Justice fingerprint images and related information for humane officer applicants pursuant to subdivision (u) of Section 11105 of the Penal Code. The Department of Justice shall provide a state and federal response to a government entity pursuant to subdivision (p) of Section 11105 of the Penal Code. The Department of Justice shall provide a state response to a nongovernmental entity pursuant to subdivision (p) of Section 11105 of the Penal Code.
The submitting entity shall request from the Department of Justice subsequent arrest notification service, as provided pursuant to Section 11105.2 of the Penal Code, for persons whose appointments are confirmed as described in subdivision (c).
The Department of Justice shall charge a fee sufficient to cover the cost of processing the request described in this paragraph.
When filing a Petition for Order Confirming Appointment of a Humane Officer under paragraph (3), the humane society or society for the prevention of cruelty to animals shall serve a copy of the petition on each of the following:
The police department having jurisdiction in the city in which the principal office of the appointing society is located.
The sheriff’s department having jurisdiction in the county in which the principal office of the appointing society is located.
The Department of the California Highway Patrol.
The California Animal Welfare Association.
The animal control agency having jurisdiction in the city in which the principal office of the appointing society is located. If the sheriff’s department or police department entitled to notice under subparagraph (A) or (B) provides animal control services for the city in which the principal office of the appointing society is located, no separate notice is required under this subparagraph.
The Department of Justice.
The humane society or society for the prevention of cruelty to animals shall file with the superior court in and for the county or city and county in which the principal office of the humane society is located a Petition for Order Confirming Appointment of a Humane Officer, and shall attach to the petition all of the following:
A copy of the resolution appointing the person, duly certified to be correct by the president and secretary of the society and attested by its seal.
A copy of the criminal record offender information, if any, obtained regarding the person pursuant to paragraph (1).
Proof of the society’s proper incorporation in compliance with Part 9 (commencing with Section 10400) of Division 2, including the date the articles of incorporation were filed with the Secretary of State.
A copy of the society’s liability insurance policy for bodily injury or property damage in the amount of at least one million dollars ($1,000,000).
Documentation establishing that the appointee has satisfactorily completed the training requirements set forth in this section.
Documentation establishing that the society has a written agreement with another entity, such as a public or private animal shelter or licensed veterinary clinic, that (i) provides for the humane care and treatment of any animals seized by the society, (ii) is capable of preserving evidence that may be used to prosecute an animal cruelty case, and (iii) is compliant with all applicable federal, state, and local laws, including licensing laws. Alternatively, the society may provide documentation that it is operating its own animal shelter that meets the requirements of clauses (i), (ii), and (iii).
If the society has not previously appointed a humane officer:
An affidavit signed under penalty of perjury from the president of the society that demonstrates the society’s competence to appoint a humane officer by providing information, including, but not limited to, the following:
Partnerships or collaborations, if any, with other nonprofit or community agencies.
(II) Cash reserve on hand, if any, to pay for veterinary expenses, housing, food, and care of seized animals.
(III) Established donor base, if any.
(IV) Current or prior law enforcement, legal, or other relevant experience, if any, of persons who will supervise the appointee.
Current or prior experience of managers, if any, in operating a society or other nonprofit organization.
(VI) Statement that each board member is in good standing in the community and has not been convicted of a misdemeanor or felony involving animals.
(VII) Ongoing training beyond the minimum required for appointment of the humane officer, if any.
(VIII) The need for a humane officer in the society’s county.
(IX) Any other documentation demonstrating compliance with applicable federal, state, or local laws.
Affidavits, if any, from personnel of local animal control agencies, law enforcement agencies, or other societies pertaining to the appointee’s fitness to act as a humane officer.
As the last page, proof of service of a copy of the petition upon those parties required to be served.
Any party described in paragraph (2) may file an opposition to the petition described in paragraph (3). All papers filed in opposition to the petition and in reply to the opposition shall conform to law and motion pleading requirements, pursuant to Rule 3.1113(d) of the California Rules of Court. An opposition shall not exceed 15 pages and a reply shall not exceed 10 pages, excluding exhibits and declarations. The opposition shall be limited to the competency of the society to appoint and supervise a humane officer and the qualifications, background, and fitness of the appointee that are specific to the work of a humane officer.
Any opposition shall be filed no later than 15 court days after the petition is filed with the court. Any opposition shall be served on all parties indicated on the proof of service attached to the petition.
The petitioner’s reply, if any, to the opposition shall be filed within 10 court days after service of the opposition. The reply shall be served on all parties listed in the proof of service attached to the petition and to any other person who has filed an opposition.
The court shall rule on the petition without a hearing unless the court notifies the parties of an intention to hold a hearing.
The petitioner shall serve a certified copy of the court’s order ruling on the petition on all parties listed in the proof of service attached to the petition and to any other person or entity who has filed an opposition.
Upon receipt of the Petition for Order Confirming Appointment of a Humane Officer, the court shall first determine the society’s date of incorporation, and the length of time between the date the society filed its articles of incorporation with the Secretary of State and the date it filed the petition described in paragraph (3) of subdivision (b) with the court. If the society was incorporated on or after January 1, 2011, the following shall apply:
If the court grants the petition, the county clerk shall immediately enter in a book to be kept in the county clerk’s office and designated “Record of Humane Officers” the name of the officer, the name of the society appointing the officer, the number of the officer’s badge, the date of the filing, and the case number of the court order confirming the appointment. At the time of the filing, the county clerk shall collect from the society a fee of five dollars ($5), which shall be full payment for all services to be performed by the county clerk under this section.
All appointments of humane officers shall automatically expire if the society disbands or legally dissolves.
The society appointing an officer may revoke an appointment at any time by filing in the office of the county clerk in which the appointment of the officer is recorded a copy of the revocation in writing under the letterhead of the society and duly certified by its executive officer. Upon the filing, the county clerk shall enter the fact of the revocation and the date of the filing of the revocation opposite the name of the officer in the record of humane officers.
Notwithstanding paragraph (1), any duly authorized sheriff or local police agency or the California Animal Welfare Association may initiate a revocation hearing by filing a petition to Revoke Appointment of a Humane Officer. The petition shall show cause why an appointment should be revoked and shall be made to the superior court in the jurisdiction of the appointment. Filing, service, and format of the petition and any oppositions and reply papers shall conform to the law and motion requirements under the Code of Civil Procedure, California Rules of Court, and this code. A proceeding pursuant to this paragraph shall be a special proceeding within the meaning of Section 23 of the Code of Civil Procedure.
Notice of the hearing date and a copy of the petition shall be served in the same manner as a summons upon the humane officer subject to the petition, the society that appointed the officer, the agencies and association described in paragraph (2) of subdivision (b); except the party filing the petition shall not be required to serve copies of those documents upon itself.
Upon a finding of good cause, the court shall issue an order granting the petition to revoke the appointment. The county clerk shall immediately enter the revocation and the date of the court order opposite the name of the officer in the record of humane officers. The clerk of the superior court shall give notice of the order to the parties described in subparagraph (A) and to the county clerk-recorder.
The society appointing the humane officer shall pay the training expenses of the humane officer attending the training required pursuant to this section.
A level 1 humane officer is not a peace officer, but may exercise the powers of a peace officer at all places within the state in order to prevent the perpetration of any act of cruelty upon any animal and to that end may summon to the officer’s aid any bystander. A level 1 humane officer may use reasonable force necessary to prevent the perpetration of any act of cruelty upon any animal.
A level 1 humane officer may make arrests for the violation of any penal law of this state relating to or affecting animals in the same manner as any peace officer and may serve search warrants.
A level 1 humane officer is authorized to carry firearms while exercising the duties of a humane officer, upon satisfactory completion of the training specified in subparagraph (D), if the requirements in subparagraph (F) are met.
A level 1 humane officer shall, before appointment, provide evidence satisfactory to the appointing society that the officer has successfully completed the following requirements:
At least 20 hours of a course of training in animal care sponsored or provided by an accredited postsecondary institution or any other provider approved by the California Veterinary Medical Association the focus of which shall be the identification of disease, injury, and neglect in domestic animals and livestock.
At least 40 hours of a course of training in the state humane laws relating to the powers and duties of a humane officer, sponsored or provided by an accredited postsecondary institution, law enforcement agency, or the California Animal Welfare Association.
The basic training for a level 1 reserve officer by the Commission on Peace Officer Standards and Training pursuant to paragraph (1) of subdivision (a) of Section 832.6 of the Penal Code.
A person shall not be appointed as a level 1 humane officer until the person meets the criteria in Sections 1029, 1030, and 1031 of the Government Code. A humane society or society for the prevention of cruelty to animals shall complete a background investigation, using standards defined by the Commission on Peace Officer Standards and Training as guidelines for all level 1 humane officer appointments.
Notwithstanding any other provision of this section, a level 1 humane officer may carry a firearm only if authorized by, and only under the terms and conditions specified by, the officer’s appointing society.
Notwithstanding any other provision of this section, a level 1 humane officer shall not be authorized to carry a firearm unless and until the officer’s appointing society has adopted a policy on the use of deadly force by its officers and the officer has been instructed in that policy.
A level 2 humane officer is not a peace officer, but may exercise the powers of a peace officer at all places within the state in order to prevent the perpetration of any act of cruelty upon any animal and to that end may summon to the officer’s aid any bystander. A level 2 humane officer may use reasonable force necessary to prevent the perpetration of any act of cruelty upon any animal.
A level 2 humane officer may make arrests for the violation of any penal law of this state relating to or affecting animals in the same manner as any peace officer and may serve search warrants during the course and within the scope of appointment, upon the successful completion of a course relating to the exercise of the police powers specified in Section 832 of the Penal Code, except the power to carry and use firearms.
A level 2 humane officer is not authorized to carry firearms.
A level 2 humane officer shall, before appointment, provide evidence satisfactory to the appointing society that the officer has successfully completed courses of training in the following subjects:
At least 20 hours of a course of training in animal care sponsored or provided by an accredited postsecondary institution or any other provider approved by the California Veterinary Medical Association, the focus of which is the identification of disease, injury, and neglect in domestic animals and livestock.
At least 40 hours of a course of training in the state humane laws relating to the powers and duties of a humane officer, sponsored or provided by an accredited postsecondary institution, law enforcement agency, or the California Animal Welfare Association.
A person shall not be appointed as a level 2 humane officer until the person meets the criteria in Sections 1029, 1030, and 1031 of the Government Code. A humane society or society for the prevention of cruelty to animals shall complete a background investigation, using standards defined by the Commission on Peace Officer Standards and Training as guidelines, for all level 2 humane officer appointments.
During each three-year period following the date on which the certified copy of the court order confirming the appointment of a humane officer was filed with the county clerk, the humane officer shall complete 40 hours of continuing education and training relating to the powers and duties of a humane officer, which education and training shall be sponsored or provided by an accredited postsecondary institution, law enforcement agency, or the California Animal Welfare Association. A certificate of compliance shall be served no later than 21 days after the expiration of each three-year period on the Department of Justice with copies served on the superior court, agencies, and associations described in subparagraphs (A) to (E), inclusive, of paragraph (2) of subdivision (b). The Department of Justice may charge a reasonable fee sufficient to cover the costs of maintaining records of certificates of compliance. The certificate of compliance shall also include documentation that the humane society or society for the prevention of cruelty to animals is in compliance with subparagraph (F) of paragraph (3) of subdivision (b). Service on the Department of Justice shall be in compliance with procedures set forth by the Department of Justice. The Department of Justice shall post the filing procedures, as they may be updated from time to time, on its internet website. Failure to file the certificate of compliance with the Department of Justice no later than 21 days after the expiration of a three-year period shall result in immediate revocation of the appointment.
If the humane officer is authorized to carry a firearm, the officer shall complete ongoing weapons training and range qualifications at least every six months pursuant to subdivision (t) of Section 830.3 of the Penal Code. A certificate of compliance pursuant to this section shall be served no later than 21 days after the expiration of a six-month period on the Department of Justice with copies served on the superior court, and on the agencies and associations described in subparagraphs (A) to (E), inclusive, of paragraph (2) of subdivision (b). The Department of Justice may charge a reasonable fee sufficient to cover the costs of maintaining records of certificates of compliance. The certificate of compliance shall also include documentation that the humane society or society for the prevention of cruelty to animals is in compliance with subparagraph (F) of paragraph (3) of subdivision (b). Service on the Department of Justice shall be in compliance with procedures set forth by the Department of Justice. The Department of Justice shall post the filing procedures, as they may be updated from time to time, on its internet website. Failure to file the certificate of compliance with the Department of Justice no later than 21 days after the expiration of a six-month period shall result in immediate revocation of the appointment.
A humane officer may carry a wooden club or baton if the officer has satisfactorily completed the course of instruction certified by the Commission on Peace Officer Standards and Training in the carrying and use of the club or baton pursuant to subdivision (g) of Section 22295 of the Penal Code.
Notwithstanding subparagraph (A), a humane officer may carry a wooden club or baton only if authorized by, and only under the terms and conditions specified by, the officer’s appointing society.
Every humane officer shall, when making an arrest, exhibit and expose a suitable badge to be adopted by the society under this part of which the officer is an appointee which shall bear its name and a number. Uniforms worn by humane officers shall prominently display the name of the appointing society. Humane officer uniforms shall not display the words “state” or “California,” except to the extent that one or both of those words are part of the appointing society’s incorporated name.
Any person resisting a humane officer in the performance of the officer’s duty as provided in this section is guilty of a misdemeanor. Any person who has not been appointed and qualified as a humane officer as provided in this section, or whose appointment has been revoked as provided in this section, or whose appointment, having expired, has not been renewed as provided in this section, who shall represent themself to be or shall attempt to act as an officer shall be guilty of a misdemeanor.
No humane officer shall serve a search warrant without providing prior notice to local law enforcement agencies operating within that jurisdiction.
Any humane society, society for the prevention of cruelty to animals, or person, who knowingly provides a court with false or forged documentation for the appointment of a humane officer, is guilty of a misdemeanor and shall be punished by a fine of up to ten thousand dollars ($10,000).
Except as otherwise provided by this section, a humane officer shall serve only in the county in which the court that appointed the officer sits. A humane officer may serve in another county if the humane officer gives notice requesting consent to the sheriff of the county in which the officer intends to serve, and acquires consent from that sheriff of the county in which the officer intends to serve, or from a person authorized by the sheriff to give that consent. A sheriff shall promptly respond to any request by a humane officer to serve in the sheriff’s jurisdiction and any request shall not be unreasonably denied.
The governing body of a local agency, by ordinance, may authorize employees of public animal shelters, societies for the prevention of cruelty to animals, and humane societies, who have qualified as humane officers pursuant to Section 14502, and which societies or animal shelters have contracted with such local agency to provide animal care or protection services, to issue notices to appear in court pursuant to Chapter 5c (commencing with Section 853.5) of Title 3 of Part 2 of the Penal Code for violations of state or local animal control laws. Those employees shall not be authorized to take any person into custody even if the person to whom the notice is delivered does not give a written promise to appear in court. The authority of these employees is to be limited to the jurisdiction of the local agency authorizing the employees.
All humane societies and societies for the prevention of cruelty to animals, and all humane officers, shall be in full compliance with Section 14502 on or before January 1, 2012. Notwithstanding any other provision of this part, a level 1 or level 2 humane officer confirmed prior to January 1, 2012, shall not be required to seek a new court order confirming his or her appointment. However, a level 2 humane officer shall provide proof of compliance with subparagraph (E) of paragraph (2) of subdivision (h) of Section 14502 by filing a certificate of compliance with the Department of Justice on or before January 1, 2012, or that humane officer’s appointment shall be immediately revoked.
Any law enforcement agency that is requested to provide summary criminal history information pursuant to Section 13300 of the Penal Code may charge the humane society or society for the prevention of cruelty to animals a fee not to exceed the reasonable costs of preparing reports and costs to maintain certificates of compliance as required by Section 14502.
PART 12. NONPROFIT COOPERATIVE AGRICULTURAL MARKETING ASSOCIATIONS [14550. - 14551.]
In order to promote, foster, and encourage the intelligent and orderly marketing of agricultural products through cooperation; to eliminate speculation and waste; to make the distribution of agricultural products between producer and consumer as direct as can be efficiently done; and to stabilize the marketing of agricultural products, this act is passed.
It is here recognized that agriculture is characterized by individual production in contrast to the group or factory system that characterizes other forms of industrial production; and that the ordinary form of corporate organization permits industrial groups to combine for the purpose of group production and the ensuing group marketing; and that the public has an interest in permitting farmers to bring their industry to the high degree of efficiency and merchandising skill evidenced in the manufacturing industries; and that the public interest urgently needs to prevent the migration from the farm to the city in order to keep up farm production and to preserve the agricultural supply of the nation; and that the public interest demands that the farmer be encouraged to attain a superior and more direct system of marketing in the substitution of merchandising for the blind, unscientific, and speculative selling of crops.
PART 13. BENEFIT CORPORATIONS [14600. - 14631.]
CHAPTER 1. Preliminary Provisions [14600. - 14604.]
This part shall be applicable to all benefit corporations.
The existence of a provision of this part shall not of itself create any implication that a contrary or different rule of law is or would be applicable to a business corporation that is not a benefit corporation. This part shall not affect any statute or rule of law that is or would be applicable to a corporation that is not a benefit corporation.
The provisions of the General Corporation Law (Division 1 (commencing with Section 100)) shall apply to benefit corporations, except where those provisions are in conflict with or inconsistent with the provisions of this part.
As used in this part:
“Benefit corporation” means a corporation organized under the General Corporation Law that has elected to become subject to this part and whose status as a benefit corporation has not been terminated as provided in this part.
“Benefit enforcement proceeding” means a claim or action relating to any of the following:
Failure to pursue the general public benefit purpose of the benefit corporation or any specific public benefit purpose set forth in its articles.
Violation of a duty or standard of conduct imposed on a director pursuant to this part.
Failure of the benefit corporation to deliver or post an annual benefit report as required by Section 14630.
“General public benefit” means a material positive impact on society and the environment, taken as a whole, as assessed against a third-party standard, from the business and operations of a benefit corporation.
“Minimum status vote” means that:
The shareholders of every class or series shall be entitled to vote on the corporate action regardless of any limitation stated in the articles or bylaws on the voting rights of any class or series.
The corporate action shall be approved by the outstanding shares of each class or series by at least two-thirds of the votes, or greater vote if required in the articles of incorporation, that all shareholders of the class or series are entitled to cast on that action.
The holders of every class or series of interest in the entity that are entitled to receive a distribution of any kind from the entity regardless of any otherwise applicable limitation on the voting rights of the interest.
The action shall be approved by the vote or consent of the holders described in subparagraph (A) by at least two-thirds of the votes or consents, or greater vote or consent if required in the articles of incorporation, of those holders.
“Specific public benefit” includes all of the following:
Providing low-income or underserved individuals or communities with beneficial products or services.
Promoting economic opportunity for individuals or communities beyond the creation of jobs in the ordinary course of business.
Preserving the environment.
Improving human health.
Promoting the arts, sciences, or advancement of knowledge.
Increasing the flow of capital to entities with a public benefit purpose.
The accomplishment of any other particular benefit for society or the environment.
“Subsidiary” of a person means an entity in which the person owns beneficially or of record 50 percent or more of the outstanding equity interests. For purposes of this definition, a percentage of ownership in an entity shall be calculated as if all outstanding rights to acquire equity interests in the entity had been exercised.
“Third-party standard” means a standard for defining, reporting, and assessing overall corporate social and environmental performance to which all of the following apply:
The standard is a comprehensive assessment of the impact of the business and the business’s operations upon the considerations listed in paragraphs (2) to (5), inclusive, of subdivision (b) of Section 14620.
The standard is developed by an entity that has no material financial relationship with the benefit corporation or any of its subsidiaries and that satisfies both of the following requirements:
Not more than one-third of the members of the governing body of the entity are representatives of any of the following:
Associations of businesses operating in a specific industry, the performance of whose members is measured by the standard.
Businesses from a specific industry or an association of businesses in that industry.
Businesses whose performance is assessed against the standard.
The entity is not materially financed by an association or business described in subparagraph (A).
The standard is developed by an entity that does both of the following:
Accesses necessary and appropriate expertise to assess overall corporate social and environmental performance.
Uses a balanced multistakeholder approach, including a public comment period of at least 30 days to develop the standard.
All of the following information regarding the standard is publicly available:
The criteria considered when measuring the overall social and environmental performance of a business.
The relative weightings assigned to the criteria described in subparagraph (A).
The identity of the directors, officers, any material owners, and the governing body of the entity that developed, and controls revisions to, the standard.
The process by which revisions to the standard and changes to the membership of the governing body described in subparagraph (C) are made.
An accounting of the sources of financial support for the entity, with sufficient detail to disclose any relationships that could reasonably be considered to present a potential conflict of interest.
A corporation may become a benefit corporation under this part by amending the corporation’s articles so that the articles contain a statement that the corporation is a benefit corporation. The amendment shall not be effective unless it is adopted by at least the minimum status vote. If the amendment is adopted, a shareholder of the corporation may, by complying with Chapter 13 (commencing with Section 1300) of Division 1, require the corporation to purchase at their fair market value the shares owned by the shareholder which are dissenting shares as defined in subdivision (b) of Section 1300 in accordance with the procedures in that chapter, as if the adoption of the amendment were a reorganization to which that chapter applies.
If a corporation that is not a benefit corporation is a constituent corporation in a merger reorganization or is the acquired corporation in an exchange reorganization, and the surviving corporation in the merger reorganization is to be a benefit corporation or the articles of the acquired corporation are to be amended in the exchange reorganization to provide that it will be a benefit corporation, then the reorganization shall not be effective unless the reorganization is approved by the corporation or domestic other business entity by at least the minimum status vote.
If a domestic other business entity is a party to a merger reorganization and the surviving corporation in the reorganization is to be a benefit corporation, then the reorganization shall not be effective unless the reorganization is approved by the domestic other business entity by at least the minimum status vote.
If a domestic other business entity is the converting entity (subdivision (d) of Section 1150) in a conversion in which the converted corporation (subdivision (a) of Section 1150) is a benefit corporation, the conversion shall not be effective unless the conversion is approved by the domestic other business entity by at least the minimum status vote.
A benefit corporation may terminate its status as a benefit corporation and cease to be subject to this part by amending the corporation’s articles to delete the provision required by Section 14602. The amendment shall not be effective unless the amendment is adopted by at least the minimum status vote. If the amendment is adopted, a shareholder of the corporation may, by complying with Chapter 13 (commencing with Section 1300) of Division 1, require the corporation to purchase at their fair market value the shares owned by the shareholder which are dissenting shares as defined in subdivision (b) of Section 1300 in accordance with the procedures in that chapter.
If a reorganization (Section 181) would have the effect of terminating the status of a corporation as a benefit corporation, the reorganization shall not be effective unless the reorganization is approved by at least the minimum status vote.
A sale, lease, conveyance, exchange, transfer, or other disposition of all or substantially all of the assets of a benefit corporation, unless the transaction is in the usual and ordinary course of business of the benefit corporation, shall not be effective unless the transaction is approved by at least the minimum status vote. If the transaction is approved, a shareholder of the corporation may, by complying with Chapter 13 (commencing with Section 1300) of Division 1, require the corporation to purchase at their fair market value the shares owned by the shareholder which are dissenting shares as defined in subdivision (b) of Section 1300 in accordance with the procedures in that chapter, as if the transaction were a reorganization to which that chapter applies.
CHAPTER 2. Corporate Purposes [14610. - 14610.]
A benefit corporation shall have the purpose of creating general public benefit. This purpose is in addition to, and may be a limitation on, the corporation’s purpose under Section 206 and any specific purpose set forth in its articles in accordance with subdivision (b).
In addition to the provisions required by Section 202, the articles of incorporation of a benefit corporation shall contain the following statement: “This corporation is a benefit corporation.” Notwithstanding subdivision (b) of Section 202, the articles of a benefit corporation may identify one or more specific public benefits that shall be the purpose or purposes of the benefit corporation. The identification of a specific public benefit under this subdivision does not limit the obligation of a benefit corporation to create general public benefit.
The creation of general and specific public benefit as provided in subdivisions (a) and (b) shall be deemed to be in the best interests of the benefit corporation.
A benefit corporation may amend its articles to add, amend, or delete the identification of a specific public benefit that shall be the purpose of the benefit corporation to create. The amendment shall not be effective unless the amendment is adopted by at least the minimum status vote.
CHAPTER 3. Accountability [14620. - 14623.]
A director shall perform the duties of a director including duties as a member of any committee of the board upon which the director may serve, in good faith, in a manner the director believes to be in the best interests of the benefit corporation and with that care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances.
In discharging their respective duties, and in considering the best interests of the benefit corporation, the board of directors, committees of the board, and individual directors of a benefit corporation shall consider the impacts of any action or proposed action upon all of the following:
The shareholders of the benefit corporation.
The employees and workforce of the benefit corporation and its subsidiaries and suppliers.
The interests of customers of the benefit corporation as beneficiaries of the general or specific public benefit purposes of the benefit corporation.
Community and societal considerations, including those of any community in which offices or facilities of the benefit corporation or its subsidiaries or suppliers are located.
The local and global environment.
The short-term and long-term interests of the benefit corporation, including benefits that may accrue to the benefit corporation from its long-term plans and the possibility that these interests may be best served by retaining control of the benefit corporation rather than selling or transferring control to another entity.
The ability of the benefit corporation to accomplish its general, and any specific, public benefit purpose.
In discharging their respective duties, the persons described in subdivision (b) may consider any of the following:
In discharging their respective duties, the persons described in subdivision (a) shall not be required to give priority to any particular factor or the interests of any particular person or group referred to in subdivision (b) or (c) over any other factor or the interests of any other person or group unless the benefit corporation has stated its intention to give priority to a specific public benefit purpose identified in the articles.
In performing the duties of a director, a director shall be entitled to rely on information, opinions, reports, or statements, including financial statements and other financial data, in each case prepared or presented by any of the following:
One or more officers or employees of the benefit corporation whom the director believes to be reliable and competent in the matters presented.
Counsel, independent accountants, or other persons as to matters that the director believes to be within those persons’ professional or expert competence.
A committee of the board upon which the director does not serve, as to matters within its designated authority, which committee the director believes to merit confidence, so long as, in any of those cases, the director acts in good faith, after reasonable inquiry when the need therefor is indicated by the circumstances and without knowledge that would cause that reliance to be unwarranted.
A director shall not be liable for monetary damages under this part for any failure of the benefit corporation to create a general or specific public benefit.
A person who performs the duties of a director in accordance with this part shall not be liable for monetary damages for any alleged failure to discharge the person’s obligations as a director.
In addition to the limitations provided in subdivisions (f) and (g), the liability of a director for monetary damages may be eliminated or limited in a benefit corporation’s articles to the extent provided in paragraph (10) of subdivision (a) of Section 204.
A director shall not have a fiduciary duty to a person that is a beneficiary of the general or specific public benefit purposes of a benefit corporation arising from the status of the person as a beneficiary.
A director of a foreign corporation that is subject to Section 2115 shall not be subject to Section 309 and shall be subject instead to this section if the director of the foreign corporation is subject to duties under its articles of incorporation, bylaws, or the law of its jurisdiction of incorporation similar to the duties of directors under this section.
The board of directors of a benefit corporation shall prepare for inclusion in the annual benefit report to shareholders required by Section 14630, a statement indicating whether, in the opinion of the board of directors, the benefit corporation failed to pursue its general, and any specific, public benefit purpose in all material respects during the period covered by the report.
If, in the opinion of the board of directors, the benefit corporation failed to pursue its general, and any specific, public benefit purpose, the statement required by subdivision (a) shall include a description of the ways in which the benefit corporation failed to pursue its general, and any specific, public benefit purpose.
Each officer of a benefit corporation shall consider the interests and factors described in Section 14620 in the manner provided in that section when either of the following applies:
The officer has discretion to act with respect to a matter.
It reasonably appears to the officer that the matter may have a material effect on any of the following:
The creation of a general or specific public benefit by the benefit corporation.
Any of the interests or factors referred to in subdivision (b) of Section 14620.
The consideration by an officer of interests and factors in the manner described in subdivision (a) shall not constitute a violation of the duties of the officer.
An officer shall not be liable for monetary damages under this part for any of the following:
Any action taken as an officer if the officer performed the duties of the position in compliance with this section.
Any failure of the benefit corporation to create a general or specific public benefit.
An officer shall not have a fiduciary duty to a person that is a beneficiary of the general or specific public benefit purposes of a benefit corporation arising from the status of the person as a beneficiary.
No person may bring an action or assert a claim against a benefit corporation or its directors or officers under this chapter except in a benefit enforcement proceeding.
A benefit enforcement proceeding may be commenced or maintained only as follows:
Directly by the benefit corporation.
Derivatively by any of the following:
A shareholder.
A director.
A person or group of persons that owns beneficially or of record 5 percent or more of the equity interests in an entity of which the benefit corporation is a subsidiary.
Other persons as have been specified in the articles or bylaws of the benefit corporation.
A benefit corporation shall not be liable for monetary damages under this part for any failure of the benefit corporation to create a general or specific public benefit.
If the court in a benefit enforcement proceeding finds that a failure to comply with this part was without justification, the court may award an amount sufficient to reimburse the plaintiff for the reasonable expenses incurred by the plaintiff, including attorney’s fees and expenses, in connection with the benefit enforcement proceeding.
CHAPTER 4. Transparency [14630. - 14631.]
A benefit corporation shall deliver to each shareholder an annual benefit report including all of the following:
A narrative description of all of the following:
The process and rationale for selecting the third-party standard used to prepare the benefit report.
The ways in which the benefit corporation pursued a general public benefit during the applicable year and the extent to which that general public benefit was created.
The ways in which the benefit corporation pursued any specific public benefit that the articles state it is the purpose of the benefit corporation to create and the extent to which that specific public benefit was created.
Any circumstances that have hindered the creation by the benefit corporation of a general or specific public benefit.
An assessment of the overall social and environmental performance of the benefit corporation, prepared in accordance with a third-party standard applied consistently with any application of that standard in prior benefit reports or accompanied by an explanation of the reasons for any inconsistent application. The assessment does not need to be audited or certified by a third party.
The name of each person that owns 5 percent or more of the outstanding shares of the benefit corporation, either beneficially, to the extent known to the benefit corporation without independent investigation, or of record.
The statement required by Section 14621.
A statement of any connection between the entity that established the third-party standard, or its directors, officers, or material owners, and the benefit corporation, or its directors, officers, and material owners, including any financial or governance relationship that might materially affect the credibility of the objective assessment of the third-party standard.
The benefit report shall be sent annually to each shareholder within 120 days following the end of the fiscal year of the benefit corporation or at the same time that the benefit corporation delivers any other annual report to its shareholders.
A benefit corporation shall post all of its benefit reports on the public portion of its Internet Web site, if any, except that the compensation paid to directors and any financial or proprietary information included in the benefit report may be omitted from the benefit report as posted on the Internet Web site.
If a benefit corporation does not have an Internet Web site, the benefit corporation shall provide a copy of its most recent benefit report, without charge, to any person that requests a copy.
The benefit corporation may omit any proprietary or financial information, including, but not limited to, compensation paid to directors, from the copy of a benefit report that the benefit corporation provides pursuant to paragraph (1).
All certificates representing shares of a benefit corporation shall contain, in addition to any other statements required by the General Corporation Law (Division 1 (commencing with Section 100)), the following conspicuous language on the face of the certificate:
“This entity is a benefit corporation organized under Part 13 (commencing with Section 14600) of Division 3 of Title 1 of the California Corporations Code.”
PART 14. Retail Grocery Firms and Retail Drug Firms [14700. - 14707.]
No person shall acquire, directly or indirectly, any voting securities or assets of a retail grocery firm or retail drug firm unless both parties give, or in the case of a tender offer, the acquiring party gives, written notice to the Attorney General in accordance with this part.
For purposes of this part, the following definitions apply:
“Acquiring party” means a person by whom or on whose behalf the merger or other acquisition of control is to be effected and is either of the following:
Is required to provide notice of the merger or acquisition to the Federal Trade Commission or the United States Department of Justice pursuant to the federal Hart-Scott-Rodino Antitrust Improvements Act of 1976 (15 U.S.C. Sec. 18a).
Is acquiring more than a total of 20 retail drug firms or retail grocery firms.
“Retail drug firm” means a person, as defined in Section 18 of the Labor Code, including a proprietorship, joint venture, corporate officer or executive, that has one or more businesses or establishments located within the state and is identified as a retail business or establishment in the North American Industry Classification System within the retail trade category 45611.
“Retail grocery firm” means a person, as defined in Section 18 of the Labor Code, including a proprietorship, joint venture, corporate officer or executive, that has one or more businesses or establishments located within the state and is identified as a retail business or establishment in the North American Industry Classification System within the retail trade category 44511 and 455211.
The written notice shall be filed with the Attorney General no less than 180 days before the acquisition is made effective. The notice shall be made under oath or affirmation, and shall comply with the requirements of subdivision (c).
If any transaction requiring written notice pursuant to this subdivision commences before the effective date of this section, the written notice shall be given to the Attorney General within 30 days before the transaction is made effective. Upon receiving notice, the Attorney General has 180 days to evaluate the transaction, during which time the effective date of the transaction shall be tolled. If any material change occurs in the facts set forth in the written notice filed with the Attorney General, an amendment setting forth the change and copies of all documents and other material relevant to the change shall be filed with the Attorney General within two business days after the amendment is made by, or provided to, the acquiring party.
The notice required to be given to the Attorney General shall comply with either of the following:
If the acquiring party is required to file notice with the Federal Trade Commission or the United States Department of Justice pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (15 U.S.C. Sec. 18a), the notice shall contain the same form and additional documentary material required under that act and any implementing regulations under that act.
If the acquiring party is not required to file notice with the Federal Trade Commission or the United States Department of Justice, as specified in paragraph (1), the notice shall contain all of the following information:
The name and address of each acquiring party and a report of the nature of its business operations during the past five years or for a lesser period if the person and their predecessors have been in existence less than five years.
An informative description of the business intended to be done by the person and the person’s subsidiaries, including, but not limited to, documents concerning its business or corporate structure, governance, or management.
A list of all individuals who are or have been selected to become directors or executive officers or who perform or will perform functions appropriate to the positions.
The source, nature, and amount of the consideration used or to be used in effecting the merger or other acquisition of control, a description of any transaction in which funds were or are to be obtained, including any pledge of the drug or grocery retail firm’s stock or the stock of any of its subsidiaries or controlling affiliates, and the identity of persons furnishing the consideration. If a source of the consideration is a loan made in the lender’s ordinary course of business, the identity of the lender shall remain confidential upon request of the person filing the statement.
Fully audited financial information as to the earnings and financial condition of each acquiring party for the preceding five fiscal years or for a lesser period if the acquiring party and its predecessors have been in existence for less than five years, and similar unaudited information as of a date not earlier than 90 days before the written notice.
Any plans or proposals that an acquiring party may have to liquidate the retail grocery or retail drug firms, to sell its assets or merge or consolidate it with any person, or to make any other material change in its business or corporate structure or management.
The information required to assess the competitive effects of the proposed acquisition, giving particular attention to the effects on the proposed chain retail grocery store acquisition on consumers, including, but not limited to, consumer choice, food pricing, access to food, and food deserts, and factors affecting the supply of experienced grocery workers, including wages, benefits, and unemployment and chain retail pharmacy on patients, including, but not limited to, patient choice, medicine pricing, access to medications, and factors affecting the supply of licensed pharmacists, pharmacy technicians, and pharmacists-in-charge.
Information required to assess the economic and community impact of any planned divestiture or store closures, including, but not limited to, the impact on food deserts, food supply, economic mobility, unemployment, and small businesses.
The Attorney General shall charge the acquiring party a filing fee for the cost to the Attorney General to receive, review, and analyze any notice under this section, which shall not exceed the reasonable regulatory costs to the Attorney General incident to performing its administrative duties under this section. The fee shall be based on the size of the transaction as of the date of the filing of the notice, but shall not exceed .00045 of the dollar amount of the combined sales of the parties to the merger or acquisition for the fiscal year prior to the filing of the notice.
The Attorney General may use the notice, documents, and information disclosed under this section in a judicial action in state or federal court or an administrative action involving the merger or acquisition.
The Attorney General may adopt regulations to effectuate this part that are necessary or appropriate for the protection of workers, consumers, and the public interest.
The regulations may specify exemptions from the notice requirement for acquisitions that, by virtue of the size, business volume, or number of employees are unlikely to materially affect competitive markets in California.
The regulations may authorize the Attorney General to request additional materials.
The regulations may authorize adjustments in the filing fee, based on the size of the transaction, subject to the maximum amount set forth in subdivision (d) of Section 14701.
If the Attorney General determines that they cannot complete an evaluation of the competitive effects of the acquisition before the parties intend to consummate the acquisition, the Attorney General may seek an order from the Superior Court of the County of Sacramento temporarily staying or preliminarily enjoining the acquisition for such time as is reasonably necessary for the Attorney General to complete the analysis.
For acquisitions to which Section 18a of Title 15 of the United States Code applies, the Attorney General shall consider the extent to which information required to be submitted to the United States Department of Justice and the Federal Trade Commission may satisfy some or all of the need to carry out the applicable state laws. Any information that has been submitted to the Attorney General under provisions of federal law rendering them confidential shall be deemed to be confidential under California law.
The submitting party may designate information submitted pursuant to this part as privileged or confidential. If the Attorney General disputes any claim of privilege or confidentiality, the Attorney General may give notice to the submitting party of that fact and give the submitting party, or other person interested in the claim of privilege or confidentiality, an opportunity to seek an order from the Superior Court of the County of Sacramento requiring the Attorney General not to make the designated information public. Except for information that the Attorney General agrees is privileged or confidential, or the court so determines, the information shall be available to the public under the California Public Records Act (Division 10 (commencing with Section 7920.000) of Title 1 of the Government Code).
The Attorney General may disclose any notice and information filed under this part to the attorney general of any other state, the Federal Trade Commission, the United States Department of Justice, or to another state agency, as long as that other state attorney general, state agency, or federal agency operates under a law substantially similar to this statute to guarantee the privileged or confidential nature of the notice and information disclosed.
Nothing in this section or any other law shall preclude the Attorney General or any person from bringing an action pursuant to this article or any other law to enjoin or seek divestiture of assets or ownership interests obtained in a completed acquisition or otherwise to restore competition.
The failure to provide written notice, amendment to written notice, or other material required to be provided pursuant to this part shall be a violation of this part.
In addition to any legal remedies the Attorney General may have, the Attorney General shall be entitled to injunctive relief and other equitable remedies a court deems appropriate for a violation of this part, shall be entitled to recover its attorney’s fees and costs incurred in remedying each violation, and shall be entitled to civil penalties of up to twenty thousand dollars ($20,000) for each day of noncompliance with the requirements of Section 14700.
TITLE 2. PARTNERSHIPS [15800. - 16962.]
CHAPTER 4. Process Agents for Certain Foreign Corporations [15800. - 15800.]
Every partnership, other than a foreign limited partnership, subject to Chapter 4.5 (commencing with Section 15900), or a commercial or banking partnership established and transacting business in a place outside the United States, that is domiciled without this state and has no regular place of business within this state, shall, within 40 days from the time it commences to do business in this state, file a statement in the office of the Secretary of State in accordance with Section 16309 designating some natural person or corporation as the agent of the partnership upon whom process issued by authority of or under any law of this state directed against the partnership may be served. A copy of the designation, duly certified by the Secretary of State, is sufficient evidence of the appointment.
The process may be served in the manner provided in subdivision (b) of Section 16310 on the person so designated, or, in the event that no person has been designated, or if the agent designated for the service of process is a natural person and cannot be found with due diligence at the address stated in the designation, or if the agent is a corporation and no person can be found with due diligence to whom the delivery authorized by subdivision (b) of Section 16310 may be made for the purpose of delivery to the corporate agent, or if the agent designated is no longer authorized to act, then service may be made by personal delivery to the Secretary of State, Assistant Secretary of State, or a Deputy Secretary of State of the process, together with a written statement signed by the party to the action seeking the service, or by the party’s attorney, setting forth the last known address of the partnership and a service fee as set forth in Section 12197 of the Government Code. The Secretary of State shall immediately give notice of the service to the partnership by forwarding the process to it by registered mail, return receipt requested, at the address given in the written statement.
Service on the person designated, or personal delivery of the process and statement of address together with a service fee as set forth in Section 12197 of the Government Code to the Secretary of State, Assistant Secretary of State, or a Deputy Secretary of State, pursuant to this section is a valid service on the partnership. The partnership so served shall appear within 30 days after service on the person designated or within 30 days after delivery of the process to the Secretary of State, Assistant Secretary of State, or a Deputy Secretary of State.
CHAPTER 4.5. Uniform Limited Partnership Act of 2008 [15900. - 15912.07.]
ARTICLE 1. General Provisions [15900. - 15901.17.]
This chapter may be cited as the Uniform Limited Partnership Act of 2008.
In this chapter, the following terms have the following meanings:
“Acknowledged” means that an instrument is either of the following:
Formally acknowledged as provided in Article 3 (commencing with Section 1180) of Chapter 4 of Title 4 of Part 4 of Division 2 of the Civil Code.
Executed to include substantially the following wording preceding the signature: “It is hereby declared that I am the person who executed this instrument, which execution is my act and deed. Any certificate of acknowledgment taken without this state before a notary public or a judge or clerk of a court of record having an official seal need not be further authenticated.”
“Certificate of limited partnership” means the certificate required by Section 15902.01. The term includes the certificate as amended or restated.
“Contribution,” except in the phrase “right of contribution,” means any benefit provided by a person to a limited partnership in order to become a partner or in the person’s capacity as a partner.
“Debtor in bankruptcy” means a person that is the subject of either of the following:
An order for relief under Title 11 of the United States Code or a comparable order under a successor statute of general application.
A comparable order under federal, state, or foreign law governing insolvency.
“Designated office” means either of the following:
With respect to a limited partnership, the office that the limited partnership is required to designate and maintain under Section 15901.14.
With respect to a foreign limited partnership, its principal office.
“Distribution” means a transfer of money or other property from a limited partnership to a partner in the partner’s capacity as a partner or to a transferee on account of a transferable interest owned by the transferee.
“Domestic corporation” means a corporation formed under the laws of this state.
“Electronic transmission by the partnership” means a communication that meets both of the following requirements:
It is delivered by any of the following means:
Facsimile transmission or electronic mail when directed to the facsimile number or electronic mail address, respectively, for the recipient on the record with the partnership.
Posting on an electronic message board or other electronic database, that the partnership has designated for the communication, together with a separate notice to the recipient of the posting, which shall be validly delivered upon the later of either the posting or delivery of the separate notice thereof.
Other means of electronic communication.
It is to a recipient that has provided an unrevoked consent to the use of the means of transmission used by the partnership in the electronic transmission.
“Electronic transmission to the partnership” means a communication that meets both of the following requirements:
“Foreign limited liability limited partnership” means a foreign limited partnership whose general partners have limited liability for the obligations of the foreign limited partnership.
“Foreign limited partnership” means a partnership formed under the laws of a jurisdiction other than this state and required by those laws to have one or more general partners and one or more limited partners. The term includes a foreign limited liability limited partnership.
“Foreign other business entity” means an other business entity formed under the laws of any state other than this state or under the laws of a foreign country.
“General partner” means:
With respect to a limited partnership, a person to whom either of the following applies:
The person becomes a general partner under Section 15904.01.
The person was a general partner in a limited partnership when the limited partnership became subject to this chapter under subdivision (a) or (b) of Section 15912.06.
With respect to a foreign limited partnership, a person that has rights, powers, and obligations similar to those of a general partner in a limited partnership.
“Interests of all partners” means the aggregate interests of all partners in the current profits derived from business operations of the partnership.
“Interests of limited partners” means the aggregate interests of all limited partners in their respective capacities as limited partners in the current profits derived from business operations of the partnership.
“Limited partner” means:
With respect to a limited partnership, a person to whom either of the following applies:
The person was a limited partner in a limited partnership when the limited partnership became subject to this chapter under subdivision (a) or (b) of Section 15912.06.
With respect to a foreign limited partnership, a person that has rights, powers, and obligations similar to those of a limited partner in a limited partnership.
“Limited partnership or domestic limited partnership,” except in the phrases “foreign limited partnership” and “foreign limited liability limited partnership,” means an entity, having one or more general partners and one or more limited partners, which is formed under this chapter by two or more persons or becomes subject to this chapter under Article 11 (commencing with Section 15911.01) or subdivisions (a) or (b) of Section 15912.06.
“Mail” means first-class mail, postage prepaid, unless registered mail is specified. Registered mail includes certified mail.
“Majority in interest of all partners” means more than 50 percent of the interests of all partners.
“Majority in interest of the limited partners” means more than 50 percent of the interests of limited partners.
“Other business entity” means a corporation, general partnership, limited liability company, business trust, real estate investment trust, or an unincorporated association other than a nonprofit association, but excludes a limited partnership.
“Parent” of a limited partnership means any of the following:
A general partner of the limited partnership.
A person possessing, directly or indirectly, the power to direct or cause the direction of the management and policies of a general partner of the limited partnership.
A person owning, directly or indirectly, limited partnership interests possessing more than 50 percent of the aggregate voting power of the limited partnership.
“Partner” means a limited partner or general partner.
“Partnership agreement” means the partners’ agreement, whether oral, implied, in a record, or in any combination, concerning the limited partnership. The term includes the agreement as amended.
“Person” means an individual, partnership, limited partnership, trust, estate, association, corporation, limited liability company, or other entity, whether domestic or foreign.
“Person dissociated as a general partner” means a person dissociated as a general partner of a limited partnership.
(aa) “Principal office” means the office where the principal office of a limited partnership or foreign limited partnership is located, whether or not the office is located in this state.
(ab) “Proxy” means a written authorization signed by a partner or the partner’s attorney in fact giving another person the power to vote with respect to the interest of that partner. “Signed,” for the purpose of this subdivision, means the placing of the partner’s name on the proxy, whether by manual signature, typewriting, telegraphic transmission, or otherwise, by the partner or the partner’s attorney in fact.
(ac) “Record” means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form.
(ad) “Required information” means the information that a limited partnership is required to maintain under Section 15901.11.
(ae) “Return of capital” means any distribution to a partner to the extent that the aggregate distributions to that partner do not exceed that partner’s contributions to the partnership.
(af) “Sign” means either of the following:
To execute or adopt a tangible symbol with the present intent to authenticate a record.
To attach or logically associate an electronic symbol, sound, or process to or with a record with the present intent to authenticate the record.
(ag) “State” means a state of the United States, the District of Columbia, Puerto Rico, the United States Virgin Islands, or any territory or insular possession subject to the jurisdiction of the United States.
(ah) “Time a notice is given or sent,” unless otherwise expressly provided, means any of the following:
The time any oral notice is communicated, in person or by telephone or wireless, to the recipient or to a person at the office of the recipient who the person giving the notice has reason to believe will promptly communicate it to the recipient.
(ai) (1) “Transact intrastate business” means, for purposes of registration, entering into repeated and successive transactions of business in this state, other than interstate or foreign commerce.
A shareholder of a foreign corporation transacting intrastate business.
A shareholder of a domestic corporation.
A limited partner of a foreign limited partnership transacting intrastate business.
A limited partner of a domestic limited partnership.
A member or manager of a foreign limited liability company transacting intrastate business.
A member or manager of a domestic limited liability company.
Maintaining or defending any action or suit or any administrative or arbitration proceeding, or effecting the settlement thereof or the settlement of claims and disputes.
Holding meetings of its partners or carrying on other activities concerning its internal affairs.
Maintaining bank accounts.
Maintaining offices or agencies for the transfer, exchange, and registration of its securities or depositories with relation to its securities.
Effecting sales through independent contractors.
Soliciting or procuring orders, whether by mail or through employees or agents or otherwise, where the orders require acceptance without this state before becoming binding contracts.
Creating or acquiring evidences of debt or mortgages, liens, or security interests on real or personal property.
Securing or collecting debts or enforcing mortgages and security interests in property securing the debts.
Conducting an isolated transaction completed within a period of 180 days and not in the course of a number of repeated transactions of like nature.
Transacting business in interstate commerce.
A person shall not be deemed to be transacting intrastate business in this state within the meaning of paragraph (1) solely because of the person’s status as a limited partner of a domestic limited partnership or a foreign limited partnership registered to transact intrastate business in this state.
This definition shall not apply in determining the contacts or activities that may subject a foreign limited partnership to service of process, taxation, jurisdiction, or other regulation under any other law of this state.
(aj) “Transfer” includes an assignment, conveyance, deed, bill of sale, lease, mortgage, creation of a security interest or encumbrance, gift, and transfer by operation of law.
(ak) “Transferable interest” means a partner’s right to receive distributions.
(al) “Transferee” means a person to which all or part of a transferable interest has been transferred, whether or not the transferor is a partner.
A person knows a fact if the person has actual knowledge of it.
A person has notice of a fact if the person:
knows of it;
has received a notification of it;
has reason to know it exists from all of the facts known to the person at the time in question; or
has notice of it under subdivision (c) or (d).
A certificate of limited partnership on file in the office of the Secretary of State is notice that the partnership is a limited partnership and the persons designated in the certificate as general partners are general partners. Except as otherwise provided in subdivision (d), the certificate is not notice of any other fact.
A person has notice of:
a merger under Article 11 (commencing with Section 15911.01), 90 days after the effective date of the certificate of merger.
A person notifies or gives a notification to another person by taking steps reasonably required to inform the other person in ordinary course, whether or not the other person learns of it.
A person receives a notification when the notification:
comes to the person’s attention; or
is delivered at the person’s place of business or at any other place held out by the person as a place for receiving communications.
Except as otherwise provided in subdivision (h), a person other than an individual knows, has notice, or receives a notification of a fact for purposes of a particular transaction when the individual conducting the transaction for the person knows, has notice, or receives a notification of the fact, or in any event when the fact would have been brought to the individual’s attention if the person had exercised reasonable diligence. A person other than an individual exercises reasonable diligence if it maintains reasonable routines for communicating significant information to the individual conducting the transaction for the person and there is reasonable compliance with the routines. Reasonable diligence does not require an individual acting for the person to communicate information unless the communication is part of the individual’s regular duties or the individual has reason to know of the transaction and that the transaction would be materially affected by the information.
A general partner’s knowledge, notice, or receipt of a notification of a fact relating to the limited partnership is effective immediately as knowledge of, notice to, or receipt of a notification by the limited partnership, except in the case of a fraud on the limited partnership committed by or with the consent of the general partner. A limited partner’s knowledge, notice, or receipt of a notification of a fact relating to the limited partnership is not effective as knowledge of, notice to, or receipt of a notification by the limited partnership.
A limited partnership is an entity distinct from its partners.
A limited partnership may be organized under this chapter for any lawful purpose. A limited partnership may engage in any lawful business activity, whether or not for profit, except the banking business, the business of issuing policies of insurance and assuming insurance risks, or the trust company business.
A limited partnership has a perpetual duration.
A limited partnership has the powers to do all things necessary or convenient to carry on its activities, including the power to sue, be sued, and defend in its own name and to maintain an action against a partner for harm caused to the limited partnership by a breach of the partnership agreement or violation of a duty to the partnership.
The law of this state governs relations among the partners of a limited partnership and between the partners and the limited partnership and the liability of partners as partners for an obligation of the limited partnership.
Unless displaced by particular provisions of this chapter, the principles of law and equity supplement this chapter.
If an obligation to pay interest arises under this chapter and the rate is not specified, the rate is that specified in Section 3289 of the Civil Code.
The name of a limited partnership may contain the name of any partner.
The name of a limited partnership shall contain the phrase “limited partnership” or the abbreviation “L.P.” or “LP” at the end of its name.
The name of a foreign limited liability limited partnership that is applying for a certificate of registration pursuant to Section 15909.02 shall contain the phrase “limited liability limited partnership” or the abbreviation “LLLP” or “L.L.L.P.” and shall not contain the abbreviation “L.P.” or “LP.”
The name of a limited partnership shall not be a name that the Secretary of State determines is likely to mislead the public and shall be distinguishable in the records of the Secretary of State from all of the following:
Each name reserved under Section 15901.09.
The use by a limited partnership of a name in violation of this section may be enjoined notwithstanding the filing of its certificate of limited partnership by the Secretary of State.
Subject to Section 15909.05, this section applies to any foreign limited partnership transacting business in this state, having a certificate of registration to transact business in this state, or applying for a certificate of registration.
The name shall not include the words “bank,” “trust,” “trustee,” “incorporated,” “inc.,” “corporation,” or “corp.” and shall not include the words “insurer” or “insurance company” or any other words suggesting that it is in the business of issuing policies of insurance and assuming insurance risks.
The exclusive right to the use of a name that complies with Section 15901.08 may be reserved by:
a person intending to organize a limited partnership under this chapter and to adopt the name;
a limited partnership or a foreign limited partnership authorized to transact business in this state intending to adopt the name;
a foreign limited partnership intending to obtain a certificate of registration to transact business in this state and adopt the name;
a person intending to organize a foreign limited partnership and intending to have it obtain a certificate of registration to transact business in this state and adopt the name;
a foreign limited partnership formed under the name; or
a foreign limited partnership formed under a name that does not comply with subdivision (b) or (c) of Section 15901.08, but the name reserved under this paragraph may differ from the foreign limited partnership’s name only to the extent necessary to comply with subdivision (b) or (c) of Section 15901.08.
Upon payment of the fee prescribed by Section 12188 of the Government Code, any person may apply to reserve a name under subdivision (a), and obtain from the Secretary of State a certificate of reservation of any name not prohibited by Section 15901.08. If the Secretary of State finds that the name is available for use by the applicant, the Secretary of State shall issue a certificate of name reservation and thereby reserve the name for the exclusive use of the applicant for 60 days.
An applicant that has reserved a name pursuant to subdivision (b) may reserve the same name for an additional 60-day period. The Secretary of State shall not issue a certificate reserving the same name for two or more consecutive 60-day periods to the same applicant or for the use or benefit of the same person.
A person that has reserved a name under this section may transfer the reserved name to another person, effective upon delivery to the Secretary of State of a signed notice of transfer that states the reserved name and the name and address of the person to which the reservation is to be transferred.
Except as otherwise provided in subdivision (b), the partnership agreement governs relations among the partners and between the partners and the partnership. To the extent the partnership agreement does not otherwise provide, this chapter governs relations among the partners and between the partners and the partnership.
A partnership agreement may not do any of the following:
Vary a limited partnership’s power under Section 15901.05 to sue, be sued, and defend in its own name.
Vary the law applicable to a limited partnership under Section 15901.06.
Vary the requirements of Section 15902.04.
Vary the information required under Section 15901.11 or unreasonably restrict the right to information under Section 15903.04 or 15904.07, but the partnership agreement may impose reasonable restrictions on the availability and use of information obtained under those sections and may define appropriate remedies, including liquidated damages, for a breach of any reasonable restriction on use.
Eliminate the duty of loyalty under Section 15904.08, but the partnership agreement may do either or both of the following:
Identify specific types or categories of activities that do not violate the duty of loyalty, if not manifestly unreasonable.
Specify the number or percentage of partners which may authorize or ratify, after full disclosure to all partners of all material facts, a specific act or transaction that otherwise would violate the duty of loyalty.
Unreasonably reduce the duty of care under subdivision (c) of Section 15904.08.
Eliminate the obligation of good faith and fair dealing under subdivision (b) of Section 15903.05 and subdivision (d) of Section 15904.08, but the partnership agreement may prescribe the standards by which the performance of the obligation is to be measured, if the standards are not manifestly unreasonable.
Eliminate the power of a court to decree dissolution in the circumstances specified in subdivision (a) of Section 15908.02.
Vary the requirement to wind up the partnership’s business as specified in Section 15908.03.
Unreasonably restrict the right to maintain an action under Article 10 (commencing with Section 15910.01).
Restrict the right of a partner to approve a conversion or merger.
Vary the provisions of Article 11.5 (commencing with Section 15911.20), except to the extent expressly permitted by such provisions.
Restrict rights under this chapter of a person other than a partner or a transferee.
A limited partnership shall maintain at its principal office the following information:
A current list showing the full name and last known street and mailing address of each partner, separately identifying the general partners, in alphabetical order, and the limited partners, in alphabetical order;
A copy of the initial certificate of limited partnership and all amendments to and restatements of the certificate, together with signed copies of any powers of attorney under which any certificate, amendment, or restatement has been signed;
A copy of any filed certificate of conversion or merger;
A copy of the limited partnership’s federal, state, and local income tax returns and reports, if any, for the six most recent years;
A copy of any partnership agreement made in a record and any amendment made in a record to any partnership agreement;
A copy of any financial statement of the limited partnership for the six most recent years;
A copy of any record made by the limited partnership during the past three years of any consent given by or vote taken of any partner pursuant to this chapter or the partnership agreement; and
Unless contained in a partnership agreement made in a record, a record stating:
The amount of cash, and a description and statement of the agreed value of the other benefits, contributed and agreed to be contributed by each partner;
The times at which, or events on the happening of which, any additional contributions agreed to be made by each partner are to be made;
For any person that is both a general partner and a limited partner, a specification of what transferable interest the person owns in each capacity; and
Any events upon the happening of which the limited partnership is to be dissolved and its activities wound up.
A partner may lend money to and transact other business with the limited partnership and has the same rights and obligations with respect to the loan or other transaction as a person that is not a partner.
A person may be both a general partner and a limited partner. A person that is both a general and limited partner has the rights, powers, duties, and obligations provided by this chapter and the partnership agreement in each of those capacities. When the person acts as a general partner, the person is subject to the obligations, duties and restrictions under this chapter and the partnership agreement for general partners. When the person acts as a limited partner, the person is subject to the obligations, duties and restrictions under this chapter and the partnership agreement for limited partners.
A limited partnership shall designate and continuously maintain in this state:
an office, which need not be a place of its activity in this state; and
an agent for service of process.
A foreign limited partnership shall designate and continuously maintain in this state an agent for service of process.
An agent for service of process of a limited partnership or foreign limited partnership must be an individual who is a resident of this state or a corporation that has complied with Section 1505 of the Corporations Code and whose capacity to act as an agent has not terminated.
Action requiring the consent of partners under this chapter may be taken without a meeting, and a partner may appoint a proxy to consent or otherwise act for the partner by signing an appointment record, either personally or by the partner’s attorney in fact.
In addition to Chapter 4 (commencing with Section 413.10) of Title 5 of Part 2 of the Code of Civil Procedure, process may be served upon limited partnerships and foreign limited partnerships as provided in this section.
Personal service of a copy of any process against the limited partnership or the foreign limited partnership will constitute valid service on the limited partnership if delivered either (1) to any individual designated by it as agent or, if a limited partnership, to any general partner or (2) if the designated agent or, if a limited partnership, general partner is a corporation, to any person named in the latest certificate of the corporate agent filed pursuant to Section 1505 at the office of the corporate agent or to any officer of the general partner, shall constitute valid service on the limited partnership or the foreign limited partnership. No change in the address of the agent for service of process where the agent is an individual or appointment of a new agent for service of process shall be effective (1) for a limited partnership until an amendment to the certificate of limited partnership is filed or (2) for a foreign limited partnership until an amendment to the application for registration is filed. In the case of a foreign limited partnership that has appointed the Secretary of State as agent for service of process by reason of subdivision (b) of Section 15909.07, process shall be delivered by hand to the Secretary of State, or to any person employed in the capacity of assistant or deputy, which shall be one copy of the process for each defendant to be served, together with a copy of the court order authorizing the service and the fee therefor. The order shall include and set forth an address to which the process shall be sent by the Secretary of State.
If an agent for service of process has resigned and has not been replaced or if the agent designated cannot with reasonable diligence be found at the address designated for personal delivery of the process, and it is shown by affidavit to the satisfaction of the court that process against a limited partnership or foreign limited partnership cannot be served with reasonable diligence upon the designated agent or, if a foreign limited partnership, upon any general partner by hand in the manner provided in Section 415.10, subdivision (a) of Section 415.20, or subdivision (a) of Section 415.30 of the Code of Civil Procedure, the court may make an order that the service shall be made upon a domestic limited partnership which has filed a certificate or upon a foreign limited partnership which has a certificate of registration to transact business in this state by delivering by hand to the Secretary of State, or to any person employed in the Secretary of State’s office in the capacity of assistant or deputy, one copy of the process for each defendant to be served, together with a copy of the order authorizing the service. Service in this manner shall be deemed complete on the 10th day after delivery of the process to the Secretary of State.
Upon receipt of any such copy of process and the fee therefor, the Secretary of State shall give notice of the service of the process to the limited partnership or foreign limited partnership, at its principal office, by forwarding to that office, by registered mail with request for return receipt, the copy of the process.
The Secretary of State shall keep a record of all process served upon the Secretary of State under this chapter and shall record therein the time of service and the Secretary of State’s action with reference thereto. A certificate under the Secretary of State’s official seal, certifying to the receipt of process, the giving of notice thereof to the limited partnership or foreign limited partnership, and the forwarding of the process pursuant to this section, shall be competent and prima facie evidence of the matters stated therein.
The Secretary of State may destroy or otherwise dispose of any statement of resignation filed pursuant to this section after an amended certificate of limited partnership or amended foreign limited partnership registration is filed pursuant to Section 15902.02 or 15909.06 replacing the agent for service of process that has resigned.
If an individual who has been designated agent for service of process dies or resigns or no longer resides in the state or if the corporate agent for that purpose, resigns, dissolves, withdraws from the state, forfeits its right to transact intrastate business, has its corporate rights, powers, and privileges suspended or ceases to exist, (A) the limited partnership shall promptly file an amendment to the certificate designating a new agent or (B) the foreign limited partnership shall promptly file an amendment to the application for registration.
In addition to any other discovery rights which may exist, in any case pending in a California court having jurisdiction in which a party seeks records from a partnership formed under this chapter, whether or not the partnership is a party, the court shall have the power to order the production in California of the books and records of the partnership on the terms and conditions that the court deems appropriate.
A partner may, in a written partnership agreement or other writing, consent to be subject to the nonexclusive jurisdiction of the courts of a specified jurisdiction, or the exclusive jurisdiction of the courts of this state.
If a partner desires to use the arbitration process, that partner may in a written partnership agreement or other writing, consent to be nonexclusively subject to arbitration in a specified state, or to be exclusively subject to arbitration in this state.
Along with this consent to the jurisdiction of courts or arbitration, a partner may consent to be served with legal process in the manner prescribed in the partnership agreement or other writing.
ARTICLE 2. Formation; Certificate of Limited Partnership and Other Filings [15902.01. - 15902.09.]
In order for a limited partnership to be formed, a certificate of limited partnership must be filed with and on a form prescribed by the Secretary of State and, either before or after the filing of a certificate of limited partnership, the partners shall have entered into a partnership agreement. The certificate must state:
the name of the limited partnership, which shall comply with Section 15901.08;
the street address of the initial principal office;
the name and street address of the initial agent for service of process in accordance with paragraph (1) of subdivision (d) of Section 15901.16;
the name and the address of each general partner; and
the mailing address of the limited partnership, if different from the address of the initial principal office.
A certificate of limited partnership may also contain any other matters but may not vary or otherwise affect the provisions specified in subdivision (b) of Section 15901.10 in a manner inconsistent with that section.
A limited partnership is formed when the Secretary of State files the certificate of limited partnership.
Subject to subdivision (b), if any provision of a partnership agreement is inconsistent with the filed certificate of limited partnership or with a filed certificate of dissociation, cancellation, or amendment or filed certificate of conversion or merger:
the partnership agreement prevails as to partners and transferees; and
the filed certificate of limited partnership, certificate of dissociation, cancellation, or amendment or filed certificate of conversion or merger prevails as to persons, other than partners and transferees, that reasonably rely on the filed record to their detriment.
A limited partnership may record in the office of the county recorder of any county in this state a certified copy of the certificate of limited partnership, or any amendment thereto, which has been filed by the Secretary of State. A foreign limited partnership may record in the office of the county recorder of any county in the state a certified copy of the application for registration to transact business, together with the certificate of registration, referred to in Section 15909.02, or any amendment thereto, which has been filed by the Secretary of State. The recording shall create a conclusive presumption in favor of any bona fide purchaser or encumbrancer for value of the partnership real property located in the county in which the certified copy has been recorded, that the persons named as general partners therein are the general partners of the partnership named and that they are all of the general partners of the partnership.
The Secretary of State may cancel the filing of certificates of limited partnership, including certificates effecting a conversion, if a check or other remittance accepted in payment of the filing fee is not paid upon presentation. For partners and transferees, the partnership agreement is paramount. Within 90 days of receiving written notification that the item presented for payment has not been honored for payment, the Secretary of State shall give a first written notice of the applicability of this section to the agent for service of process or to the person submitting the instrument. Thereafter, if the amount has not been paid by cashier’s check or equivalent, the Secretary of State shall give a second written notice of cancellation and the cancellation shall thereupon be effective. The second notice shall be given 20 days or more after the first notice.
The Secretary of State shall include with instructional materials, provided in conjunction with the form for filing a certificate of limited partnership under subdivision (a), a notice that the filing of the certificate of limited partnership will obligate the limited partnership to pay an annual tax for that taxable year to the Franchise Tax Board pursuant to Section 17935 of the Revenue and Taxation Code. That notice shall be updated annually to specify the dollar amount of the annual tax.
In order to amend its certificate of limited partnership, a limited partnership must deliver to and on a form prescribed by the Secretary of State for filing an amendment stating:
the name and the Secretary of State’s file number of the limited partnership; and
the changes the amendment makes to the certificate as most recently amended or restated.
A limited partnership shall promptly deliver to the Secretary of State for filing an amendment to a certificate of limited partnership to reflect:
the admission of a new general partner;
the dissociation of a person as a general partner; or
the appointment of a person to wind up the limited partnership’s activities under subdivisions (c) or (d) of Section 15908.03.
A general partner that knows that any information in a filed certificate of limited partnership was false when the certificate was filed or has become false due to changed circumstances shall promptly:
A certificate of limited partnership may be amended at any time for any other proper purpose as determined by the limited partnership.
A restated certificate of limited partnership may be delivered to and on a form prescribed by the Secretary of State for filing in the same manner as an amendment.
A restated certificate of limited partnership may be filed that embodies all of the provisions that are in effect contained in the different certificates that have been filed with the Secretary of State.
A restated certificate of limited partnership may include an amendment of the certificate of limited partnership not previously filed with the Secretary of State.
The restated certificate of limited partnership shall supersede the initial certificate of limited partnership and all amendments thereto previously filed with the Secretary of State.
Any amendment effected in connection with the restatement of the certificate of limited partnership shall be subject to any other provision of this chapter not inconsistent with this section that would apply if a separate certificate of amendment were filed to effect that amendment.
Subject to subdivision (c) of Section 15902.06, an amendment or restated certificate is effective when filed by the Secretary of State.
A dissolved limited partnership that has completed winding up shall deliver to and on a form prescribed by the Secretary of State for filing a certificate of cancellation that states:
the name of the limited partnership and the Secretary of State’s file number;
the date of filing of its initial certificate of limited partnership; and
any other information as determined by the general partners filing the certificate or by a person appointed pursuant to subdivisions (c) or (d) of Section 15908.03.
Each record delivered to the Secretary of State for filing pursuant to this chapter must be signed in the following manner:
An initial certificate of limited partnership must be signed by all general partners listed in the certificate.
An amendment designating as general partner a person admitted under paragraph (2) of subdivision (c) of Section 15908.01 following the dissociation of a limited partnership’s last general partner must be signed by that person.
An amendment required by subdivision (c) of Section 15908.03 following the appointment of a person to wind up the dissolved limited partnership’s activities must be signed by that person.
Any other amendment must be signed by:
at least one general partner listed in the certificate of limited partnership;
each other person designated in the amendment as a new general partner; and
each person that the amendment indicates has dissociated as a general partner, unless:
the person is deceased or a guardian or general conservator has been appointed for the person and the amendment so states; or
the person has previously delivered to the Secretary of State for filing a certificate of dissociation.
A restated certificate of limited partnership must be signed by at least one general partner listed in the certificate, and, to the extent the restated certificate effects a change under any other paragraph of this subdivision, the restated certificate must be signed in a manner that satisfies that paragraph.
A certificate of cancellation must be signed by all general partners listed in the certificate of limited partnership or, if the certificate of limited partnership of a dissolved limited partnership lists no general partners, by the person appointed pursuant to subdivisions (c) or (d) of Section 15908.03 to wind up the dissolved limited partnership’s activities.
Certificates of conversion must be signed as provided in subdivision (b) of Section 15911.06.
Certificates of merger must be signed as provided in subdivision (a) of Section 15911.14.
A certificate of correction shall be executed in the same manner in which the record being corrected was required to be executed.
Any other record delivered on behalf of a limited partnership to the Secretary of State for filing must be signed by at least one general partner listed in the certificate of limited partnership.
A certificate of dissociation by a person pursuant to paragraph (4) of subdivision (a) of Section 15906.05 stating that the person has dissociated as a general partner must be signed by that person.
A certificate of withdrawal by a person pursuant to Section 15903.06 must be signed by that person.
A record delivered on behalf of a foreign limited partnership to the Secretary of State for filing must be signed by at least one general partner of the foreign limited partnership.
Any other record delivered on behalf of any person to the Secretary of State for filing must be signed by that person.
Any person may sign by an attorney in fact any record to be filed pursuant to this chapter.
The Secretary of State shall not be required to verify that the person withdrawing or dissociating was ever actually named in an official filing as a general or limited partner.
If a person required by this chapter to sign a record or deliver a record to the Secretary of State for filing does not do so, any other person that is aggrieved may petition the superior court to order:
the person to sign the record;
deliver the record to the Secretary of State for filing; or
the Secretary of State to file the record unsigned.
If the person aggrieved under subdivision (a) is not the limited partnership or foreign limited partnership to which the record pertains, the aggrieved person shall make the limited partnership or foreign limited partnership a party to the action. A person aggrieved under subdivision (a) may seek the remedies provided in subdivision (a) in the same action in combination or in the alternative. In any action under this subdivision, if the court finds the failure of the person to comply with the requirement to sign a record or deliver a record to the Secretary of State for filing to have been without justification, the court may award an amount sufficient to reimburse the persons aggrieved under subdivision (a) bringing the action for the reasonable expenses incurred by such persons, including attorneys’ fees, in connection with the action or proceeding.
A record filed unsigned pursuant to this section is effective without being signed.
Any person, other than a general partner, delivering a record to the Secretary of State for filing, shall state the statutory authority for such action after the signature on the appropriate record.
A record authorized or required to be delivered to the Secretary of State for filing under this chapter must be completed on a form prescribed by and in a medium permitted by the Secretary of State, and be delivered to the Secretary of State. Unless the Secretary of State determines that a record does not comply with the filing requirements of this chapter, and if all requisite fees have been paid, the Secretary of State shall file the record.
Except as otherwise provided in Sections 15901.16, 15902.01, and 15902.07, a record delivered to the Secretary of State for filing under this chapter may specify an effective time and a delayed effective date. Except as otherwise provided in this chapter, a record filed by the Secretary of State is effective:
if the record does not specify a delayed effective date, on the date the record is filed as evidenced by the Secretary of State’s endorsement of the date on the record;
if the record specifies a delayed effective date on the earlier of:
the specified date; or
the 90th day after the record is filed; or
In case a delayed effective date is specified, the record may be prevented from becoming effective by a certificate stating that by appropriate action it has been revoked and is null and void, executed in the same manner as the original record and delivered to the Secretary of State for filing before the specified effective date. In the case of certificate of merger, a certificate revoking the earlier filing need only be executed on behalf of one of the constituent parties to the merger. If no such revocation certificate is filed, the record becomes effective on the date specified.
If the Secretary of State determines that a record delivered to the Secretary of State for filing does not conform to the law and returns it to the person delivering it, the record may be resubmitted accompanied by a written opinion of the member of the State Bar of California delivering the record or representing the person delivering it, to the effect that the specific provisions of the record objected to by the Secretary of State do conform to law and stating the points and authorities upon which the opinion is based. The Secretary of State shall rely, with respect to any disputed point of law, other than the application of Sections 15901.08, 15901.09, 15909.02, and 15909.05, upon that written opinion in determining whether the record conforms to law. When filed by the Secretary of State upon resubmission, such record is effective retroactively as of the date that the original record was delivered to the Secretary of State for filing.
A limited partnership or foreign limited partnership may deliver to and on a form prescribed by the Secretary of State for filing a certificate of correction containing the name of the limited partnership or foreign limited partnership and the Secretary of State’s file number for the limited partnership or foreign limited partnership to correct a record previously delivered by the limited partnership or foreign limited partnership to the Secretary of State and filed by the Secretary of State, if at the time of filing the record contained false or erroneous information or was defectively signed.
A certificate of correction may not state a delayed effective date and must:
describe the record to be corrected, including its filing date and file number;
specify the incorrect information and the reason it is incorrect or the manner in which the signing was defective; and
correct the incorrect information or defective signature.
When filed by the Secretary of State, a certificate of correction is effective retroactively as of the effective date of the record the certificate corrects, but the certificate is effective when filed:
If a record delivered to the Secretary of State for filing under this chapter and filed by the Secretary of State contains false information, a person that suffers loss by reliance on the information may recover damages for the loss from:
a person that signed the record, or caused another to sign it on the person’s behalf, and knew the information to be false at the time the record was signed; and
a general partner that has notice that the information was false when the record was filed or has become false because of changed circumstances, if the general partner has notice for a reasonably sufficient time before the information is relied upon to enable the general partner to effect an amendment under Section 15902.02, file a petition pursuant to Section 15902.05, or deliver to the Secretary of State for filing a certificate of correction pursuant to Section 15902.07.
Signing a record authorized or required to be filed under this chapter constitutes an affirmation under the penalties of perjury that the facts stated in the record are true.
A domestic limited partnership whose certificate of limited partnership has been canceled pursuant to Section 15902.03 may be revived by filing with, and on a form prescribed by, the Secretary of State a certificate of revival. The certificate of revival shall be accompanied by written confirmation by the Franchise Tax Board that all of the following have occurred:
All of the following have been paid to the Franchise Tax Board:
The annual tax due under Section 17935 of the Revenue and Taxation Code.
All fees, penalties, and interest for each year for which the domestic limited partnership failed to pay such annual tax, including each year between the cancellation of its certificate of limited partnership and its revival.
All required tax returns have been filed, including returns for each taxable year between the cancellation of its certificate of limited partnership and its revival.
The certificate of revival shall set forth all of the following:
The name of the limited partnership at the time its certificate of limited partnership was canceled, and if the name is not available at the time of revival, the name under which the limited partnership is to be revived.
The date of filing of the original certificate of limited partnership.
The address of the limited partnership’s principal office.
The name and address of the initial agent for service of process in accordance with paragraph (1) of subdivision (d) of Section 15901.16.
A statement that the certificate of revival is filed by one or more general partners of the limited partnership authorized to execute and file the certificate of revival to revive the limited partnership.
The Secretary of State’s file number for the original limited partnership.
The name and address of each general partner.
Any other matters the general partner or partners executing the certificate of revival determine to include therein.
The certificate of revival should be deemed to be an amendment to the certificate of limited partnership, and the limited partnership shall not be required to take any further action to amend its certificate of limited partnership pursuant to Section 15902.02 with respect to the matter set forth in the certificate of revival.
Upon the filing of the certificate of revival, the limited partnership shall be revived with the same force and effect as if the certificate of limited partnership had not been canceled pursuant to Section 15902.03. The revival shall validate all contracts, acts, matters, and things made, done, and performed by the limited partnership, its partners, employees, and agents following the time its certificate of limited partnership was canceled pursuant to Section 15902.03 with the same force and effect and all intents and purposes as if the certificate of limited partnership had remained in full force and effect. This provision shall apply provided that third parties are relying on the acts of the partnership, its partners, employees, and agents. All real and personal property, and all rights and interests, that belong to a limited partnership at the time its certificate of limited partnership was canceled pursuant to Section 15902.03 or that were acquired by the limited partnership following the cancellation of the certificate of limited partnership, that were not disposed of before the time of its revival, shall be vested in the limited partnership after its revival as fully as if they were held by the limited partnership at, and during the time after, as the case may be, the time the certificate of limited partnership was canceled. After its revival, the limited partnership and its partners shall have all of the same liability for contracts, acts, matters, and things made, done, or performed in the limited partnership’s name and on behalf of its partners, employees, and agents, as the limited partnership and its partners would have had if the limited partnership’s certificate of limited partnership had at all times remained in full force and effect.
The amendments made to this section by the act adding this subdivision shall apply to written confirmations made by the Franchise Tax Board on or after January 1, 2010.
ARTICLE 3. Limited Partners [15903.01. - 15903.07.]
A person becomes a limited partner:
as provided in the partnership agreement;
as the result of a conversion or merger under Article 11 (commencing with Section 15911.01); or
with the consent of all the partners.
A limited partner does not have the right or the power as a limited partner to act for or bind the limited partnership.
A limited partner is not liable for any obligation of a limited partnership unless named as a general partner in the certificate or, in addition to exercising the rights and powers of a limited partner, the limited partner participates in the control of the business. If a limited partner participates in the control of the business without being named as a general partner, that partner may be held liable as a general partner only to persons who transact business with the limited partnership with actual knowledge of that partner’s participation in control and with a reasonable belief, based upon the limited partner’s conduct, that the partner is a general partner at the time of the transaction. Nothing in this chapter shall be construed to affect the liability of a limited partner to third parties for the limited partner’s participation in tortious conduct.
A limited partner does not participate in the control of the business within the meaning of subdivision (a) solely by doing, attempting to do, or having the right or power to do, one or more of the following:
Being any of the following:
An independent contractor for, an agent or employee of, or transacting business with, the limited partnership or a general partner of the limited partnership.
An officer, director, or shareholder of a corporate general partner of the limited partnership.
A member, manager, or officer of a limited liability company that is a general partner of the limited partnership.
A limited partner of a partnership that is a general partner of the limited partnership.
A trustee, administrator, executor, custodian, or other fiduciary or beneficiary of an estate or trust that is a general partner.
A trustee, officer, adviser, shareholder, or beneficiary of a business trust that is a general partner.
Consulting with and advising a general partner with respect to the business of the limited partnership.
Acting as surety for the limited partnership or for a general partner, guaranteeing one or more specific debts of the limited partnership, providing collateral for the limited partnership or general partner, borrowing money from the limited partnership or a general partner, or lending money to the limited partnership or a general partner.
Approving or disapproving an amendment to the partnership agreement.
Voting on, proposing, or calling a meeting of the partners.
Winding up the partnership pursuant to Section 15908.03.
Serving on an audit committee or committee performing the functions of an audit committee.
Serving on a committee of the limited partnership or the limited partners for the purpose of approving actions of the general partner.
Calling, requesting, attending, or participating at any meeting of the partners or the limited partners.
Taking any action required or permitted by law to bring, pursue, settle, or terminate a derivative action on behalf of the limited partnership.
Serving on the board of directors or a committee of, consulting with or advising, being or acting as an officer, director, stockholder, partner, member, manager, agent, or employee of, or being or acting as a fiduciary for, any person in which the limited partnership has an interest.
Exercising any right or power permitted to limited partners under this chapter and not specifically enumerated in this subdivision.
The enumeration in subdivision (b) does not mean that any other conduct or the possession or exercise of any other power by a limited partner constitutes participation by the limited partner in the control of the business of the limited partnership.
On 10 days’ demand, made in a record received by the limited partnership, a limited partner may inspect and copy any information required to be maintained pursuant to Section 15901.11 during regular business hours in the limited partnership’s principal office. The limited partner need not have any particular purpose for seeking the information.
Subject to subdivision (g), during regular business hours and at a reasonable location specified by the limited partnership, a limited partner may obtain from the limited partnership, which may be transmitted via electronic transmission, and inspect and copy true and full information regarding the state of the activities and financial condition of the limited partnership and other information regarding the activities of the limited partnership as is just and reasonable if:
the limited partner seeks the information for a purpose reasonably related to the partner’s interest as a limited partner;
the limited partner makes a demand in a record received by the limited partnership, describing with reasonable particularity the information sought and the purpose for seeking the information; and
the information sought is directly connected to the limited partner’s purpose.
Within 10 days after receiving a demand pursuant to subdivision (b), the limited partnership in a record shall inform the limited partner that made the demand:
Subject to subdivision (f), a person dissociated as a limited partner may inspect and copy required information during regular business hours in the limited partnership’s principal office if:
The limited partnership shall respond to a demand made pursuant to subdivision (d) in the same manner as provided in subdivision (c).
If a limited partner dies, Section 15907.04 applies.
The limited partnership shall have the right to keep confidential from limited partners for such period of time as the limited partnership deems reasonable, any information which the limited partnership reasonably believes to be in the nature of trade secrets or other information the disclosure of which the limited partnership in good faith believes is not in the best interest of the limited partnership or could damage the limited partnership or its business or which the limited partnership is required by law or by agreement with a third party to keep confidential.
The limited partnership may impose reasonable restrictions on the use of information obtained under this section. In a dispute concerning the reasonableness of a restriction under this subdivision, the limited partnership has the burden of proving reasonableness.
A limited partnership may charge a person that makes a demand under this section reasonable costs of copying, limited to the costs of labor and material.
Whenever this chapter or a partnership agreement provides for a limited partner to give or withhold consent to a matter, before the consent is given or withheld, the limited partnership shall, without demand, provide the limited partner with all information material to the limited partner’s decision that the limited partnership knows.
A limited partner or person dissociated as a limited partner may exercise the rights under this section through an attorney or other agent. Any restriction imposed under subdivision (g), subdivision (h) or by the partnership agreement applies both to the attorney or other agent and to the limited partner or person dissociated as a limited partner.
The rights stated in this section do not extend to a person as transferee, but may be exercised by the legal representative of an individual under legal disability who is a limited partner or person dissociated as a limited partner.
A limited partner does not have any fiduciary duty to the limited partnership or to any other partner solely by reason of being a limited partner.
A limited partner shall discharge the duties to the partnership and the other partners under this chapter or under the partnership agreement and exercise any rights consistently with the obligation of good faith and fair dealing.
A limited partner does not violate a duty or obligation under this chapter or under the partnership agreement merely because the limited partner’s conduct furthers the limited partner’s own interest.
Except as otherwise provided in subdivision (b), a person that makes an investment in a business enterprise and erroneously but in good faith believes that the person has become a limited partner in the enterprise is not liable for the enterprise’s obligations by reason of making the investment, receiving distributions from the enterprise, or exercising any rights of or appropriate to a limited partner, if, on ascertaining the mistake, the person:
causes an appropriate certificate of limited partnership, amendment, or certificate of correction to be signed and delivered to the Secretary of State for filing; or
withdraws from future participation as an owner in the enterprise by signing and delivering to and on a form prescribed by the Secretary of State for filing a certificate of withdrawal containing the name of the limited partnership and the Secretary of State’s file number of the limited partnership under this section.
A person that makes an investment described in subdivision (a) is liable to the same extent as a general partner to any third party that enters into a transaction with the enterprise, believing in good faith that the person is a general partner, before the Secretary of State files a certificate of withdrawal, certificate of limited partnership, amendment, or certificate of correction to show that the person is not a general partner.
If a person makes a diligent effort in good faith to comply with paragraph (1) of subdivision (a) and is unable to cause the appropriate certificate of limited partnership, amendment, or certificate of correction to be signed and delivered to the Secretary of State for filing, the person has the right to withdraw from the enterprise pursuant to paragraph (2) of subdivision (a) even if the withdrawal would otherwise breach an agreement with others that are or have agreed to become co-owners of the enterprise.
The partnership agreement may provide for the creation of classes of limited partners. The partnership agreement shall define the rights, powers, and duties of those classes, including rights, powers, and duties senior to other classes of limited partners.
The partnership agreement may provide to all or certain specified classes of limited partners the right to vote separately or with all or any class or the general partners on any matter.
ARTICLE 4. General Partners [15904.01. - 15904.09.]
A person becomes a general partner:
as provided in the partnership agreement:
under paragraph (2) of subdivision (c) of Section 15908.01 following the dissociation of a limited partnership’s last general partner;
as the result of a conversion or merger under Article 11 (commencing with Section 15911.01); or
with the consent of all the partners.
Each general partner is an agent of the limited partnership for the purposes of its activities. An act of a general partner, including the signing of a record in the partnership’s name, for apparently carrying on in the ordinary course the limited partnership’s activities or activities of the kind carried on by the limited partnership binds the limited partnership, unless the general partner did not have authority to act for the limited partnership in the particular matter and the person with which the general partner was dealing knew, had received a notification, or had notice under subdivision (d) of Section 15901.03 that the general partner lacked authority.
An act of a general partner which is not apparently for carrying on in the ordinary course the limited partnership’s activities or activities of the kind carried on by the limited partnership binds the limited partnership only if the act was actually authorized by all the other partners.
A limited partnership is liable for loss or injury caused to a person, or for a penalty incurred, as a result of a wrongful act or omission, or other actionable conduct, of a general partner acting in the ordinary course of activities of the limited partnership or with authority of the limited partnership.
If, in the course of the limited partnership’s activities or while acting with authority of the limited partnership, a general partner receives or causes the limited partnership to receive money or property of a person not a partner, and the money or property is misapplied by a general partner, the limited partnership is liable for the loss.
Except as otherwise provided in subdivision (b), all general partners are liable jointly and severally for all obligations of the limited partnership unless otherwise agreed by the claimant or provided by law.
A person that becomes a general partner of an existing limited partnership is not personally liable for an obligation of a limited partnership incurred before the person became a general partner.
To the extent not inconsistent with Section 15904.04, a general partner may be joined in an action against the limited partnership or named in a separate action.
A judgment against a limited partnership is not by itself a judgment against a general partner. A judgment against a limited partnership may not be satisfied from a general partner’s assets unless there is also a judgment against the general partner.
A judgment creditor of a general partner may not levy execution against the assets of the general partner to satisfy a judgment based on a claim against the limited partnership, unless the partner is personally liable for the claim under Section 15904.04 and:
a judgment based on the same claim has been obtained against the limited partnership and a writ of execution on the judgment has been returned unsatisfied in whole or in part;
the limited partnership is a debtor in bankruptcy;
the general partner has agreed that the creditor need not exhaust limited partnership assets;
a court grants permission to the judgment creditor to levy execution against the assets of a general partner based on a finding that limited partnership assets subject to execution are clearly insufficient to satisfy the judgment, that exhaustion of limited partnership assets is excessively burdensome, or that the grant of permission is an appropriate exercise of the court’s equitable powers; or
liability is imposed on the general partner by law or contract independent of the existence of the limited partnership.
Each general partner has equal rights in the management and conduct of the limited partnership’s activities. Except as expressly provided in this chapter, any matter relating to the activities of the limited partnership may be exclusively decided by the general partner or, if there is more than one general partner, by a majority of the general partners.
The consent of each partner is necessary to:
amend the partnership agreement; and
sell, lease, exchange, or otherwise dispose of all, or substantially all, of the limited partnership’s property, with or without the good will, other than in the usual and regular course of the limited partnership’s activities.
A limited partnership shall reimburse a general partner for payments made and indemnify a general partner for liabilities incurred by the general partner in the ordinary course of the activities of the partnership or for the preservation of its activities or property.
A limited partnership shall reimburse a general partner for an advance to the limited partnership beyond the amount of capital the general partner agreed to contribute.
A payment or advance made by a general partner which gives rise to an obligation of the limited partnership under subdivision (c) or (d) constitutes a loan to the limited partnership which accrues interest from the date of the payment or advance.
A general partner is not entitled to remuneration for services performed for the partnership.
A general partner, without having any particular purpose for seeking the information, may inspect and copy during regular business hours:
in the limited partnership’s principal office, required information; and
at a reasonable location specified by the limited partnership, any other records maintained by the limited partnership regarding the limited partnership’s activities and financial condition.
Each general partner and the limited partnership shall furnish to a general partner which may be transmitted via electronic transmission:
without demand, any information concerning the limited partnership’s activities and activities reasonably required for the proper exercise of the general partner’s rights and duties under the partnership agreement or this chapter; and
on demand, any other information concerning the limited partnership’s activities, except to the extent the demand or the information demanded is unreasonable or otherwise improper under the circumstances.
Subject to subdivision (e), on 10 days’ demand made in a record received by the limited partnership, a person dissociated as a general partner may have access to the information and records described in subdivision (a) at the location specified in subdivision (a) if:
the person satisfies the requirements imposed on a limited partner by subdivision (b) of Section 15903.04.
The limited partnership shall respond to a demand made pursuant to subdivision (c) in the same manner as provided in subdivision (c) of Section 15903.04.
If a general partner dies, Section 15907.04 applies.
The limited partnership may impose reasonable restrictions on the use of information under this section. In any dispute concerning the reasonableness of a restriction under this subdivision, the limited partnership has the burden of proving reasonableness.
A limited partnership may charge a person dissociated as a general partner that makes a demand under this section reasonable costs of copying, limited to the costs of labor and material.
A general partner or person dissociated as a general partner may exercise the rights under this section through an attorney or other agent. Any restriction imposed under subdivision (f) or by the partnership agreement applies both to the attorney or other agent and to the general partner or person dissociated as a general partner.
The rights under this section do not extend to a person as transferee, but the rights under subdivision (c) of a person dissociated as a general partner may be exercised by the legal representative of an individual who dissociated as a general partner under paragraph (2) or (3) of subdivision (g) of Section 15906.03.
The fiduciary duties that a general partner owes to the limited partnership and the other partners are the duties of loyalty and care under subdivisions (b) and (c).
A general partner’s duty of loyalty to the limited partnership and the other partners is limited to the following:
to account to the limited partnership and hold as trustee for it any property, profit, or benefit derived by the general partner in the conduct and winding up of the limited partnership’s activities or derived from a use by the general partner of limited partnership property, including the appropriation of a limited partnership opportunity;
to refrain from dealing with the limited partnership in the conduct or winding up of the limited partnership’s activities as or on behalf of a party having an interest adverse to the limited partnership; and
to refrain from competing with the limited partnership in the conduct or winding up of the limited partnership’s activities.
A general partner’s duty of care to the limited partnership and the other partners in the conduct and winding up of the limited partnership’s activities is limited to refraining from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law.
A general partner shall discharge the duties to the partnership and the other partners under this chapter or under the partnership agreement and exercise any rights consistently with the obligation of good faith and fair dealing.
A general partner does not violate a duty or obligation under this chapter or under the partnership agreement merely because the general partner’s conduct furthers the general partner’s own interest.
A partnership agreement may provide for the creation of classes of general partners. The partnership agreement shall define the rights, powers, and duties of those classes including rights, powers, and duties senior to other classes of general partners.
The partnership agreement may provide to all or certain specified classes of general partners the right to vote separately or with all or any class of the general partners on any matters.
ARTICLE 5. Contributions and Distributions [15905.01. - 15905.09.]
A contribution of a partner may consist of tangible or intangible property or other benefit to the limited partnership, including money, services performed, promissory notes, other agreements to contribute cash or property, and contracts for services to be performed.
A partner’s obligation to contribute money or other property or other benefit to, or to perform services for, a limited partnership is not excused by the partner’s death, disability, or other inability to perform personally.
If a partner does not make a promised nonmonetary contribution, the partner is obligated at the option of the limited partnership to contribute money equal to the value of that portion, as stated in the required information, of the stated contribution which has not been made.
The obligation of a partner to make a contribution or return money or other property paid or distributed in violation of this chapter may be compromised only by consent of all partners. A creditor of a limited partnership which extends credit or otherwise acts in reliance on an obligation described in subdivision (a), without notice of any compromise under this subdivision, may enforce the original obligation.
A partnership agreement may provide that the interest of a partner who fails to make any contribution or other payment that the partner is required to make will be subject to specific remedies for, or specific consequences of, the failure. A provision shall be enforceable in accordance with its terms unless the partner seeking to invalidate the provision establishes that the provision was unreasonable under the circumstances existing at the time the agreement was made. The specific remedies or consequences may include loss of voting, approval, or other rights, loss of the partner’s ability to actively participate in the management and operations of the partnership, liquidated damages, or a reduction of the defaulting partner’s economic rights. The reduction of the defaulting partner’s economic rights may include one or more of the following provisions:
Diluting, reducing or eliminating the defaulting partner’s proportionate interest in the partnership.
Subordinating the defaulting partner’s interest in the partnership to that of nondefaulting partners.
Permitting a forced sale of the partnership interest.
Permitting the lending or contribution by other partners of the amount necessary to meet the defaulting partner’s commitment.
Adjusting the interest rates or other rates of return, preferred, priority, or otherwise, with respect to contributions by or capital accounts of the other partners.
Fixing the value of the defaulting partner’s interest in the partnership by appraisal, formula and redemption, or sale of the defaulting partner’s interest in the partnership at a percentage of that value.
Nothing in this section shall be construed to affect the rights of third-party creditors of the partnership to seek equitable remedies nor any rights existing under the Uniform Voidable Transactions Act (Chapter 1 (commencing with Section 3439) of Title 2 of Part 2 of Division 4 of the Civil Code).
A distribution by a limited partnership must be shared among the partners on the basis of the value, as stated in the required records when the limited partnership decides to make the distribution, of the contributions the limited partnership has received from each partner.
The profits and losses of a limited partnership shall be allocated among the partners in the manner provided in the partnership agreement. If the partnership agreement does not otherwise provide, profits and losses shall be allocated in the same manner as the partners share distributions.
A partner does not have a right to any distribution before the dissolution and winding up of the limited partnership unless the limited partnership decides to make an interim distribution.
A person does not have a right to receive a distribution on account of dissociation.
A partner does not have a right to demand or receive any distribution from a limited partnership in any form other than cash. Subject to subdivision (b) of Section 15908.09, a limited partnership may distribute an asset in kind to the extent each partner receives a percentage of the asset equal to the partner’s share of distributions.
When a partner or transferee becomes entitled to receive a distribution, the partner or transferee has the status of, and is entitled to all remedies available to, a creditor of the limited partnership with respect to the distribution. However, the limited partnership’s obligation to make a distribution is subject to offset for any amount owed to the limited partnership by the partner or dissociated partner on whose account the distribution is made.
A limited partnership may not make a distribution in violation of the partnership agreement.
A limited partnership may not make a distribution if after the distribution:
the limited partnership would not be able to pay its debts as they become due in the ordinary course of the limited partnership’s activities; or
the limited partnership’s total assets would be less than the sum of its total liabilities plus the amount that would be needed, if the limited partnership were to be dissolved, wound up, and terminated at the time of the distribution, to satisfy the preferential rights upon dissolution, winding up, and termination of partners whose preferential rights are superior to those of persons receiving the distribution.
A limited partnership may base a determination that a distribution is not prohibited under subdivision (b) on financial statements prepared on the basis of accounting practices and principles that are reasonable in the circumstances or on a fair valuation or other method that is reasonable in the circumstances.
Except as otherwise provided in subdivision (g), the effect of a distribution under subdivision (b) is measured:
the distribution is authorized, if the payment occurs within 120 days after that date; or
the payment is made, if payment occurs more than l20 days after the distribution is authorized.
A limited partnership’s indebtedness to a partner incurred by reason of a distribution made in accordance with this section is at parity with the limited partnership’s indebtedness to its general unsecured creditors.
A limited partnership’s indebtedness, including indebtedness issued in connection with or as part of a distribution, is not considered a liability for purposes of subdivision (b) if the terms of the indebtedness provide that payment of principal and interest are made only to the extent that a distribution could then be made to partners under this section.
If indebtedness is issued as a distribution, each payment of principal or interest on the indebtedness is treated as a distribution, the effect of which is measured on the date the payment is made.
A general partner that consents to a distribution made in violation of Section 15905.08 is personally liable to the limited partnership for the amount of the distribution which exceeds the amount that could have been distributed without the violation if it is established that in consenting to the distribution the general partner failed to comply with Section 15904.08.
A partner or transferee that received a distribution knowing that the distribution to that partner or transferee was made in violation of Section 15905.08 is personally liable to the limited partnership but only to the extent that the distribution received by the partner or transferee exceeded the amount that could have been properly paid under Section 15905.08.
A general partner against which an action is commenced under subdivision (a) may:
implead in the action any other person that is liable under subdivision (a) and compel contribution from the person; and
implead in the action any person that received a distribution in violation of subdivision (b) and compel contribution from the person in the amount the person received in violation of subdivision (b).
An action under this section is barred if it is not commenced within four years after the distribution.
ARTICLE 6. Dissociation [15906.01. - 15906.07.]
A person does not have a right to dissociate as a limited partner before the termination of the limited partnership.
A person is dissociated from a limited partnership as a limited partner upon the occurrence of any of the following events:
the limited partnership’s having notice of the person’s express will to withdraw as a limited partner or on a later date specified by the person;
an event agreed to in the partnership agreement as causing the person’s dissociation as a limited partner;
the person’s expulsion as a limited partner pursuant to the partnership agreement;
the person’s expulsion as a limited partner by the unanimous consent of the other partners if:
it is unlawful to carry on the limited partnership’s activities with the person as a limited partner;
there has been a transfer of all of the person’s transferable interest in the limited partnership, other than a transfer for security purposes, or a court order charging the person’s interest, which has not been foreclosed;
the person is a corporation and, within 90 days after the limited partnership notifies the person that it will be expelled as a limited partner because it has filed a certificate of dissolution or the equivalent, its charter has been revoked, or its right to conduct business has been suspended by the jurisdiction of its incorporation, there is no revocation of the certificate of dissolution or no reinstatement of its charter or its right to conduct business; or
the person is a limited liability company or partnership that has been dissolved and whose business is being wound up;
on application by the limited partnership, the person’s expulsion as a limited partner by judicial order because:
the person engaged in wrongful conduct that adversely and materially affected the limited partnership’s activities;
the person willfully or persistently committed a material breach of the partnership agreement or of the obligation of good faith and fair dealing under subdivision (b) of Section 15903.05; or
the person engaged in conduct relating to the limited partnership’s activities which makes it not reasonably practicable to carry on the activities with the person as limited partner;
in the case of a person who is an individual, the person’s death;
in the case of a person that is a trust or is acting as a limited partner by virtue of being a trustee of a trust, distribution of the trust’s entire transferable interest in the limited partnership, but not merely by reason of the substitution of a successor trustee;
in the case of a person that is an estate or is acting as a limited partner by virtue of being a personal representative of an estate, distribution of the estate’s entire transferable interest in the limited partnership, but not merely by reason of the substitution of a successor personal representative;
termination of a limited partner that is not an individual, partnership, limited liability company, corporation, trust, or estate;
the limited partnership’s participation in a conversion or merger under Article 11 (commencing with Section 15911.01), if the limited partnership:
is not the converted or surviving entity; or
is the converted or surviving entity but, as a result of the conversion or merger, the person ceases to be a limited partner.
Upon a person’s dissociation as a limited partner:
subject to Section 15907.04, the person does not have further rights as a limited partner;
the person’s obligation of good faith and fair dealing as a limited partner under subdivision (b) of Section 15903.05 continues only as to matters arising and events occurring before the dissociation; and
A person’s dissociation as a limited partner does not of itself discharge the person from any obligation to the limited partnership or the other partners which the person incurred while a limited partner.
A person is dissociated from a limited partnership as a general partner upon the occurrence of any of the following events:
the limited partnership’s having notice of the person’s express will to withdraw as a general partner or on a later date specified by the person;
an event agreed to in the partnership agreement as causing the persons dissociation as a general partner;
the person’s expulsion as a general partner pursuant to the partnership agreement;
the person’s expulsion as a general partner by the unanimous consent of the other partners if:
it is unlawful to carry on the limited partnership’s activities with the person as a general partner;
there has been a transfer of all or substantially all of the person’s transferable interest in the limited partnership, other than a transfer for security purposes, or a court order charging the person’s interest, which has not been foreclosed;
the person is a corporation and, within 90 days after the limited partnership notifies the person that it will be expelled as a general partner because it has filed a certificate of dissolution or the equivalent, its charter has been revoked, or its right to conduct business has been suspended by the jurisdiction of its incorporation, there is no revocation of the certificate of dissolution or no reinstatement of its charter or its right to conduct business; or
the person is a limited liability company or partnership that has been dissolved and whose business is being wound up;
on application by the limited partnership, the person’s expulsion as a general partner by judicial order because:
the person engaged in wrongful conduct that adversely and materially affected the limited partnership activities;
the person willfully or persistently committed a material breach of the partnership agreement or of a duty owed to the partnership or the other partners under Section 15904.08; or
the person engaged in conduct relating to the limited partnership’s activities which makes it not reasonably practicable to carry on the activities of the limited partnership with the person as a general partner;
the person’s:
becoming a debtor in bankruptcy;
execution of an assignment for the benefit of creditors;
seeking, consenting to, or acquiescing in the appointment of a trustee, receiver, or liquidator of the person or of all or substantially all of the person’s property; or
failure, within 90 days after the appointment, to have vacated or stayed the appointment of a trustee, receiver, or liquidator of the general partner or of all or substantially all of the person’s property obtained without the person’s consent or acquiescence, or failing within 90 days after the expiration of a stay to have the appointment vacated;
in the case of a person who is an individual:
the person’s death;
the appointment of a guardian or general conservator for the person; or
a judicial determination that the person has otherwise become incapable of performing the person’s duties as a general partner under the partnership agreement;
in the case of a person that is a trust or is acting as a general partner by virtue of being a trustee of a trust, distribution of the trust’s entire transferable interest in the limited partnership, but not merely by reason of the substitution of a successor trustee;
in the case of a person that is an estate or is acting as a general partner by virtue of being a personal representative of an estate, distribution of the estate’s entire transferable interest in the limited partnership, but not merely by reason of the substitution of a successor personal representative;
termination of a general partner that is not an individual, partnership, limited liability company, corporation, trust, or estate; or
the limited partnership’s participation in a conversion or merger under Article 11 (commencing with Section 15911.01), if the limited partnership:
is not the converted or surviving entity; or
is the converted or surviving entity but, as a result of the conversion or merger, the person ceases to be a general partner.
A person has the power to dissociate as a general partner at any time, rightfully or wrongfully, by express will pursuant to subdivision (a) of Section 15906.03.
A person’s dissociation as a general partner is wrongful only if:
it is in breach of an express provision of the partnership agreement; or
it occurs before the termination of the limited partnership, and:
the person withdraws as a general partner by express will;
the person is expelled as a general partner by judicial determination under subdivision (e) of Section 15906.03;
the person is dissociated as a general partner by becoming a debtor in bankruptcy; or
in the case of a person that is not an individual, trust other than a business trust, or estate, the person is expelled or otherwise dissociated as a general partner because it willfully dissolved or terminated.
A person that wrongfully dissociates as a general partner is liable to the limited partnership and, subject to Section 15910.01, to the other partners for damages caused by the dissociation. The liability is in addition to any other obligation of the general partner to the limited partnership or to the other partners.
Upon a person’s dissociation as a general partner all of the following apply:
The person’s right to participate as a general partner in the management and conduct of the partnership’s activities terminates.
The person’s duty of loyalty as a general partner under paragraph (3) of subdivision (b) of Section 15904.08 terminates.
The person’s duty of loyalty as a general partner under paragraphs (1) and (2) of subdivision (b) of Section 15904.08 and duty of care under subdivision (c) of Section 15904.08 continue only with regard to matters arising and events occurring before the person’s dissociation as a general partner.
The person may sign and deliver to the Secretary of State on a form prescribed by the Secretary of State for filing, containing the name of the limited partnership and the Secretary of State’s file number of the limited partnership, a certificate of dissociation pertaining to the person and, at the request of the limited partnership, shall sign an amendment to the certificate of limited partnership which states that the person has dissociated.
A person’s dissociation as a general partner does not of itself discharge the person from any obligation to the limited partnership or the other partners which the person incurred while a general partner.
After a person is dissociated as a general partner and before the limited partnership is dissolved, converted under Article 11 (commencing with Section 15911.01), or merged out of existence under that article, the limited partnership is bound by an act of the person only if:
the act would have bound the limited partnership under Section 15904.02 before the dissociation; and
at the time the other party enters into the transaction:
less than two years have passed since the dissociation; and
the other party does not have notice of the dissociation and reasonably believes that the person is a general partner.
If a limited partnership is bound under subdivision (a), the person dissociated as a general partner which caused the limited partnership to be bound is liable:
to the limited partnership for any damage caused to the limited partnership arising from the obligation incurred under subdivision (a); and
if a general partner or another person dissociated as a general partner is liable for the obligation, to the general partner or other person for any damage caused to the general partner or other person arising from the liability.
A person’s dissociation as a general partner does not of itself discharge the person’s liability as a general partner for an obligation of the limited partnership incurred before dissociation. Except as otherwise provided in subdivisions (b) and (c), the person is not liable for a limited partnership’s obligation incurred after dissociation.
A person that has dissociated as a general partner but whose dissociation did not result in a dissolution and winding up of the limited partnership’s activities is liable on a transaction entered into by the limited partnership after the dissociation only if:
a general partner would be liable on the transaction; and
at the time the other party enters into the transaction:
less than two years have passed since the dissociation; and
the other party does not have notice of the dissociation and reasonably believes that the person is a general partner.
By agreement with a creditor of a limited partnership and the limited partnership, a person dissociated as a general partner may be released from liability to the creditor for an obligation of the limited partnership.
A person dissociated as a general partner is released from liability for an obligation of the limited partnership if the limited partnership’s creditor, with notice of the person’s dissociation as a general partner but without the person’s consent, agrees to a material alteration in the nature or time of payment of the obligation.
ARTICLE 7. Transferable Interests and Rights of Transferees and Creditors [15907.01. - 15907.04.]
The only interest of a partner which is transferable is the partner’s transferable interest. A transferable interest is personal property.
A transfer, in whole or in part, of a partner’s transferable interest:
is permissible;
does not by itself cause the partner’s dissociation or a dissolution and winding up of the limited partnership’s activities; and
does not, as against the other partners or the limited partnership, entitle the transferee to participate in the management or conduct of the limited partnership’s activities, to require access to information concerning the limited partnership’s transactions except as otherwise provided in subdivision (c), or to inspect or copy the required information or the limited partnership’s other records or to exercise any other rights or powers of a partner.
A transferee has a right to receive, in accordance with the transfer, distributions to which the transferor would otherwise be entitled.
A transferee is entitled to an account of the limited partnership’s transactions only upon the dissolution and winding up of the limited partnership.
Upon transfer, the transferor retains the rights of a partner other than the interest in distributions transferred and retains all duties and obligations of a partner.
A limited partnership need not give effect to a transferee’s rights under this section until the limited partnership has notice of the transfer.
A transfer of a partner’s transferable interest in the limited partnership in violation of a restriction on transfer contained in the partnership agreement is ineffective as to a person having notice of the restriction at the time of transfer.
A transferee of a partnership interest, including a transferee of a general partner, may become a limited partner if and to the extent that (1) the partnership agreement provides or (2) all general partners and a majority in interest of the limited partners consent.
On application to a court of competent jurisdiction by any judgment creditor of a partner or transferee, the court may charge the transferable interest of the judgment debtor with payment of the unsatisfied amount of the judgment with interest. To the extent so charged, the judgment creditor has only the rights of a transferee. The court may appoint a receiver of the share of the distributions due or to become due to the judgment debtor in respect of the limited partnership and make all other orders, directions, accounts, and inquiries the judgment debtor might have made or which the circumstances of the case may require to give effect to the charging order.
A charging order constitutes a lien on the judgment debtor’s transferable interest. The court may order a foreclosure upon the interest subject to the charging order at any time. The purchaser at the foreclosure sale has the rights of a transferee.
At any time before foreclosure, an interest charged may be redeemed:
by the judgment debtor;
with property other than limited partnership property, by one or more of the other partners; or
with limited partnership property, by the limited partnership with the consent of all partners whose interests are not so charged.
This chapter does not deprive any partner or transferee of the benefit of any exemption laws applicable to the partner’s or transferee’s transferable interest.
This section provides the exclusive remedy by which a judgment creditor of a partner or transferee may satisfy a judgment out of the judgment debtor’s transferable interest.
No creditor of a partner shall have any right to obtain possession or otherwise exercise legal or equitable remedies with respect to the property of the limited partnership.
ARTICLE 8. Dissolution [15908.01. - 15908.09.]
Except as otherwise provided in Section 15908.02, a limited partnership is dissolved, and its activities must be wound up, only upon the occurrence of any of the following:
the happening of an event specified in the partnership agreement;
the consent of all general partners and of limited partners owning a majority of the rights to receive distributions as limited partners at the time the consent is to be effective;
after the dissociation of a person as a general partner:
if the limited partnership has at least one remaining general partner, and a consent to dissolve the limited partnership is given within 90 days after the dissociation by partners owning a majority of the rights to receive distributions as partners at the time the consent is to be effective; or
if the limited partnership does not have a remaining general partner, the passage of 90 days after the dissociation, unless before the end of the period:
consent to continue the activities of the limited partnership and admit at least one general partner is given by limited partners owning a majority of the rights to receive distributions as limited partners at the time the consent is to be effective; and
at least one person is admitted as a general partner in accordance with the consent; or
the passage of 90 days after the dissociation of the limited partnership’s last limited partner, unless before the end of the period the limited partnership admits at least one limited partner.
On application by a partner, a court of competent jurisdiction may order dissolution of a limited partnership if it is not reasonably practicable to carry on the activities of the limited partnership in conformity with the partnership agreement.
In any suit for judicial dissolution, the other partners may avoid the dissolution of the limited partnership by purchasing for cash the partnership interests owned by the partners so initiating the proceeding (the “moving parties”) at their fair market value. In fixing the value, the amount of any damages resulting if the initiation of the dissolution is a breach by any moving party or parties of an agreement with the purchasing party or parties, including, without limitation, the partnership agreement, may be deducted from the amount payable to the moving party or parties.
If the purchasing parties (1) elect to purchase the partnership interests owned by the moving parties, (2) are unable to agree with the moving parties upon the fair market value of the partnership interests, and (3) give bond with sufficient security to pay the estimated reasonable expenses, including attorneys’ fees, of the moving parties if the expenses are recoverable under subdivision (d), the court, upon application of the purchasing parties, either in the pending action or in a proceeding initiated in the superior court of the proper county by the purchasing parties, shall stay the winding up and dissolution proceeding and shall proceed to ascertain and fix the fair market value of the partnership interests owned by the moving parties.
The court shall appoint three disinterested appraisers to appraise the fair market value of the partnership interests owned by the moving parties, and shall make an order referring the matter to the appraisers so appointed for the purpose of ascertaining that value. The order shall prescribe the time and manner of producing evidence, if evidence is required. The award of the appraisers or a majority of them, when confirmed by the court, shall be final and conclusive upon all parties. The court shall enter a decree that shall provide in the alternative for winding up and dissolution of the limited partnership unless payment is made for the partnership interests within the time specified by the decree. If the purchasing parties do not make payment for the partnership interests within the time specified, judgment shall be entered against them and the surety or sureties on the bond for the amount of the expenses, including attorneys’ fees, of the moving parties. Any member aggrieved by the action of the court may appeal therefrom.
If the purchasing parties desire to prevent the winding up and dissolution of the limited partnership, they shall pay to the moving parties the value of their partnership interests ascertained and decreed within the time specified pursuant to this section, or, in the case of an appeal, as fixed on appeal. On receiving that payment or the tender thereof, the moving parties shall transfer their partnership interests to the purchasing parties.
For the purposes of this section, the valuation date shall be the date upon which the action for judicial dissolution was commenced. However, the court may, upon the hearing of a motion by any party, and for good cause shown, designate some other date as the valuation date.
A limited partnership continues after dissolution only for the purpose of winding up its activities.
In winding up its activities, the limited partnership:
may amend its certificate of limited partnership to state that the limited partnership is dissolved, preserve the limited partnership business or property as a going concern for a reasonable time, prosecute and defend actions and proceedings, whether civil, criminal, or administrative, transfer the limited partnership’s property, settle disputes by mediation or arbitration, file a certificate of cancellation as provided in Section 15902.03, and perform other necessary acts; and
shall discharge the limited partnership’s liabilities, settle and close the limited partnership’s activities, and marshal and distribute the assets of the partnership.
If a dissolved limited partnership does not have a general partner, a person to wind up the dissolved limited partnership’s activities may be appointed by the consent of limited partners owning a majority of the rights to receive distributions as limited partners at the time the consent is to be effective. A person appointed under this subdivision:
that the limited partnership does not have a general partner;
the name of the person that has been appointed to wind up the limited partnership; and
the address of the person.
On the application of any partner, the appropriate court may order judicial supervision of the winding up, including the appointment of a person to wind up the dissolved limited partnership’s activities, if:
Unless otherwise provided in the partnership agreement, the limited partners winding up the affairs of the partnership pursuant to this section shall be entitled to reasonable compensation.
A limited partnership is bound by a general partner’s act after dissolution which:
is appropriate for winding up the limited partnership’s activities; or
would have bound the limited partnership under Section 15904.02 before dissolution, if, at the time the other party enters into the transaction, the other party does not have notice of the dissolution.
A person dissociated as a general partner binds a limited partnership through an act occurring after dissolution if:
at the time the other party enters into the transaction:
less than two years have passed since the dissociation; and
the other party does not have notice of the dissociation and reasonably believes that the person is a general partner; and
the act:
is appropriate for winding up the limited partnership’s activities; or
would have bound the limited partnership under Section 15904.02 before dissolution and at the time the other party enters into the transaction the other party does not have notice of the dissolution.
If a general partner having knowledge of the dissolution causes a limited partnership to incur an obligation under subdivision (a) of Section 15908.04 by an act that is not appropriate for winding up the partnership’s activities, the general partner is liable:
to the limited partnership for any damage caused to the limited partnership arising from the obligation; and
if another general partner or a person dissociated as a general partner is liable for the obligation, to that other general partner or person for any damage caused to that other general partner or person arising from the liability.
If a person dissociated as a general partner causes a limited partnership to incur an obligation under subdivision (b) of Section 15908.04, the person is liable:
to the limited partnership for any damage caused to the limited partnership arising from the obligation; and
if a general partner or another person dissociated as a general partner is liable for the obligation, to the general partner or other person for any damage caused to the general partner or other person arising from the liability.
A dissolved limited partnership may dispose of the known claims against it by following the procedure described in subdivision (b).
A dissolved limited partnership may notify its known claimants of the dissolution in a record. The notice must:
specify the information required to be included in a claim;
provide a mailing address to which the claim is to be sent;
state the deadline for receipt of the claim, which may not be less than 120 days after the date the notice is received by the claimant; and
state that the claim will be barred if not received by the deadline.
A claim against a dissolved limited partnership is barred if the requirements of subdivision (b) are met and:
This section does not apply to a claim based on an event occurring after the effective date of dissolution or a liability that is contingent on that date.
A dissolved limited partnership may publish notice of its dissolution and request persons having claims against the limited partnership to present them in accordance with the notice.
The notice must:
be published at least once in a newspaper of general circulation in the county in which the dissolved limited partnership’s principal office is located or, if it has none in this state, in the county in which the limited partnership’s principal office is or was last located;
describe the information required to be contained in a claim and provide a mailing address to which the claim is to be sent; and
state that a claim against the limited partnership is barred unless an action to enforce the claim is commenced within four years after publication of the notice.
If a dissolved limited partnership publishes a notice in accordance with subdivision (b), the claim of each of the following claimants is barred unless the claimant commences an action to enforce the claim against the dissolved limited partnership within four years after the publication date of the notice:
A claim not barred under this section may be enforced:
Publication of a notice of dissolution of a limited partnership pursuant to this section shall not bar the collection of any tax, interest, penalty or addition to tax under Part 10 (commencing with Section 17001) of, Part 10.20 (commencing with Section 18401) of, and Part 11 (commencing with Section 23001) of, Division 2 of the Revenue and Taxation Code.
In winding up a limited partnership’s activities, the assets of the limited partnership, including the contributions required by this section, must be applied to satisfy the limited partnership’s obligations to creditors, including, to the extent permitted by law, partners that are creditors.
Any surplus remaining after the limited partnership complies with subdivision (a) must be returned to the partners as they share in distributions.
If a limited partnership’s assets are insufficient to satisfy all of its obligations under subdivision (a) the following rules apply:
Each person that was a general partner when the obligation was incurred and that has not been released from the obligation under Section 15906.07 shall contribute to the limited partnership for the purpose of enabling the limited partnership to satisfy the obligation. The contribution due from each of those persons is in proportion to the right to receive distributions in the capacity of general partner in effect for each of those persons when the obligation was incurred.
If a person does not contribute the full amount required under paragraph (1) with respect to an unsatisfied obligation of the limited partnership, the other persons required to contribute by paragraph (1) on account of the obligation shall contribute the additional amount necessary to discharge the obligation. The additional contribution due from each of those other persons is in proportion to the right to receive distributions in the capacity of general partner in effect for each of those other persons when the obligation was incurred.
If a person does not make the additional contribution required by paragraph (2), further additional contributions are determined and due in the same manner as provided in that paragraph.
A person that makes an additional contribution under paragraph (2) or (3) of subdivision (c) may recover from any person whose failure to contribute under paragraph (1) or (2) of subdivision (c) necessitated the additional contribution. A person may not recover under this subdivision more than the amount additionally contributed. A person’s liability under this subdivision may not exceed the amount the person failed to contribute.
The estate of a deceased individual is liable for the person’s obligations under this section.
An assignee for the benefit of creditors of a limited partnership or a partner, or a person appointed by a court to represent creditors of a limited partnership or a partner, may enforce a person’s obligation to contribute under subdivision (c).
ARTICLE 9. Foreign Limited Partnership [15909.01. - 15909.08.]
The laws of the state or other jurisdiction under which a foreign limited partnership is organized govern relations among the partners of the foreign limited partnership and between the partners and the foreign limited partnership and the liability of partners as partners for an obligation of the foreign limited partnership, except as to foreign limited liability limited partnerships, which shall be treated as if they were foreign limited partnerships.
A foreign limited partnership may not be denied a certificate of registration by reason of any difference between the laws of the jurisdiction under which the foreign limited partnership is organized and the laws of this state.
A certificate of registration does not authorize a foreign limited partnership to engage in any business or exercise any power that a limited partnership may not engage in or exercise in this state.
A foreign limited partnership may apply for a certificate of registration to transact business in this state by delivering an application signed and acknowledged by a general partner of the foreign limited partnership to, and on a form prescribed by, the Secretary of State for filing. The application shall state all of the following:
The name of the state or other jurisdiction under whose law the foreign limited partnership is organized and a statement that the foreign limited partnership is authorized to exercise its powers and privileges in that state or jurisdiction.
The street address of the foreign limited partnership’s principal office and, if the laws of the jurisdiction under which the foreign limited partnership is organized require the foreign limited partnership to maintain an office in that jurisdiction, the address of the required office.
The mailing address of the foreign limited partnership’s principal office, if different from the street address.
The name and street address of the foreign limited partnership’s initial agent for service of process in this state in accordance with paragraph (1) of subdivision (d) of Section 15901.16.
The name and address of each of the foreign limited partnership’s general partners.
Whether the foreign limited partnership is a foreign limited liability limited partnership.
A foreign limited partnership shall deliver with the completed application a certificate of existence or a record of similar import issued within the past six months from the submission of the application for filing in California signed by the Secretary of State or other official having custody of the foreign limited partnership’s publicly filed records in the state or other jurisdiction under whose law the foreign limited partnership is organized.
Activities of a foreign limited partnership that do not constitute transacting business in this state for registration purposes within the meaning of this article include the activities set forth in subdivision (ai) of Section 15901.02.
For purposes of this article, the ownership in this state of income-producing real property or tangible personal property, other than property excluded under subdivision (a), constitutes transacting business in this state.
This section does not apply in determining the contacts or activities that may subject a foreign limited partnership to service of process, taxation jurisdiction, or regulation under any other law of this state.
Unless the Secretary of State determines that an application for a certificate of registration does not comply with the filing requirements of this chapter, the Secretary of State, upon payment of all requisite fees, shall file the application and shall issue to the foreign limited partnership a certificate of registration stating the date of filing of the application and that the foreign limited partnership is qualified to transact intrastate business, subject, however, to any licensing requirements otherwise imposed by the laws of this state.
A foreign limited partnership whose name does not comply with Section 15901.08 may not obtain a certificate of registration until it adopts, for the purpose of transacting business in this state, an alternate name that complies with Section 15901.08.
If a foreign limited partnership authorized to transact business in this state changes its name to one that does not comply with Section 15901.08, it may not thereafter transact business in this state until it complies with subdivision (a) and obtains an amended certificate of registration.
The Secretary of State may cancel the application and certificate of registration of a foreign limited partnership if a check or other remittance accepted in payment of the filing fee is not paid upon presentation. Within 90 days of receiving written notification that the item presented for payment has not been honored for payment, the Secretary of State shall give a first written notice of the applicability of this section to the agent for service of process or to the person submitting the instrument. Thereafter, if the amount has not been paid by cashier’s check or equivalent, the Secretary of State shall give a second written notice of cancellation and the cancellation shall thereupon be effective. The second notice shall be given 20 days or more after the first notice.
If any statement in the application for registration of a foreign limited partnership was false when made or any statements made have become erroneous, the foreign limited partnership shall promptly deliver to, and on a form prescribed by, the Secretary of State an amendment to the application for registration containing the name of the foreign limited partnership and the Secretary of State’s file number of the foreign limited partnership signed and acknowledged by the general partner amending the statement. If a foreign limited partnership delivers an amendment changing the name of the foreign limited partnership in its jurisdiction of organization, annexed to the amendment to the application for registration shall be a certificate issued within the past six months from the submission of the amendment for filing in California from an authorized public official of the foreign limited partnership’s jurisdiction of organization to the effect that the foreign limited partnership is in good standing and that the change of name was made in accordance with the laws of that jurisdiction, if the laws of that jurisdiction permit the issuance of those certificates, or, in the alternative, a statement by the foreign limited partnership issued within the past six months from the submission of the amendment for filing in California that the laws of its jurisdiction of organization do not permit the issuance of those certificates. Unless the Secretary of State determines that the amendment to the application changing the name or alternate name of a foreign limited partnership does not comply with the filing requirements of this chapter, the Secretary of State, upon payment of all requisite fees, shall file the amended application and shall issue to the foreign limited partnership a new certificate of registration stating the date of filing of the amendment to the application changing the name and that the foreign limited partnership is qualified to transact intrastate business, subject to any licensing requirements otherwise imposed by the laws of this state.
In order to cancel its certificate of registration to transact business in this state, a foreign limited partnership must deliver to and on a form prescribed by the Secretary of State for filing a certificate of cancellation containing the name of the foreign limited partnership and the Secretary of State’s file number of the foreign limited partnership signed and acknowledged by a general partner of the foreign limited partnership. The registration is canceled when the certificate becomes effective under Section 15902.06.
A foreign limited partnership transacting business in this state may not maintain an action or proceeding in this state unless it has a certificate of registration to transact business in this state.
Any foreign limited partnership that transacts intrastate business in this state without registration is subject to a penalty of twenty dollars ($20) for each day that the unauthorized intrastate business is transacted, up to a maximum of ten thousand dollars ($10,000). An action to recover this penalty may be brought, and any recovery shall be paid, as provided in Section 2258.
The failure of a foreign limited partnership to have a certificate of registration to transact business in this state does not impair the validity of a contract or act of the foreign limited partnership or prevent the foreign limited partnership from defending an action or proceeding in this state.
A partner of a foreign limited partnership is not liable for the obligations of the foreign limited partnership solely by reason of the foreign limited partnership’s having transacted business in this state without a certificate of registration.
If a foreign limited partnership transacts business in this state without a certificate of registration or cancels its certificate of registration, it appoints the Secretary of State as its agent for service of process for rights of action arising out of the transaction of business in this state.
The Attorney General may maintain an action to restrain a foreign limited partnership from transacting business in this state in violation of this article.
ARTICLE 10. Actions by Partners [15910.01. - 15910.06.]
Subject to subdivision (b), a partner may maintain a direct action against the limited partnership or another partner for legal or equitable relief, with or without an accounting as to the partnership’s activities, to enforce the rights and otherwise protect the interests of the partner, including rights and interests under the partnership agreement or this chapter or arising independently of the partnership relationship.
A partner bringing a direct action under this section is required to plead and prove an actual or threatened injury that is not solely the result of an injury suffered or threatened to be suffered by the limited partnership.
The accrual of, and any time limitation on, a right of action for a remedy under this section is governed by other law. A right to an accounting upon a dissolution and winding up does not revive a claim barred by law.
A partner may bring a derivative action to enforce a right of a limited partnership if:
the partner first makes a demand on the general partners, requesting that they cause the limited partnership to bring an action to enforce the right, and the general partners do not bring the action within a reasonable time; or
a demand would be futile.
A derivative action may be maintained only by a person that is a partner at the time the action is commenced and:
that was a partner when the conduct giving rise to action occurred; or
whose status as a partner devolved upon the person by operation of law or pursuant to the terms of the partnership agreement from a person that was a partner at the time of that conduct.
Notwithstanding the foregoing, any partner who does not meet the foregoing requirements may nevertheless be allowed in the discretion of the court to maintain the action on a preliminary showing to and determination by the court, by motion and after a hearing, at which the court shall consider such evidence, by affidavit or testimony, as it deems material that (1) there is a strong prima facie case in favor of the claim asserted on behalf of the partnership, (2) no other similar action has been or is likely to be instituted, (3) the plaintiff acquired the shares before there was disclosure to the public and to the plaintiff of the wrongdoing of which plaintiff complains, (4) unless the action can be maintained the defendant may retain a gain derived from the defendant’s willful breach of a fiduciary duty, and (5) the requested relief will not result in unjust enrichment of the partnership or any partner.
In a derivative action, the complaint must state with particularity:
the date and content of plaintiff’s demand and the general partners’ response to the demand; or
why demand is excused as futile.
Except as otherwise provided in subdivision (b):
any proceeds or other benefits of a derivative action, whether by judgment, compromise, or settlement, belong to the limited partnership and not to the derivative plaintiff;
if the derivative plaintiff receives any of those proceeds, the derivative plaintiff shall immediately remit them to the limited partnership.
If a derivative action is successful in whole or in part, the court may award the plaintiff reasonable expenses, including reasonable attorney’s fees, from the recovery of the limited partnership.
In any derivative action, at any time within 30 days after service of summons upon the limited partnership or the general partner, the limited partnership or general partner may move the court for an order, upon notice and hearing, requiring the plaintiff to furnish a bond as hereinafter provided. The motion shall be based upon one or both of the following grounds:
That there is no reasonable possibility that the prosecution of the cause of action alleged in the complaint against the moving party will benefit the limited partnership or its partners.
That the moving party, if other than the partnership, did not participate in the transaction complained of in any capacity. The court on application of the limited partnership or the general partner may, for good cause shown, extend the 30-day period for an additional period or periods not exceeding 60 days.
At the hearing upon any motion pursuant to subdivision (a) the court shall consider such evidence, written or oral, by witnesses or affidavit, as may be material (1) to the ground or grounds upon which the motion is based, or (2) to a determination of the probable reasonable expenses, including attorneys’ fees, of the limited partnership and the general partner which will be incurred in defense of the action. If the court determines, after hearing the evidence adduced by the parties, that the moving party has established a probability in support of any of the grounds upon which the motion is based, the court shall fix the amount of the bond, not to exceed fifty thousand dollars ($50,000), to be furnished by the plaintiff for reasonable expenses, including attorneys fees, which may be incurred by the moving party and the limited partnership in connection with the action, including expenses for which the limited partnership may become liable pursuant to subdivision (c) of Section 15904.06. A ruling by the court on the motion shall not be a determination of any issue in the action or of the merits thereof. If the court, upon motion, makes a determination that a bond shall be furnished by the plaintiff as to any one or more defendants, the action shall be dismissed as to the defendant or defendants, unless the bond required by the court has been furnished within such reasonable time as may be fixed by the court.
If the plaintiff shall, either before or after a motion is made pursuant to subdivision (a), or any order or determination pursuant to the motion, furnish a bond in the aggregate amount of fifty thousand dollars ($50,000) to secure the reasonable expenses of the parties entitled to make the motion, the plaintiff has complied with the requirements of this section and with any order for a bond theretofore made, any such motion then pending shall be dismissed and no further additional bond shall be required.
If a motion is filed pursuant to subdivision (a), no pleadings need to be filed by the limited partnership or any other defendant and the prosecution of the action shall be stayed until 10 days after the motion has been disposed of.
ARTICLE 11. Conversion and Merger [15911.01. - 15911.19.]
For purposes of this article, the following definitions apply:
“Converted entity” means the other business entity or foreign other business entity or foreign limited partnership that results from a conversion of a domestic limited partnership under this chapter.
“Converted limited partnership” means a domestic limited partnership that results from a conversion of an other business entity or a foreign other business entity or a foreign limited partnership pursuant to Section 15911.08.
“Converting limited partnership” means a domestic limited partnership that converts to an other business entity or a foreign other business entity or a foreign limited partnership pursuant to this chapter.
“Converting entity” means an other business entity or a foreign other business entity or a foreign limited partnership that converts to a domestic limited partnership pursuant to the terms of Section 15911.08.
“Constituent corporation” means a corporation that is merged with or into one or more limited partnerships or other business entities, and that includes a surviving corporation.
“Constituent limited partnership” means a limited partnership that is merged with or into one or more other limited partnerships or other business entities, and that includes a surviving limited partnership.
“Constituent other business entity” means an other business entity that is merged with or into one or more limited partnerships, and that includes a surviving other business entity.
“Disappearing limited partnership” means a constituent limited partnership that is not the surviving limited partnership.
“Disappearing other business entity” means a constituent other business entity that is not the surviving other business entity.
“Foreign other business entity” means an other business entity formed under the laws of any state other than this state or under the laws of a foreign country.
“Other business entity” means a corporation, general partnership, limited liability company, business trust, real estate investment trust, or unincorporated association, other than a nonprofit association, but excludes a limited partnership.
“Surviving limited partnership” means a limited partnership into which one or more other limited partnerships or other business entities are merged.
“Surviving other business entity” means another business entity into which one or more limited partnerships are merged.
A limited partnership may be converted into another business entity or a foreign other business entity or a foreign limited partnership pursuant to this article if both of the following apply:
Pursuant to a conversion into a domestic or foreign partnership or limited liability company or into a foreign limited partnership, each of the partners of the converting limited partnership receives a percentage interest in the profits and capital of the converted entity equal to that partner’s percentage interest in profits and capital of the converting limited partnership as of the effective time of the conversion.
Pursuant to a conversion into an other business entity or foreign other business entity not specified in paragraph (1), both of the following occur:
Each limited partnership interest of the same class is treated equally with respect to any distribution of cash, property, rights, interests, or securities of the converted entity, unless all limited partners of the class consent.
The nonredeemable limited partnership interests of the converting limited partnership are converted only into nonredeemable interests or securities of the converted entity, unless all holders of the unredeemable interests consent.
The conversion of a limited partnership to an other business entity or a foreign other business entity or a foreign limited partnership may be effected only if both of the following conditions are satisfied:
The law under which the converted entity will exist expressly permits the formation of that entity pursuant to a conversion.
The limited partnership complies with all other requirements of any other law that applies to conversion to the converted entity.
A limited partnership that desires to convert to an other business entity or a foreign other business entity or a foreign limited partnership shall approve a plan of conversion. The plan of conversion shall state all of the following:
The terms and conditions of the conversion.
The place of the organization of the converted entity and of the converting limited partnership and the name of the converted entity after conversion.
The manner of converting the limited and general partnership interests of each of the partners into shares of, securities of, or interests in, the converted entity.
The provisions of the governing documents for the converted entity, including the partnership agreement, limited liability company articles of organization and operating agreement, or articles or certificate of incorporation if the converted entity is a corporation, to which the holders of interests in the converted entity are to be bound.
Any other details or provisions that are required by the laws under which the converted entity is organized, or that are desired by the parties.
The plan of conversion shall be approved by all general partners of the converting limited partnership and by a majority in interest of each class of limited partners of the converting limited partnership, unless a greater or lesser approval is required by the partnership agreement of the converting limited partnership. However, if the limited partners of the limited partnership would become personally liable for any obligations of the converted entity as a result of the conversion, the plan of conversion shall be approved by all of the limited partners of the converting limited partnership, unless the plan of conversion provides that all limited partners will have dissenters’ rights as provided in Article 11.5 (commencing with Section 15911.20).
Upon the effectiveness of the conversion, all partners of the converting limited partnership, except those that exercise dissenters’ rights as provided in Article 11.5 (commencing with Section 15911.20), shall be deemed parties to any governing documents for the converted entity adopted as part of the plan of conversion, irrespective of whether or not the partner has executed the plan of conversion or the governing documents for the converted entity. Any adoption of governing documents made pursuant thereto shall be effective at the effective time or date of the conversion.
Notwithstanding its prior approval, a plan of conversion may be amended before the conversion takes effect if the amendment is approved by all general partners of the converting limited partnership and, if the amendment changes any of the principal terms of the plan of conversion, the amendment is approved by the limited partners of the converting limited partnership in the same manner and to the same extent as required for the approval of the original plan of conversion.
The general partners of a converting limited partnership may, by unanimous approval at any time before the conversion is effective, in their discretion, abandon a conversion, without further approval by the limited partners, subject to the contractual rights of third parties other than limited partners.
The converted entity shall keep the plan of conversion at the principal office of the converted entity if the converted entity is a domestic partnership or foreign other business entity, at the principal office of, or registrar or transfer agent of, the converted entity, if the converted entity is a domestic corporation, or at the office at which records are to be kept under Section 17701.13 if the converted entity is a domestic limited liability company. Upon the request of a partner of a converting limited partnership, the authorized person on behalf of the converted entity shall promptly deliver to the partner or the holder of shares, interests, or other securities, at the expense of the converted entity, a copy of the plan of conversion. A waiver by a partner of the rights provided in this subdivision shall be unenforceable.
A conversion into an other business entity or a foreign other business entity or a foreign limited partnership shall become effective upon the earliest date that all of the following occur:
The plan of conversion is approved by the partners of the converting limited partnership, as provided in Section 15911.03.
All documents required by law to create the converted entity are filed, which documents shall also contain a statement of conversion if required under Section 15911.06.
The effective date, if set forth in the plan of conversion, occurs.
A copy of the statement of partnership authority or articles of organization complying with Section 15911.06, if applicable, duly certified by the Secretary of State, is conclusive evidence of the conversion of the limited partnership.
The conversion of a limited partnership into a foreign limited partnership or foreign other business entity shall be required to comply with Section 15911.02.
If the limited partnership is converting into a foreign limited partnership or foreign other business entity, those conversion proceedings shall be in accordance with the laws of the state or place of organization of the foreign limited partnership or foreign other business entity and the conversion shall become effective in accordance with that law.
To enforce an obligation of a limited partnership that has converted to a foreign limited partnership or foreign other business entity, the Secretary of State shall only be the agent for service of process in an action or proceeding against that converted foreign entity if the agent designated for the service of process for that entity is a natural person and cannot be found with due diligence or if the agent is a corporation and no person to whom delivery may be made may be located with due diligence, or if no agent has been designated and if no one of the officers, partners, managers, members, or agents of that entity may be located after diligent search and it is so shown by affidavit to the satisfaction of the court. The court then may make an order that service be made by personal delivery to the Secretary of State or to an assistant or deputy Secretary of State of two copies of the process together with two copies of the order, and the order shall set forth an address to which the process shall be sent by the Secretary of State. Service in this manner is deemed complete on the 10th day after delivery of the process to the Secretary of State.
Upon receipt of the process and order and the fee set forth in Section 12206 of the Government Code, the Secretary of State shall provide notice to that entity of the service of the process by forwarding by certified mail, return receipt requested, a copy of the process and order to the address specified in the order.
The Secretary of State shall keep a record of all process served upon the Secretary of State and shall record therein the time of service and the Secretary of State’s action with respect thereto. The certificate of the Secretary of State, under the Secretary of State’s official seal, certifying to the receipt of process, the providing of notice thereof to that entity, and the forwarding of the process shall be competent and prima facie evidence of the matters stated therein.
Upon conversion of a limited partnership, one of the following applies:
If the limited partnership is converting into a domestic limited liability company, a statement of conversion shall be completed on the articles of organization for the converted entity and shall be filed with the Secretary of State.
If the limited partnership is converting into a domestic partnership, a statement of conversion shall be completed on the statement of partnership authority for the converted entity. If no statement of partnership authority is filed, a certificate of conversion shall be filed separately with the Secretary of State.
If the limited partnership is converting into a domestic corporation, a statement of conversion shall be completed on the articles of incorporation for the converted entity and shall be filed with the Secretary of State.
If the limited partnership is converting to a foreign limited partnership or foreign other business entity, a certificate of conversion shall be filed with the Secretary of State.
Any certificate or statement of conversion shall be executed and acknowledged by all general partners and shall set forth all of the following:
The name of the converting limited partnership and the Secretary of State’s file number of the converting limited partnership.
A statement that the principal terms of the plan of conversion were approved by a vote of the partners, that equaled or exceeded the vote required under Section 15911.03, specifying each class entitled to vote and the percentage vote required of each class.
The form of organization of the converted entity.
The name, mailing address, and street address of the converted entity’s agent for service of process and the mailing address of the principal office of the converted entity. If a corporation qualified under Section 1505 is designated as the agent, no address for it shall be set forth.
The filing with the Secretary of State of a certificate of conversion or a statement of partnership authority, articles of organization, or articles of incorporation containing a statement of conversion as set forth in subdivision (a) shall have the effect of the filing of a certificate of cancellation by the converting limited partnership, and no converting limited partnership that has made the filing is required to file a certificate of cancellation under Section 15902.03 as a result of that conversion.
Whenever a limited partnership or other business entity having any real property in this state converts into a limited partnership or an other business entity pursuant to the laws of this state or of the state or place in which the limited partnership or other business entity was organized, and the laws of the state or place of organization, including this state, of the converting limited partnership or other converting entity provide substantially that the conversion vests in the converted limited partnership or other converted entity all the real property of the converting limited partnership or other converting entity, the filing for record in the office of the county recorder of any county in this state in which any of the real property of the converting limited partnership or other converting entity is located of either of the following shall evidence record ownership in the converted limited partnership or other converted entity of all interest of the converting limited partnership or other converting entity in and to the real property located in that county:
A certificate of conversion or statement of partnership authority, a certificate of limited partnership, articles of incorporation, or articles of organization complying with Section 15911.06, in the form prescribed and certified by the Secretary of State.
A copy of a certificate of conversion or a statement of partnership authority, certificate of limited partnership, articles of organization, articles of incorporation, or other certificate or document evidencing the creation of a foreign other business entity or foreign limited partnership by conversion, containing a statement of conversion, certified by the Secretary of State or an authorized public official of the state or place pursuant to the laws of which the conversion is effected.
A filed and, if appropriate, recorded certificate of conversion or a statement of partnership authority, certificate of limited partnership, articles of organization, articles or certificate of incorporation, or other certificate evidencing the creation of a foreign other business entity or foreign limited partnership by conversion, containing a statement of conversion, filed pursuant to subdivision (a) of Section 15911.06, stating the name of the converting limited partnership or other converting entity in whose name property was held before the conversion and the name of the converted entity or converted limited partnership, but not containing all of the other information required by Section 15911.06, operates with respect to the entities named to the extent provided in subdivision (a).
Recording of a certificate of conversion, or a statement of partnership authority, certificate of limited partnership, articles of organization, articles of incorporation, or other certificate evidencing the creation of another business entity or a limited partnership by conversion, containing a statement of conversion, in accordance with subdivision (a), shall create, in favor of bona fide purchasers or encumbrances for value, a conclusive presumption that the conversion was validly completed.
An other business entity or a foreign other business entity or a foreign limited partnership may be converted to a domestic limited partnership pursuant to this article only if the converting entity is authorized by the laws under which it is organized to effect the conversion.
An other business entity or a foreign other business entity or a foreign limited partnership that desires to convert into a domestic limited partnership shall approve a plan of conversion or another instrument as is required to be approved to effect the conversion pursuant to the laws under which that entity is organized.
The conversion of an other business entity or a foreign other business entity or a foreign limited partnership into a domestic limited partnership shall be approved by the number or percentage of the partners, members, shareholders, or holders of interest of the converting entity as is required by the laws under which that entity is organized, or a greater or lesser percentage, subject to applicable laws, as set forth in the converting entity’s partnership agreement, articles of organization, operating agreement, articles or certificate of incorporation, or other governing document.
The conversion by an other business entity or a foreign other business entity or a foreign limited partnership into a domestic limited partnership shall be effective under this article at the time the conversion is effective under the laws under which the converting entity is organized, as long as a certificate of limited partnership containing a statement of conversion has been filed with the Secretary of State. If the converting entity’s governing law is silent as to the effectiveness of the conversion, the conversion shall be effective upon the completion of all acts required under this title to form a limited partnership.
The filing with the Secretary of State of a certificate of conversion or a certificate of limited partnership containing a statement of conversion pursuant to subdivision (a) shall have the effect of the filing of a certificate of cancellation by the converting foreign limited partnership or foreign limited liability company and no converting foreign limited partnership or foreign limited liability company that has made the filing is required to file a certificate of cancellation under Section 15902.03 or 17708.08 as a result of that conversion. If a converting other business entity is a foreign corporation qualified to transact business in this state, the foreign corporation shall, by virtue of the filing, automatically surrender its right to transact intrastate business.
An entity that converts into another entity pursuant to this article is, for all purposes, other than for the purposes of Part 10 (commencing with Section 17001) of, Part 10.20 (commencing with Section 18401) of, and Part 11 (commencing with Section 23001) of, Division 2 of the Revenue and Taxation Code, the same entity that existed before the conversion and the conversion shall not be deemed a transfer of property.
Upon a conversion taking effect, all of the following apply:
All the rights and property, whether real, personal, or mixed, of the converting entity or converting limited partnership are vested in the converted entity or converted limited partnership.
All debts, liabilities, and obligations of the converting entity or converting limited partnership continue as debts, liabilities, and obligations of the converted entity or converted limited partnership.
All rights of creditors and liens upon the property of the converting entity or converting limited partnership shall be preserved unimpaired and remain enforceable against the converted entity or converted limited partnership to the same extent as against the converting entity or converting limited partnership as if the conversion had not occurred.
Any action or proceeding pending by or against the converting entity or converting limited partnership may be continued against the converted entity or converted limited partnership as if the conversion had not occurred.
A partner of a converting limited partnership is liable for the following:
A partner of a converted limited partnership remains liable for any and all obligations of the converting entity for which the partner was personally liable before the conversion, but only to the extent that the partner was liable for the obligations of the converting entity prior to the conversion.
If the other party to a transaction with the limited partnership reasonably believes when entering the transaction that the limited partner is a general partner, the limited partner is liable for an obligation incurred by the limited partnership within 90 days after the conversion takes effect. The limited partner’s liability for all other obligations of the limited partnership incurred after the conversion takes effect is that of a limited partner.
The following entities may be merged pursuant to this article:
Two or more limited partnerships into one limited partnership.
One or more limited partnerships and one or more other business entities into one of those other business entities.
One or more limited partnerships and one or more other business entities into one limited partnership. Notwithstanding this section, the merger of any number of limited partnerships with any number of other business entities may be effected only if the other business entities that are organized in California are authorized by the laws under which they are organized to effect the merger, and (1) if a limited partnership is the surviving limited partnership, the foreign other business entities are not prohibited by the laws under which they are organized from effecting that merger, and (2) if a foreign limited partnership or foreign other business entity is the survivor of the merger, the laws of the jurisdiction under which the survivor is organized authorize that merger. Notwithstanding the first sentence of this paragraph, if one or more domestic corporations is also a party to the merger described in that sentence, the merger may be effected only if, with respect to any foreign other business entity that is a corporation, the foreign corporation is authorized by the laws under which it is organized to effect that merger.
Each limited partnership and other business entity that desires to merge shall approve an agreement of merger. The agreement of merger shall be approved by all general partners of each constituent limited partnership and the principal terms of the merger shall be approved by a majority in interest of each class of limited partners of each constituent limited partnership, unless a greater approval is required by the partnership agreement of the constituent limited partnership. Notwithstanding the previous sentence, if the limited partners of any constituent limited partnership become personally liable for any obligations of a constituent limited partnership or constituent other business entity as a result of the merger, the principal terms of the agreement of merger shall be approved by all of the limited partners of the constituent limited partnership, unless the agreement of merger provides that all limited partners will have the dissenters’ rights provided in Article 11.5 (commencing with Section 15911.20). The agreement of merger shall be approved on behalf of each constituent other business entity by those persons required to approve the merger by the laws under which it is organized. Other persons, including a parent of a constituent limited partnership, may be parties to the agreement of merger. The agreement of merger shall state:
The terms and conditions of the merger.
The name and place of organization of the surviving limited partnership or surviving other business entity, and of each disappearing limited partnership and disappearing other business entity, and the agreement of merger may change the name of the surviving limited partnership, which new name may be the same as or similar to the name of a disappearing domestic or foreign limited partnership, subject to Section 15901.08.
The manner of converting the partnership interests of each of the constituent limited partnerships into interests, shares, or other securities of the surviving limited partnership or surviving other business entity, and if partnership interests of any of the constituent limited partnerships are not to be converted solely into interests, shares, or other securities of the surviving limited partnership or surviving other business entity, the cash, property, rights, interests, or securities that the holders of the partnership interests are to receive in exchange for the partnership interests, which cash, property, rights, interests, or securities may be in addition to or in lieu of interests, shares, or other securities of the surviving limited partnership or surviving other business entity, or that the partnership interests are canceled without consideration.
Any other details or provisions that are required by the laws under which any constituent other business entity is organized, including, if a domestic corporation is a party to the merger, subdivision (b) of Section 1113.
Any other details or provisions that are desired, including, without limitation, a provision for the treatment of fractional partnership interests.
Each limited partnership interest of the same class of any constituent limited partnership, other than a limited partnership interest in another constituent limited partnership that is being canceled and that is held by a constituent limited partnership or its parent or a limited partnership of which the constituent limited partnership is a parent, shall, unless all limited partners of the class consent, be treated equally with respect to any distribution of cash, property, rights, interests, or securities. Notwithstanding this subdivision, except in a merger of a limited partnership with a limited partnership in which it controls at least 90 percent of the limited partnership interests entitled to vote with respect to the merger, the unredeemable limited partnership interests of a constituent limited partnership may be converted only into unredeemable interests or securities of the surviving limited partnership or other business entity or a parent if a constituent limited partnership or a constituent other business entity or its parent owns, directly or indirectly, prior to the merger, limited partnership interests of another constituent limited partnership or interests or securities of a constituent other business entity representing more than 50 percent of the interests or securities entitled to vote with respect to the merger of the other constituent limited partnership or constituent other business entity or more than 50 percent of the voting power, as defined in Section 194.5, of a constituent other business entity that is a domestic corporation, unless all of the limited partners of the class consent. This subdivision shall apply only to constituent limited partnerships with more than 35 limited partners.
Notwithstanding its prior approval, an agreement of merger may be amended prior to the filing of the certificate of merger or the agreement of merger, as provided in Section 15911.14, if the amendment is approved by the general partners of each constituent limited partnership in the same manner as required for approval of the original agreement of merger and, if the amendment changes any of the principal terms of the agreement of merger, the amendment is approved by the limited partners of each constituent limited partnership in the same manner and to the same extent as required for the approval of the original agreement of merger, and by each of the constituent other business entities.
The general partners of a constituent limited partnership may, in their discretion, abandon a merger, subject to the contractual rights, if any, of third parties, including other constituent limited partnerships and constituent other business entities, without further approval by the limited partnership interests, at any time before the merger is effective.
An agreement of merger approved in accordance with subdivision (a) may (1) effect any amendment to the partnership agreement of any constituent limited partnership or (2) effect the adoption of a new partnership agreement for a constituent limited partnership if it is the surviving limited partnership in the merger. Any amendment to a partnership agreement or adoption of a new partnership agreement made pursuant to the foregoing sentence shall be effective at the effective time or date of the merger. Notwithstanding the above provisions of this subdivision, if a greater number of limited partners is required to approve an amendment to the partnership agreement of a constituent limited partnership than is required to approve the agreement of merger pursuant to subdivision (a), and the number of limited partners that approve the agreement of merger is less than the number of limited partners required to approve an amendment to the partnership agreement of the constituent limited partnership, any amendment to the partnership agreement or adoption of a new partnership agreement of that constituent limited partnership made pursuant to the first sentence of this subdivision shall be effective only if the agreement of merger provides that all of the limited partners shall have the dissenters’ rights provided in Article 11.5 (commencing with Section 15911.20).
The surviving limited partnership or surviving other business entity shall keep the agreement of merger at its designated office or at the business address specified in paragraph (5) of subdivision (a) of Section 15911.14, as applicable, and, upon the request of a limited partner of a constituent limited partnership or a holder of shares, interests, or other securities of a constituent other business entity, the general partners of the surviving limited partnership or the authorized person of the surviving other business entity shall promptly deliver to the limited partner or the holder of shares, interests, or other securities, at the expense of the surviving limited partnership or surviving other business entity, a copy of the agreement of merger. A waiver by a partner or holder of shares, interests, or other securities of the rights provided in this subdivision shall be unenforceable.
If the surviving entity is a limited partnership or an other business entity, other than a corporation in a merger in which a domestic corporation is a constituent party, after approval of a merger by the constituent limited partnerships and any constituent other business entities, the constituent limited partnerships and constituent other business entities shall file a certificate of merger in the office of, and on a form prescribed by, the Secretary of State. The certificate of merger shall be executed and acknowledged by each domestic constituent limited partnership by all general partners, unless a lesser number is provided in the certificate of limited partnership of the domestic constituent limited partnership, and by each foreign constituent limited partnership by one or more general partners, and by each constituent other business entity by those persons required to execute the certificate of merger by the laws under which the constituent other business entity is organized. The certificate of merger shall set forth all of the following:
The names and the Secretary of State’s file numbers, if any, of each of the constituent limited partnerships and constituent other business entities, separately identifying the disappearing limited partnerships and disappearing other business entities and the surviving limited partnership or surviving other business entity.
If a vote of the limited partners was required under Section 15911.12, a statement setting forth the total number of outstanding interests of each class entitled to vote on the merger and that the principal terms of the agreement of merger were approved by a vote of the number of interests of each class which equaled or exceeded the vote required, specifying each class entitled to vote and the percentage vote required of each class.
If the surviving entity is a limited partnership and not an other business entity, any change required to the information set forth in the certificate of limited partnership of the surviving limited partnership resulting from the merger, including any change in the name of the surviving limited partnership resulting from the merger. The filing of a certificate of merger setting forth any such changes to the certificate of limited partnership of the surviving limited partnership shall have the effect of the filing of a certificate of amendment by the surviving limited partnership, and the surviving limited partnership need not file a certificate of amendment under Section 15902.02 to reflect those changes.
The future effective date or time, which shall be a date or time certain not more than 90 days subsequent to the date of filing, of the merger, if the merger is not to be effective upon the filing of the certificate of merger with the office of the Secretary of State.
If the surviving entity is an other business entity or a foreign limited partnership, the full name of the entity, type of entity, legal jurisdiction in which the entity was organized and by whose laws its internal affairs are governed, and the address of the principal place of business of the entity.
Any other information required to be stated in the certificate of merger by the laws under which each constituent other business entity is organized, including, if a domestic corporation is a party to the merger, paragraph (2) of subdivision (g) of Section 1113. If the surviving entity is a foreign limited partnership in a merger in which a domestic corporation is a disappearing other business entity, a copy of the agreement of merger and attachments as required under paragraph (1) of subdivision (g) of Section 1113 shall be filed at the same time as the filing of the certificate of merger.
If the surviving entity is a domestic corporation or a foreign corporation in a merger in which a domestic corporation is a constituent party, after approval of the merger by the constituent limited partnerships and constituent other business entities, the surviving corporation shall file in the office of the Secretary of State a copy of the agreement of merger and attachments required under paragraph (1) of subdivision (g) of Section 1113. The certificate of merger shall be executed and acknowledged by each domestic constituent limited partnership by all general partners, unless a lesser number is provided in the certificate of limited partnership of the domestic constituent limited partnership.
A certificate of merger or the agreement of merger, as is applicable under subdivision (a) or (b), shall have the effect of the filing of a certificate of cancellation for each disappearing limited partnership, and no disappearing limited partnership need file a certificate of cancellation under Section 15902.03 as a result of the merger.
If the organization disappearing into the other business entity is a foreign corporation qualified to transact intrastate business in this state, a certificate of satisfaction of the Franchise Tax Board as required by Section 23334 of the Revenue and Taxation Code shall be filed with the certificate of merger or agreement of merger, as is applicable under subdivision (a) or (b). By the filing of the certificate of merger or agreement of merger, as is applicable, the foreign corporation shall automatically surrender its right to transact intrastate business.
Unless a future effective date or time is provided in a certificate of merger or the agreement of merger, if an agreement of merger is required to be filed under Section 15911.14, in which event the merger shall be effective at that future effective date or time, a merger shall be effective upon the filing of the certificate of merger or the agreement of merger, as is applicable, in the office of the Secretary of State.
For all purposes, a copy of the certificate of merger duly certified by the Secretary of State is conclusive evidence of the merger of (A) the constituent limited partnerships, either by themselves or together with constituent other business entities, into the surviving other business entity, or (B) the constituent limited partnerships or the constituent other business entities, or both, into the surviving limited partnership.
In a merger in which the surviving entity is a corporation in a merger in which a domestic corporation and a domestic limited partnership are parties to the merger, a copy of an agreement of merger certified on or after the effective date by an official having custody thereof has the same force in evidence as the original and, except as against the state, is conclusive evidence of the performance of all conditions precedent to the merger, the existence on the effective date of the surviving corporation, and the performance of the conditions necessary to the adoption of any amendment to the articles of incorporation of the surviving corporation, if applicable, contained in the agreement of merger.
Upon a merger of limited partnerships or limited partnerships and other business entities pursuant to this chapter, the separate existence of the disappearing limited partnerships and disappearing other business entities ceases and the surviving limited partnership or surviving other business entity shall succeed, without other transfer, act or deed, to all the rights and property, whether real, personal, or mixed, of each of the disappearing limited partnerships and disappearing other business entities, and shall be subject to all the debts and liabilities of each in the same manner as if the surviving limited partnership or surviving other business entity had itself incurred them.
All rights of creditors and all liens upon the property of each of the constituent limited partnerships and constituent other business entities shall be preserved unimpaired and may be enforced against the surviving limited partnership or the surviving other business entity to the same extent as if the debt, liability, or duty which gave rise to that lien had been incurred or contracted by the surviving limited partnership or the surviving other business entity, provided that such liens upon the property of a disappearing limited partnership or disappearing other business entity shall be limited to the property affected thereby immediately prior to the time the merger is effective.
Any action or proceeding pending by or against any disappearing limited partnership or disappearing other business entity may be prosecuted to judgment, which shall bind the surviving limited partnership or surviving other business entity, or the surviving limited partnership or surviving other business entity may be proceeded against or be substituted in the place of the disappearing limited partnership or disappearing other business entity.
Nothing in this article is intended to affect the liability a general partner of a disappearing limited partnership may have in connection with the debts and liabilities of the disappearing limited partnership existing prior to the time the merger is effective.
The merger of any number of domestic limited partnerships with any number of foreign limited partnerships or foreign other business entities shall be required to comply with Section 15911.10.
If the surviving entity is a domestic limited partnership or a domestic other business entity, the merger proceedings with respect to that limited partnership or other business entity and any domestic disappearing limited partnership shall conform to the provisions of this chapter governing the merger of domestic limited partnerships, but if the surviving entity is a foreign limited partnership or a foreign other business entity, then, subject to the requirements of subdivision (d) and Article 11.5 (commencing with Section 15911.20) and, with respect to any domestic constituent corporation, Section 1113 and Chapters 12 (commencing with Section 1200) and 13 (commencing with Section 1300) of Division 1 of Title 1, the merger proceedings may be in accordance with the laws of the state or place of organization of the surviving limited partnership or surviving other business entity.
If the surviving entity is a domestic limited partnership or domestic other business entity, other than a domestic corporation, the certificate of merger shall be filed as provided in subdivision (a) of Section 15911.14, and thereupon, subject to subdivision (a) of Section 15911.15, the merger shall be effective as to each domestic constituent limited partnership and domestic constituent other business entity. If the surviving entity is a domestic corporation, the agreement of merger with attachments shall be filed as provided in subdivision (b) of Section 15911.14, and thereupon, subject to subdivision (a) of Section 15911.15, the merger shall be effective as to each domestic constituent limited partnership and domestic constituent other business entity unless another effective date is provided in Chapter 11 (commencing with Section 1100) of Division 1 of Title 1, with respect to any constituent corporation or constituent limited partnership.
If the surviving entity is a foreign limited partnership or foreign other business entity, the merger shall become effective in accordance with the law of the jurisdiction in which the surviving limited partnership or surviving other business entity is organized, but shall be effective as to any domestic disappearing limited partnership as of the time of effectiveness in the foreign jurisdiction upon the filing in this state of a certificate of merger or agreement of merger as provided in Section 15911.14.
If a merger described in subdivision (c) or (d) also includes a foreign disappearing limited partnership previously registered for the transaction of intrastate business in this state pursuant to Section 15909.02, the filing of the certificate of merger or agreement of merger, as is applicable under Section 15911.14, automatically has the effect of a cancellation of registration for that foreign limited partnership pursuant to Section 15909.06 without the necessity of the filing of a certificate of cancellation.
The provisions of subdivision (b) of Section 15911.12 and Article 11.5 (commencing with Section 15911.20) apply to the rights of the limited partners of any of the constituent limited partnerships that are domestic limited partnerships and of any domestic limited partnership that is a parent of any foreign constituent limited partnership.
Whenever a domestic or foreign limited partnership or other business entity having any real property in this state merges with another limited partnership or other business entity pursuant to the laws of this state or of the state or place in which any constituent limited partnership or constituent other business entity was organized, and the laws of the state or place of organization, including this state, of any disappearing limited partnership or disappearing other business entity provide substantially that the making and filing of the agreement of merger or certificate of merger vests in the surviving limited partnership or surviving other business entity all the real property of any disappearing limited partnership and disappearing other business entity, the filing for record in the office of the county recorder of any county in this state in which any of the real property of the disappearing limited partnership or disappearing other business entity is located of either of the following shall evidence record ownership in the surviving limited partnership or surviving other business entity of all interest of such disappearing limited partnership or disappearing other business entity in and to the real property located in that county:
A certificate of merger certified by the Secretary of State, or other certificate prescribed by the Secretary of State.
A copy of the agreement of merger or certificate of merger, certified by the Secretary of State or an authorized public official of the state or place pursuant to the laws of which the merger is effected.
Recording of the certificate of merger in accordance with Section 15911.18 shall create, in favor of bona fide purchasers or encumbrancers for value, a conclusive presumption that the merger was validly completed.
ARTICLE 11.5. Dissenting Limited Partners’ Rights [15911.20. - 15911.33.]
For purposes of this article, “reorganization” refers to any of the following:
A conversion pursuant to Article 11 (commencing with Section 15911.01).
A merger pursuant to Article 11 (commencing with Section 15911.10).
The acquisition by one limited partnership in exchange, in whole or in part, for its partnership interests (or the partnership interests or equity securities of a partnership or other business entity that is in control of the acquiring limited partnership) of partnership interests or equity securities of another limited partnership or other business entity if, immediately after the acquisition, the acquiring limited partnership has control of the other limited partnership or other business entity.
The acquisition by one limited partnership in exchange in whole or in part for its partnership interests (or the partnership interests or equity securities of a partnership or other business entity which is in control of the acquiring limited partnership) or for its debts securities (or debt securities of a limited partnership or other business entity which is in control of the acquiring limited partnership) which are not adequately secured and which have a maturity date in excess of five years after the consummation of the acquisition, or both, of all or substantially all of the assets of another limited partnership or other business entity.
For purposes of this article, “control” means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a limited partnership or other business entity.
If the approval of outstanding limited partnership interests is required for a limited partnership to participate in a reorganization, pursuant to the limited partnership agreement of the partnership, or otherwise, then each limited partner of the limited partnership holding those interests may, by complying with this article, require the limited partnership to purchase for cash, at its fair market value, the interest owned by the limited partner in the limited partnership, if the interest is a dissenting interest as defined in subdivision (b). The fair market value shall be determined as of the day before the first announcement of the terms of the proposed reorganization, excluding any appreciation or depreciation in consequence of the proposed reorganization.
As used in this article, “dissenting interest” means the interest of a limited partner that satisfies all of the following conditions:
Either:
Was not, immediately prior to the reorganization, either (i) listed on any national securities exchange certified by the Commissioner of Financial Protection and Innovation under subdivision (o) of Section 25100, or (ii) listed on the list of OTC margin stocks issued by the Board of Governors of the Federal Reserve System, provided that in either instance, the limited partnership whose outstanding interests are so listed provides, in its notice to limited partners requesting their approval of the proposed reorganization, a summary of the provisions of this section and Sections 15911.22, 15911.23, 15911.24, and 15911.25.
If the interest is of a class of interests listed as described in clause (i) or (ii) of subparagraph (A), demands for payment are filed with respect to 5 percent or more of the outstanding interests of that class.
Was outstanding on the date for the determination of limited partners entitled to vote on the reorganization.
Was not voted in favor of the reorganization, or (B) if the interest is described in clause (i) or (ii) of subparagraph (A) of paragraph (1), was voted against the reorganization; provided, however, that subparagraph (A) rather than subparagraph (B) of this paragraph applies in any event where the approval for the proposed reorganization is sought by written consent rather than at a meeting.
The limited partner has demanded that it be purchased by the limited partnership at its fair market value in accordance with Section 15911.22.
The limited partner has submitted it for endorsement, if applicable, in accordance with Section 15911.23.
As used in this article, “dissenting limited partner” means the recordholder of a dissenting interest, and includes an assignee of record of such an interest.
If limited partners have a right under Section 15911.21, subject to compliance with paragraphs (4) and (5) of subdivision (b) thereof, to require the limited partnership to purchase their limited partnership interests for cash, such limited partnership shall mail to each such limited partner a notice of the approval of the reorganization by the requisite vote or consent of the limited partners, within 10 days after the date of such approval, accompanied by a copy of this section and Sections 15911.21, 15911.23, 15911.24, and 15911.25, a statement of the price determined by the limited partnership to represent the fair market value of its outstanding interests, and a brief description of the procedure to be followed if the limited partner desires to exercise the limited partner’s rights under such sections. The statement of price constitutes an offer by the limited partnership to purchase at the price stated any dissenting interests as defined in subdivision (b) of Section 15911.21, unless they lose their status as dissenting interests under Section 15911.30.
Any limited partner who has a right to require the limited partnership to purchase the limited partner’s interest for cash under Section 15911.21, subject to compliance with paragraphs (4) and (5) of subdivision (b) thereof, and who desires the limited partnership to purchase such interest, shall make written demand upon the limited partnership for the purchase of such interest and the payment to the limited partner in cash of its fair market value. The demand is not effective for any purpose unless it is received by the limited partnership or any transfer agent thereof (1) in the case of interests described in clause (i) or (ii) of subparagraph (A) of paragraph (1) of subdivision (b) of Section 15911.21, not later than the date of the limited partners’ meeting to vote upon the reorganization, or (2) in any other case, within 30 days after the date on which notice of the approval of the reorganization by the requisite vote or consent of the limited partners is mailed by the limited partnership to the limited partners.
The demand shall state the number or amount of the limited partner’s interest in the limited partnership and shall contain a statement of what such limited partner claims to be the fair market value of that interest on the day before the announcement of the proposed reorganization. The statement of fair market value constitutes an offer by the limited partner to sell the interest at such price.
Within 30 days after the date on which notice of the approval of the outstanding interests of the limited partnership is mailed to the limited partner pursuant to subdivision (a) of Section 15911.22, the limited partner shall submit to the limited partnership at its principal office or at the office of any transfer agent thereof, (a) if the interest is evidenced by a certificate, the limited partner’s certificate representing the interest which the limited partner demands that the limited partnership purchase, to be stamped or endorsed with a statement that the interest is a dissenting interest or to be exchanged for certificates of appropriate denominations so stamped or endorsed, or (b) if the interest is not evidenced by a certificate, written notice of the number or amount of interest which the limited partner demands that the limited partnership purchase. Upon subsequent transfers of the dissenting interest on the books of the limited partnership, the new certificates or other written statement issued therefor shall bear a like statement, together with the name of the original holder of the dissenting interest.
If the limited partnership and the dissenting limited partner agree that such limited partner’s interest is a dissenting interest and agree upon the price to be paid for the dissenting interest, the dissenting limited partner is entitled to the agreed price with interest thereon at the legal rate on judgments from the date of consummation of the reorganization. All agreements fixing the fair market value of any dissenting limited partner’s interest as between the limited partnership and such limited partner shall be in writing and filed in the records of the limited partnership.
Subject to the provisions of Section 15911.27, payment of the fair market value for a dissenting interest shall be made within 30 days after the amount thereof has been agreed to or within 30 days after any statutory or contractual conditions to the reorganization are satisfied, whichever is later, and in the case of dissenting interests evidenced by certificates of interest, subject to surrender of such certificates of interest, unless provided otherwise by agreement.
If the limited partnership denies that a limited partnership interest is a dissenting interest, or the limited partnership and a dissenting limited partner fail to agree upon the fair market value of a dissenting interest, then such limited partner or any interested limited partnership, within six months after the date on which notice of the approval of the reorganization by the requisite vote or consent of the limited partners was mailed to the limited partner, but not thereafter, may file a complaint in the superior court of the proper county praying the court to determine whether the interest is a dissenting interest, or the fair market value of the dissenting interest, or both, or may intervene in any action pending on such a complaint.
Two or more dissenting limited partners may join as plaintiffs or be joined as defendants in any such action and two or more such actions may be consolidated.
On the trial of the action, the court shall determine the issues. If the status of the limited partnership interest as a dissenting interest is in issue, the court shall first determine that issue. If the fair market value of the dissenting interest is in issue, the court shall determine, or shall appoint one or more impartial appraisers to determine, the fair market value of the dissenting interest.
If the court appoints an appraiser or appraisers, they shall proceed forthwith to determine the fair market value per interest of the outstanding limited partnership interests of the limited partnership, by class if necessary. Within the time fixed by the court, the appraisers, or a majority of them, shall make and file a report in the office of the clerk of the court. Thereupon, on the motion of any party, the report shall be submitted to the court and considered on any additional evidence as the court considers relevant. If the court finds the report reasonable, the court may confirm it.
If a majority of the appraisers appointed fails to make and file a report within 30 days from the date of their appointment, or within any further time as may be allowed by the court, or the report is not confirmed by the court, the court shall determine the fair market value per interest of the outstanding limited partnership interests of the limited partnership, by class if necessary.
Subject to Section 15911.27, judgment shall be rendered against the limited partnership for payment of an amount equal to the fair market value, as determined by the court, of each dissenting interest which any dissenting limited partner who is a party, or has intervened, is entitled to require the limited partnership to purchase, with interest thereon at the legal rate on judgments from the date of consummation of the reorganization.
Any judgment shall be payable forthwith, provided, however, that with respect to limited partnership interests evidenced by transferable certificates of interest, only upon the endorsement and delivery to the limited partnership of those certificates representing the interests described in the judgment. Any party may appeal from the judgment.
The costs of the action, including reasonable compensation for the appraisers, to be fixed by the court, shall be assessed or apportioned as the court considers equitable, but, if the appraisal exceeds the price offered by the limited partnership, the limited partnership shall pay the costs (including, in the discretion of the court, if the value awarded by the court for the dissenting interest is more than 125 percent of the price offered by the limited partnership under subdivision (a) of Section 15911.22, attorney’s fees and fees of expert witnesses).
To the extent that the payment to dissenting limited partners of the fair market value of their dissenting interests would require the dissenting limited partners to return such payment or a portion thereof by reason of Section 15905.09 or the Uniform Voidable Transactions Act (Chapter 1 (commencing with Section 3439) of Title 2 of Part 2 of Division 4 of the Civil Code), then that payment or portion thereof shall not be made and the dissenting limited partners shall become creditors of the limited partnership for the amount not paid, together with interest thereon at the legal rate on judgments until the date of payment, but subordinate to all other creditors in any proceeding relating to the winding up and dissolution of the limited partnership, such debt to be payable when permissible.
Any cash distributions made by a limited partnership to a dissenting limited partner after the date of consummation of the reorganization, but prior to any payment by the limited partnership for such dissenting limited partner’s interest, shall be credited against the total amount to be paid by the limited partnership for such dissenting interest.
Except as expressly limited by this article, dissenting limited partners shall continue to have all the rights and privileges incident to their interests immediately prior to the reorganization, including limited liability, until payment by the limited partnership for their dissenting interests. A dissenting limited partner may not withdraw a demand for payment unless the limited partnership consents thereto.
A dissenting interest loses its status as a dissenting interest and the holder thereof ceases to be a dissenting limited partner and ceases to be entitled to require the limited partnership to purchase the interest upon the happening of any of the following:
The limited partnership abandons the reorganization. Upon abandonment of the reorganization, the limited partnership shall pay, on demand, to any dissenting limited partner who has initiated proceeding in good faith under this article, all reasonable expenses incurred in such proceedings and reasonable attorneys’ fees.
The interest is transferred prior to its submission for endorsement in accordance with Section 15911.23.
The dissenting limited partner and the limited partnership do not agree upon the status of the interest as a dissenting interest or upon the purchase price of the dissenting interest, and neither files a complaint nor intervenes in a pending action, as provided in Section 15911.25, within six months after the date upon which notice of the approval of the reorganization by the requisite vote or consent of limited partners was mailed to the limited partner.
The dissenting limited partner, with the consent of the limited partnership, withdraws such limited partner’s demand for purchase of the dissenting interest.
This article applies to the following:
A domestic limited partnership formed on or after January 1, 1991.
A foreign limited partnership if (A) the foreign limited partnership was formed on or after January 1, 1991, or filed an application to qualify to do business on or after January 1, 1991, and (B) limited partners holding more than 50 percent of the voting power held by all limited partners of the foreign limited partnership reside in this state.
A limited partnership if the partnership agreement so provides or if all general partners and a majority in interest of the limited partners determine that this article shall apply.
This article does not apply to limited partnership interests governed by limited partnership agreements whose terms and provisions specifically set forth the amount to be paid in respect of such interests in the event of a reorganization of the limited partnership, or to limited partnerships with 35 or fewer limited partners, unless the partnership agreement provides that this article shall apply or unless all general partners and a majority in interest of the limited partners agree that this article shall apply.
No limited partner of a limited partnership who has a right under this article to demand payment of cash for the interest owned by such limited partner in a limited partnership shall have any right at law or in equity to attack the validity of the reorganization, or to have the reorganization set aside or rescinded, except in an action to test whether the vote or consent of limited partners required to authorize or approve the reorganization has been obtained in accordance with the procedures established therefor by the partnership agreement of the limited partnership.
If one of the parties to a reorganization is directly or indirectly controlled by, or under common control with, another party to the reorganization, subdivision (a) shall not apply to any limited partner of such controlled party who has not demanded payment of cash for such limited partner’s interest pursuant to this article; but if such limited partner institutes any action to attack the validity of the reorganization or to have the reorganization set aside or rescinded, the limited partner shall not thereafter have any right to demand payment of cash for such limited partner’s interest pursuant to this article.
If one of the parties to a reorganization is directly or indirectly controlled by, or under common control with, another party to the reorganization, then, in any action to attack the validity of the reorganization or to have the reorganization set aside or rescinded, (1) a party to a reorganization which controls another party to a reorganization shall have the burden of proving that the transaction is just and reasonable as to the limited partners of the controlled party, and (2) a person who controls two or more parties to a reorganization shall have the burden of proving that the transaction is just and reasonable as to the limited partners of any party so controlled.
Subdivisions (b) and (c) shall not apply if a majority in interest of the limited partners other than limited partners who are directly or indirectly controlled by, or under common control with, another party to the reorganization approve or consent to the reorganization.
This section shall not prevent a partner of a limited partnership that is a party to a reorganization from bringing an action against a general partner of the limited partnership, the limited partnership, or any person controlling a general partner at law or in equity as to any matters (including, without limitation, an action for breach of fiduciary obligation or fraud) other than to attack the validity of the reorganization or to have the reorganization set aside or rescinded.
ARTICLE 12. Miscellaneous Provisions [15912.01. - 15912.07.]
In applying and construing this chapter, consideration must be given to the need to promote uniformity of the law with respect to its subject matter among states that enact it.
If any provision of this chapter or its application to any person or circumstance is held invalid, the invalidity does not affect other provisions or applications of this chapter which can be given effect without the invalid provision or application, and to this end, the provisions of this chapter are severable.
This chapter modifies, limits, or supersedes the federal Electronic Signatures in Global and National Commerce Act, 15 U.S.C. Section 7001 et seq., but this chapter does not modify, limit, or supersede Section 101(c) of that act or authorize electronic delivery of any of the notices described in Section 103(b) of that act.
This chapter shall become operative on January 1, 2008.
Before January 1, 2010, this chapter governs only:
a limited partnership formed on or after January 1, 2008; and
except as otherwise provided in subdivisions (c) and (d), a limited partnership formed before January 1, 2008, which elects, in the manner provided in its partnership agreement or by law for amending the partnership agreement, to be subject to this chapter.
Except as otherwise provided in subdivision (c), on and after January 1, 2010, this chapter governs all limited partnerships.
With respect to a limited partnership formed before January 1, 2008, the following rules apply except as the partners otherwise elect in the manner provided in the partnership agreement or by law for amending the partnership agreement:
Section 15901.04(c) does not apply and the limited partnership has whatever duration it had under the law applicable immediately before January 1, 2008.
Subdivision (d) of Section 15906.03 does not apply.
Subdivision (e) of Section 15906.03 does not apply and a court has the same power to expel a general partner as the court had immediately before January 1, 2008.
Subdivision (c) of Section 15908.01 does not apply and the connection between a person’s dissociation as a general partner and the dissolution of the limited partnership is the same as existed immediately before January 1, 2008.
With respect to a limited partnership that elects pursuant to paragraph (2) of subdivision (a) to be subject to this chapter, after the election takes effect, the provisions of this chapter relating to the liability of the limited partnership’s general partners to third parties apply:
a third party that had not done business with the limited partnership in the year before the election took effect; and
a third party that had done business with the limited partnership in the year before the election took effect only if the third party knows or has received a notification of the election; and
This chapter does not affect an action commenced, proceeding brought, or right accrued before this chapter becomes operative.
CHAPTER 5. Uniform Partnership Act of 1994 [16100. - 16962.]
ARTICLE 1. General Provisions [16100. - 16114.]
This chapter may be cited as the Uniform Partnership Act of 1994.
As used in this chapter, the following terms and phrases have the following meanings:
“Business” includes every trade, occupation, and profession.
“Debtor in bankruptcy” means a person who is the subject of either of the following:
An order for relief under Title 11 of the United States Code or a comparable order under a successor statute of general application.
A comparable order under federal, state, or foreign law governing insolvency.
“Distribution” means a transfer of money or other property from a partnership to a partner in the partner’s capacity as a partner or to the partner’s transferee.
“Electronic transmission by the partnership” means a communication (a) delivered by (1) facsimile telecommunication or electronic mail when directed to the facsimile number or electronic mail address, respectively, for that recipient on record with the partnership, (2) posting on an electronic message board or network that the partnership has designated for those communications, together with a separate notice to the recipient of the posting, which transmission shall be validly delivered upon the later of the posting or delivery of the separate notice thereof, or (3) other means of electronic communication, (b) to a recipient who has provided an unrevoked consent to the use of those means of transmission, and (c) that creates a record that is capable of retention, retrieval, and review, and that may thereafter be rendered into clearly legible tangible form. However, an electronic transmission by a partnership to an individual partner is not authorized unless, in addition to satisfying the requirements of this section, the transmission satisfies the requirements applicable to consumer consent to electronic records as set forth in the Electronic Signatures in Global and National Commerce Act (15 U.S.C. Sec. 7001(c)(1)).
“Electronic transmission to the partnership” means a communication (a) delivered by (1) facsimile telecommunication or electronic mail when directed to the facsimile number or electronic mail address, respectively, which the partnership has provided from time to time to partners for sending communications to the partnership, (2) posting on an electronic message board or network that the partnership has designated for those communications, and which transmission shall be validly delivered upon the posting, or (3) other means of electronic communication, (b) as to which the partnership has placed in effect reasonable measures to verify that the sender is the partner, in person or by proxy, purporting to send the transmission, and (c) that creates a record that is capable of retention, retrieval, and review, and that may thereafter be rendered into clearly legible tangible form.
“Foreign limited liability partnership” means a partnership, other than a limited partnership, formed pursuant to an agreement governed by the laws of another jurisdiction and denominated or registered as a limited liability partnership or registered limited liability partnership under the laws of that jurisdiction (i) in which each partner is a licensed person or a person licensed or authorized to provide professional limited liability partnership services in a jurisdiction or jurisdictions other than this state, (ii) which is licensed under the laws of the state to engage in the practice of public accountancy or the practice of law, or (iii) which (I) is related to a registered limited liability partnership that practices public accountancy or, to the extent permitted by the State Bar of California, practices law or is related to a foreign limited liability partnership and (II) provides services related or complementary to the professional limited liability partnership services provided by, or provides services or facilities to, that registered limited liability partnership or foreign limited liability partnership.
For the purposes of clause (iii) of subparagraph (A), a partnership is related to a registered limited liability partnership or foreign limited liability partnership if (i) at least a majority of the partners in one partnership are also partners in the other partnership, or (ii) at least a majority in interest in each partnership hold interests in or are members of another person, except an individual, and each partnership renders services pursuant to an agreement with that other person, or (iii) one partnership, directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, the other partnership.
“Licensed person” means any person who is duly licensed, authorized, or registered under the provisions of the Business and Professions Code to provide professional limited liability partnership services or who is lawfully able to render professional limited liability partnership services in this state.
“Registered limited liability partnership” means a partnership, other than a limited partnership, formed pursuant to an agreement governed by Article 10 (commencing with Section 16951), that is registered under Section 16953 and (i) each of the partners of which is a licensed person or a person licensed or authorized to provide professional limited liability partnership services in a jurisdiction or jurisdictions other than this state, (ii) is licensed under the laws of the state to engage in the practice of public accountancy or the practice of law, or (iii)(I) is related to a registered limited liability partnership that practices public accountancy or, to the extent permitted by the State Bar of California, practices law or is related to a foreign limited liability partnership and (II) provides services related or complementary to the professional limited liability partnership services provided by, or provides services or facilities to, that registered limited liability partnership or foreign limited liability partnership.
For the purposes of clause (iii) of subparagraph (A), a partnership is related to a registered limited liability partnership or foreign limited liability partnership if (i) at least a majority of the partners in one partnership are also partners in the other partnership, or (ii) at least a majority in interest in each partnership hold interests in or are members of another person, other than an individual, and each partnership renders services pursuant to an agreement with that other person, or (iii) one partnership, directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, the other partnership.
“Partnership” means an association of two or more persons to carry on as coowners a business for profit formed under Section 16202, predecessor law, or comparable law of another jurisdiction, and includes, for all purposes of the laws of this state, a registered limited liability partnership, and excludes any partnership formed under Chapter 4.5 (commencing with Section 15900).
“Partnership agreement” means the agreement, whether written, oral, or implied, among the partners concerning the partnership, including amendments to the partnership agreement.
“Partnership at will” means a partnership in which the partners have not agreed to remain partners until the expiration of a definite term or the completion of a particular undertaking.
“Partnership interest” or “partner’s interest in the partnership” means all of a partner’s interests in the partnership, including the partner’s transferable interest and all management and other rights.
“Person” means an individual, corporation, business trust, estate, trust, partnership, limited partnership, limited liability partnership, limited liability company, association, joint venture, government, governmental subdivision, agency, or instrumentality, or any other legal or commercial entity.
“Professional limited liability partnership services” means the practice of public accountancy or the practice of law.
“Property” means all property, real, personal, or mixed, tangible or intangible, or any interest therein.
“State” means a state of the United States, the District of Columbia, the Commonwealth of Puerto Rico, or any territory or insular possession subject to the jurisdiction of the United States.
“Statement” means a statement of partnership authority under Section 16303, a statement of denial under Section 16304, a statement of dissociation under Section 16704, a statement of dissolution under Section 16805, a statement of conversion or a certificate of conversion under Section 16906, a statement of merger under Section 16915, or an amendment or cancellation of any of the foregoing.
“Transfer” includes an assignment, conveyance, lease, mortgage, deed, and encumbrance.
This section shall become operative on January 1, 2034.
A person knows a fact if the person has actual knowledge of it.
A person has notice of a fact if any of the following apply:
The person knows of it.
The person has received a notification of it.
The person has reason to know it exists from all of the facts known to the person at the time in question.
A person notifies or gives a notification to another by taking steps reasonably required to inform the other person in ordinary course, whether or not the other person knows of it.
A person receives a notification when either of the following apply:
Except as otherwise provided in subdivision (f), a person other than an individual knows, has notice, or receives a notification of a fact for purposes of a particular transaction when the individual conducting the transaction knows, has notice, or receives a notification of the fact, or in any event when the fact would have been brought to the individual’s attention if the person had exercised reasonable diligence. The person exercises reasonable diligence if it maintains reasonable routines for communicating significant information to the individual conducting the transaction and there is reasonable compliance with the routines. Reasonable diligence does not require an individual acting for the person to communicate information unless the communication is part of the individual’s regular duties or the individual has reason to know of the transaction and that the transaction would be materially affected by the information.
A partner’s knowledge, notice, or receipt of a notification of a fact relating to the partnership is effective immediately as knowledge by, notice to, or receipt of a notification by the partnership, except in the case of a fraud on the partnership committed by or with the consent of that partner.
Except as otherwise provided in subdivision (b), relations among the partners and between the partners and the partnership are governed by the partnership agreement. To the extent the partnership agreement does not otherwise provide, this chapter governs relations among the partners and between the partners and the partnership.
The partnership agreement may not do any of the following:
Vary the rights and duties under Section 16105 except to eliminate the duty to provide copies of statements to all of the partners.
Eliminate the duty of loyalty under subdivision (b) of Section 16404 or paragraph (3) of subdivision (b) of Section 16603, but, if not manifestly unreasonable, may do either of the following:
The partnership agreement may identify specific types or categories of activities that do not violate the duty of loyalty.
All of the partners or a number or percentage specified in the partnership agreement may authorize or ratify, after full disclosure of all material facts, a specific act or transaction that otherwise would violate the duty of loyalty.
Unreasonably reduce the duty of care under subdivision (c) of Section 16404 or paragraph (3) of subdivision (b) of Section 16603.
Eliminate the obligation of good faith and fair dealing under subdivision (d) of Section 16404, but the partnership agreement may prescribe the standards by which the performance of the obligation is to be measured, if the standards are not manifestly unreasonable.
Vary the right of a court to expel a partner in the events specified in paragraph (5) of Section 16601.
Vary the requirement to wind up the partnership business in cases specified in paragraph (4), (5), or (6) of Section 16801.
Restrict rights of third parties under this chapter.
Vary the law applicable to a registered limited liability partnership under subdivision (b) of Section 16106.
Unless displaced by particular provisions of this chapter, the principles of law and equity supplement this chapter.
If an obligation to pay interest arises under this chapter and the rate is not specified, the rate is that specified in Section 3289 of the Civil Code.
A statement may be filed in the office of the Secretary of State. A certified copy of a statement that is filed in an office in another state may be filed in the office of the Secretary of State. Either filing has the effect provided in this chapter with respect to partnership property located in or transactions that occur in this state.
A certified copy of a statement that has been filed in the office of the Secretary of State and recorded in the office for recording transfers of real property has the effect provided for recorded statements in this chapter. A recorded statement that is not a certified copy of a statement filed in the office of the Secretary of State does not have the effect provided for recorded statements in this chapter.
A statement filed by a partnership shall be executed by at least two partners. Other statements shall be executed by a partner or other person authorized by this chapter. An individual who executes a statement as, or on behalf of, a partner or other person named as a partner in a statement shall personally declare under penalty of perjury that the contents of the statement are accurate.
A person authorized by this chapter to file a statement may amend or cancel the statement by filing an amendment or cancellation that names the partnership, identifies the statement, and states the substance of the amendment or cancellation.
A person who files a statement pursuant to this section shall promptly send a copy of the statement to every nonfiling partner and to any other person named as a partner in the statement. Failure to send a copy of a statement to a partner or other person does not limit the effectiveness of the statement as to a person not a partner.
The Secretary of State may collect a fee for filing or providing a certified copy of a statement. The officer responsible for recording transfers of real property may collect a fee for recording a statement.
The Secretary of State may cancel a statement, including a statement effecting a conversion, if a check or other remittance accepted in payment of the filing fee is not paid upon presentation. Within 90 days of receiving written notification that the item presented for payment has not been honored for payment, the Secretary of State shall give a first written notice of the applicability of the section to the partners, or the appointed agent, or to the person submitting the instrument. Thereafter, if the amount has not been paid by cashier’s check or equivalent, the Secretary of State shall give a second written notice of cancellation and the cancellation shall thereupon be effective. The second notice shall be given 20 days or more after the first notice.
Except as otherwise provided in subdivision (b) of this section, or Section 16958, the law of the jurisdiction in which a partnership has its principal office governs relations among the partners and between the partners and the partnership.
With respect to a registered limited liability partnership, the law of this state shall govern relations among the partners and between the partners and the partnership, and the liability of partners for obligations of the partnership.
A partnership governed by this chapter is subject to any amendment to or repeal of this chapter.
Except with respect to the provisions of this chapter specifically relating to registered limited liability partnerships and foreign limited liability partnerships, this chapter shall be applied and construed to effectuate its general purpose to make uniform the law with respect to the subject of this chapter among states enacting it.
The rights and duties of surviving partners, the legal representatives of deceased partners, the creditors of such partners, and the creditors of the partnership created by or defined in this chapter shall be given full force and effect notwithstanding any inconsistent provisions of the Probate Code, but nothing in this chapter shall otherwise affect any provision of the Probate Code.
If any provision of this chapter or its application to any person or circumstance is held invalid, the invalidity does not affect other provisions or applications of this chapter that can be given effect without the invalid provision or application, and to this end the provisions of this chapter are severable.
Except as provided in Section 16955.5, before January 1, 1999, this chapter governs only a partnership formed (1) on or after the effective date of this chapter, unless that partnership is continuing the business of a dissolved partnership under Section 15041, or (2) before the effective date of this chapter if that partnership elects, in the manner provided in its partnership agreement or by law for amending the partnership agreement, to be governed by this chapter.
On and after January 1, 1999, this chapter governs all partnerships.
Except with respect to the provisions of this chapter specifically relating to registered limited liability partnerships and foreign limited liability partnerships, the provisions of this chapter relating to the liability of the partnership’s partners to third parties apply to limit those partners’ liability to a third party who had done business with the partnership within one year preceding the partnership’s election to be governed by this chapter, only if the third party knows or has received a notification of the partnership’s election to be governed by this chapter.
This chapter does not affect an action or proceeding commenced or right accrued before this chapter takes effect.
The fee for filing a statement of partnership is seventy dollars ($70).
Unless another fee is specified by law or the law specifies that no fee is to be charged, the fee for filing any partnership statement pursuant to this chapter is thirty dollars ($30).
There is no fee for filing a statement of dissolution for the purposes of canceling a statement of partnership.
Unless another fee is specified by law or the law specifies that no fee is to be charged, the fee for acceptance of copies of process against a surviving foreign partnership or limited partnership pursuant to subdivision (b) of Section 16906 is fifty dollars ($50) for each surviving foreign partnership or limited partnership general partnership upon whom service is sought.
ARTICLE 2. Nature of Partnership [16201. - 16204.]
A partnership is an entity distinct from its partners.
Except as otherwise provided in subdivision (b), the association of two or more persons to carry on as coowners a business for profit forms a partnership, whether or not the persons intend to form a partnership.
An association formed under a statute other than this chapter, a predecessor statute, or a comparable statute of another jurisdiction is not a partnership under this chapter.
In determining whether a partnership is formed, the following rules apply:
Joint tenancy, tenancy in common, tenancy by the entireties, joint property, common property, or part ownership does not by itself establish a partnership, even if the coowners share profits made by the use of the property.
The sharing of gross returns does not by itself establish a partnership, even if the persons sharing them have a joint or common right or interest in property from which the returns are derived.
A person who receives a share of the profits of a business is presumed to be a partner in the business, unless the profits were received for any of the following reasons:
In payment of a debt by installments or otherwise.
In payment for services as an independent contractor or of wages or other compensation to an employee.
In payment of rent.
In payment of an annuity or other retirement benefit to a beneficiary, representative, or designee of a deceased or retired partner.
In payment of interest or other charge on a loan, even if the amount of payment varies with the profits of the business, including a direct or indirect present or future ownership of the collateral, or rights to income, proceeds, or increase in value derived from the collateral.
In payment for the sale of the goodwill of a business or other property by installments or otherwise.
Property acquired by a partnership is property of the partnership and not of the partners individually.
Property is partnership property if acquired in the name of either of the following:
The partnership.
One or more partners with an indication in the instrument transferring title to the property of the person’s capacity as a partner or of the existence of a partnership but without an indication of the name of the partnership.
Property is acquired in the name of the partnership by a transfer to either of the following:
The partnership in its name.
One or more partners in their capacity as partners in the partnership, if the name of the partnership is indicated in the instrument transferring title to the property.
Property is presumed to be partnership property if purchased with partnership assets, even if not acquired in the name of the partnership or of one or more partners with an indication in the instrument transferring title to the property of the person’s capacity as a partner or of the existence of a partnership.
Property acquired in the name of one or more of the partners, without an indication in the instrument transferring title to the property of the person’s capacity as a partner or of the existence of a partnership and without use of partnership assets, is presumed to be separate property, even if used for partnership purposes.
ARTICLE 3. Relations of Partners to Persons Dealing with Partnership [16301. - 16310.]
Subject to the effect of a statement of partnership authority under Section 16303 both of the following apply:
Each partner is an agent of the partnership for the purpose of its business. An act of a partner, including the execution of an instrument in the partnership name, for apparently carrying on in the ordinary course the partnership business or business of the kind carried on by the partnership binds the partnership, unless the partner had no authority to act for the partnership in the particular matter and the person with whom the partner was dealing knew or had received a notification that the partner lacked authority.
An act of a partner that is not apparently for carrying on in the ordinary course the partnership business or business of the kind carried on by the partnership binds the partnership only if the act was authorized by the other partners.
Partnership property may be transferred as follows:
Subject to the effect of a statement of partnership authority under Section 16303, partnership property held in the name of the partnership may be transferred by an instrument of transfer executed by a partner in the partnership name.
Partnership property held in the name of one or more partners with an indication in the instrument transferring the property to them of their capacity as partners or of the existence of a partnership, but without an indication of the name of the partnership, may be transferred by an instrument of transfer executed by the persons in whose name the property is held.
Partnership property held in the name of one or more persons other than the partnership, without an indication in the instrument transferring the property to them of their capacity as partners or of the existence of a partnership, may be transferred by an instrument of transfer executed by the persons in whose name the property is held.
A partnership may recover partnership property from a transferee only if it proves that execution of the instrument of initial transfer did not bind the partnership under Section 16301 and either of the following applies:
As to a subsequent transferee who gave value for property transferred under paragraph (1) or (2) of subdivision (a), proves that the subsequent transferee knew or had received a notification that the person who executed the instrument of initial transfer lacked authority to bind the partnership.
As to a transferee who gave value for property transferred under paragraph (3) of subdivision (a), proves that the transferee knew or had received a notification that the property was partnership property and that the person who executed the instrument of initial transfer lacked authority to bind the partnership.
A partnership may not recover partnership property from a subsequent transferee if the partnership would not have been entitled to recover the property, under subdivision (b), from any earlier transferee of the property.
If a person holds all of the partners’ interests in the partnership, all of the partnership property vests in that person. The person may execute a document in the name of the partnership to evidence vesting of the property in that person and may file or record the document.
A partnership may file a statement of partnership authority, which is subject to all of the following:
The statement shall include all of the following:
The name of the partnership.
The street address of its principal office and of one principal office in California, if there is one.
The mailing address of its principal office, if different from the street addresses specified pursuant to subparagraph (B).
The names and mailing addresses of all of the partners or of an agent appointed and maintained by the partnership for the purpose of subdivision (b).
The names of the partners authorized to execute an instrument transferring real property held in the name of the partnership.
The statement may specify the authority, or limitations on the authority, of some or all of the partners to enter into other transactions on behalf of the partnership and any other matter.
If a statement of partnership authority names an agent, the agent shall maintain a list of the names and mailing addresses of all of the partners and make it available to any person on request for good cause shown.
If a filed statement of partnership authority is executed pursuant to subdivision (c) of Section 16105 and states the name of the partnership but does not contain all of the other information required by subdivision (a), the statement nevertheless operates with respect to a person not a partner as provided in subdivisions (d) and (e).
A filed statement of partnership authority supplements the authority of a partner to enter into transactions on behalf of the partnership as follows:
Except for transfers of real property, a grant of authority contained in a filed statement of partnership authority is conclusive in favor of a person who gives value without knowledge to the contrary, so long as and to the extent that a limitation on that authority is not then contained in another filed statement. A filed cancellation of a limitation on authority revives the previous grant of authority.
A grant of authority to transfer real property held in the name of the partnership contained in a certified copy of a filed statement of partnership authority recorded in the office for recording transfers of that real property is conclusive in favor of a person who gives value without knowledge to the contrary, so long as and to the extent that a certified copy of a filed statement containing a limitation on that authority is not then of record in the office for recording transfers of that real property. The recording in the office for recording transfers of that real property of a certified copy of a filed cancellation of a limitation on authority revives the previous grant of authority.
A person not a partner is deemed to know of a limitation on the authority of a partner to transfer real property held in the name of the partnership if a certified copy of the filed statement containing the limitation on authority is of record in the office for recording transfers of that real property.
A partner or other person named as a partner in a filed statement of partnership authority or in a list maintained by an agent pursuant to subdivision (b) of Section 16303 may file a statement of denial stating the name of the partnership as filed with the Secretary of State, any identification number issued by the Secretary of State, and the fact that is being denied, that may include denial of a person’s authority or status as a partner. A statement of denial is a limitation on authority as provided in subdivisions (d) and (e) of Section 16303.
A partnership is liable for loss or injury caused to a person, or for a penalty incurred, as a result of a wrongful act or omission, or other actionable conduct, of a partner acting in the ordinary course of business of the partnership or with authority of the partnership.
If, in the course of the partnership’s business or while acting with authority of the partnership, a partner receives or causes the partnership to receive money or property of a person not a partner, and the money or property is misapplied by a partner, the partnership is liable for the loss.
Except as otherwise provided in subdivisions (b) and (c), all partners are liable jointly and severally for all obligations of the partnership unless otherwise agreed by the claimant or provided by law.
A person admitted as a partner into an existing partnership is not personally liable for any partnership obligation incurred before the person’s admission as a partner.
Notwithstanding any other section of this chapter, and subject to subdivisions (d), (e), (f), and (h), a partner in a registered limited liability partnership is not liable or accountable, directly or indirectly, including by way of indemnification, contribution, assessment, or otherwise, for debts, obligations, or liabilities of or chargeable to the partnership or another partner in the partnership, whether arising in tort, contract, or otherwise, that are incurred, created, or assumed by the partnership while the partnership is a registered limited liability partnership, by reason of being a partner or acting in the conduct of the business or activities of the partnership.
Notwithstanding subdivision (c), all or certain specified partners of a registered limited liability partnership, if the specified partners agree, may be liable in their capacity as partners for all or specified debts, obligations, or liabilities of the registered limited liability partnership if the partners possessing a majority of the interests of the partners in the current profits of the partnership, or a different vote as may be required in the partnership agreement, specifically agreed to the specified debts, obligations, or liabilities in writing, prior to the debt, obligation, or liability being incurred. That specific agreement may be modified or revoked if the partners possessing a majority of the interests of the partners in the current profits of the partnership, or a different vote as may be required in the partnership agreement, agree to the modification or revocation in writing; provided, however, that a modification or revocation shall not affect the liability of a partner for any debts, obligations, or liabilities of a registered limited liability partnership incurred, created, or assumed by the registered limited liability partnership prior to the modification or revocation.
Nothing in subdivision (c) shall be construed to affect the liability of a partner of a registered limited liability partnership to third parties for that partner’s tortious conduct.
The limitation of liability in subdivision (c) shall not apply to claims based upon acts, errors, or omissions arising out of the rendering of professional limited liability partnership services of a registered limited liability partnership providing legal services unless that partnership has a currently effective certificate of registration issued by the State Bar.
A partner in a registered limited liability partnership is not a proper party to a proceeding by or against a registered limited liability partnership in which personal liability for partnership debts, obligations, or liabilities is asserted against the partner, unless that partner is personally liable under subdivision (d) or (e).
Nothing in this section shall affect or impair the ability of a partner to act as a guarantor or surety for, provide collateral for or otherwise be liable for, the debts, obligations, or liabilities of a registered limited liability partnership.
A partnership may sue and be sued in the name of the partnership.
Except as otherwise provided in subdivision (g) of Section 16306, an action may be brought against the partnership and any or all of the partners in the same action or in separate actions.
A judgment against a partnership is not by itself a judgment against a partner. A judgment against a partnership may not be satisfied from a partner’s assets unless there is also a judgment against the partner.
A judgment creditor of a partner may not levy execution against the assets of the partner to satisfy a judgment based on a claim against the partnership unless any of the following apply:
A judgment based on the same claim has been obtained against the partnership and a writ of execution on the judgment has been returned unsatisfied in whole or in part.
The partnership is a debtor in bankruptcy.
The partner has agreed that the creditor need not exhaust partnership assets.
A court grants permission to the judgment creditor to levy execution against the assets of a partner based on a finding that partnership assets subject to execution are clearly insufficient to satisfy the judgment, that exhaustion of partnership assets is excessively burdensome, or that the grant of permission is an appropriate exercise of the court’s equitable powers.
Liability is imposed on the partner by law or contract independent of the existence of the partnership.
This section applies to any partnership liability or obligation resulting from a representation by a partner or purported partner under Section 16308.
Except with respect to registered limited liability partnerships and foreign limited liability partnerships:
If a person, by words or conduct, purports to be a partner, or consents to being represented by another as a partner, in a partnership or with one or more persons not partners, the purported partner is liable to a person to whom the representation is made, if that person, relying on the representation, enters into a transaction with the actual or purported partnership. If the representation, either by the purported partner or by a person with the purported partner’s consent, is made in a public manner, the purported partner is liable to a person who relies upon the purported partnership even if the purported partner is not aware of being held out as a partner to the claimant. If partnership liability results, the purported partner is liable with respect to that liability as if the purported partner were a partner. If no partnership liability results, the purported partner is liable with respect to that liability jointly and severally with any other person consenting to the representation.
If a person is thus represented to be a partner in an existing partnership, or with one or more persons not partners, the purported partner is an agent of persons consenting to the representation to bind them to the same extent and in the same manner as if the purported partner were a partner, with respect to persons who enter into transactions in reliance upon the representation. If all of the partners of the existing partnership consent to the representation, a partnership act or obligation results. If fewer than all of the partners of the existing partnership consent to the representation, the person acting and the partners consenting to the representation are jointly and severally liable.
A person is not liable as a partner merely because the person is named by another in a statement of partnership authority.
A person does not continue to be liable as a partner merely because of a failure to file a statement of dissociation or to amend a statement of partnership authority to indicate the partner’s dissociation from the partnership.
Except as otherwise provided in subdivisions (a) and (b), persons who are not partners as to each other are not liable as partners to other persons.
The statement of partnership authority may designate an agent for service of process. The agent may be an individual residing in this state or a corporation that has complied with Section 1505 and whose capacity to act as an agent has not terminated. If an individual is designated, the statement shall include that person’s complete business or residence street address in this state. If a corporate agent is designated, no address for that agent shall be set forth.
An agent designated for service of process may deliver to the Secretary of State, on a form prescribed by the Secretary of State for filing, a signed and acknowledged written statement of resignation as an agent for service of process containing the name of the partnership and the Secretary of State’s file number of the partnership. On filing of the statement of resignation, the authority of the agent to act in that capacity shall cease and the Secretary of State shall mail or otherwise provide written notice of the filing of the statement of resignation to the partnership at its principal office.
The resignation of an agent may be effective if, on a form prescribed by the Secretary of State containing the name of the partnership and the Secretary of State’s file number for the partnership and the name of the agent for service of process, the agent disclaims having been properly appointed as the agent.
If an individual who has been designated agent for service of process dies or resigns or no longer resides in the state, or if the corporate agent for that purpose resigns, dissolves, withdraws from the state, forfeits its right to transact intrastate business, has its corporate rights, powers, and privileges suspended, or ceases to exist, the partnership or foreign partnership shall promptly file an amended statement of partnership authority, designating a new agent.
The Secretary of State may destroy or otherwise dispose of any statement of resignation filed pursuant to this section after a new statement of partnership authority is filed pursuant to Section 16303 replacing the agent for service of process that has resigned.
If a partnership has designated an agent for service of process, process may be served on the partnership as provided in this section and in Chapter 4 (commencing with Section 413.10) of Title 5 of Part 2 of the Code of Civil Procedure.
Personal service of a copy of any process against the partnership by delivery to an individual designated by it as agent, or if the designated agent is a corporation, to a person named in the latest certificate of the corporate agent filed pursuant to Section 1505 at the office of the corporate agent, shall constitute valid service on the partnership.
No change in the address of the agent for service of process or appointment of a new agent for service of process shall be effective until an amendment to the statement of partnership authority is filed.
If an agent for service of process has resigned and has not been replaced, or if the designated agent cannot with reasonable diligence be found at the address designated for personal delivery of the process, and it is shown by affidavit to the satisfaction of the court that process against a partnership cannot be served with reasonable diligence upon the designated agent by hand in the manner provided in Section 415.10, subdivision (a) of Section 415.20, or subdivision (a) of Section 415.30 of the Code of Civil Procedure, the court may make an order that the service shall be made on a partnership by delivering by hand to the Secretary of State, or to any person employed in the Secretary of State’s office in the capacity of assistant or deputy, one copy of the process for each defendant to be served, together with a copy of the order authorizing the service. Service in this manner shall be deemed complete on the 10th day after delivery of the process to the Secretary of State.
Upon receipt of the copy of process and the fee for service, the Secretary of State shall give notice of the service of the process to the partnership, at its principal office, by forwarding to that office, by registered mail with request for return receipt, the copy of the process.
The Secretary of State shall keep a record of all process served on the Secretary of State under this section and shall record therein the time of service and the action taken by the Secretary of State. A certificate under the Secretary of State’s official seal, certifying to the receipt of process, the giving of notice to the partnership, and the forwarding of the process pursuant to this section, shall be competent and prima facie evidence of the service of process.
ARTICLE 4. Relations of Partners to Each Other and to Partnership [16401. - 16406.]
Each partner is deemed to have an account that is subject to both of the following:
Credited with an amount equal to the money plus the value of any other property, net of the amount of any liabilities, the partner contributes to the partnership and the partner’s share of the partnership profits.
A partnership shall reimburse a partner for payments made and indemnify a partner for liabilities incurred by the partner in the ordinary course of the business of the partnership or for the preservation of its business or property.
A partnership shall reimburse a partner for an advance to the partnership beyond the amount of capital the partner agreed to contribute.
A payment or advance made by a partner that gives rise to a partnership obligation under subdivision (c) or (d) constitutes a loan to the partnership that accrues interest from the date of the payment or advance.
Each partner has equal rights in the management and conduct of the partnership business.
A partner may use or possess partnership property only on behalf of the partnership.
A partner is not entitled to remuneration for services performed for the partnership, except for reasonable compensation for services rendered in winding up the business of the partnership.
A person may become a partner only with the consent of all of the partners.
A difference arising as to a matter in the ordinary course of business of a partnership may be decided by a majority of the partners. An act outside the ordinary course of business of a partnership and an amendment to the partnership agreement may be undertaken only with the consent of all of the partners.
This section does not affect the obligations of a partnership to other persons under Section 16301.
A partner has no right to receive, and may not be required to accept, a distribution in kind.
A partnership shall keep its books and records, if any, in writing or in any other form capable of being converted into clearly legible tangible form, at its principal office.
A partnership shall provide partners and their agents and attorneys access to its books and records. It shall provide former partners and their agents and attorneys access to books and records pertaining to the period during which they were partners. The right of access provides the opportunity to inspect and copy books and records during ordinary business hours. A partnership may impose a reasonable charge, covering the costs of labor and material, for copies of documents furnished.
Each partner and the partnership shall furnish to a partner, and to the legal representative of a deceased partner or partner under legal disability, both of the following, which may be transmitted by electronic transmission by the partnership pursuant to Section 16101:
Without demand, any information concerning the partnership’s business and affairs reasonably required for the proper exercise of the partner’s rights and duties under the partnership agreement or this chapter; and
On demand, any other information concerning the partnership’s business and affairs, except to the extent the demand or the information demanded is unreasonable or otherwise improper under the circumstances.
The fiduciary duties a partner owes to the partnership and the other partners are the duty of loyalty and the duty of care set forth in subdivisions (b) and (c).
A partner’s duty of loyalty to the partnership and the other partners includes all of the following:
To account to the partnership and hold as trustee for it any property, profit, or benefit derived by the partner in the conduct and winding up of the partnership business or derived from a use by the partner of partnership property or information, including the appropriation of a partnership opportunity.
To refrain from dealing with the partnership in the conduct or winding up of the partnership business as or on behalf of a party having an interest adverse to the partnership.
To refrain from competing with the partnership in the conduct of the partnership business before the dissolution of the partnership.
A partner’s duty of care to the partnership and the other partners in the conduct and winding up of the partnership business is limited to refraining from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law.
A partner shall discharge the duties to the partnership and the other partners under this chapter or under the partnership agreement and exercise any rights consistently with the obligation of good faith and fair dealing.
A partner does not violate a duty or obligation under this chapter or under the partnership agreement merely because the partner’s conduct furthers the partner’s own interest.
A partner may lend money to and transact other business with the partnership, and as to each loan or transaction, the rights and obligations of the partner regarding performance or enforcement are the same as those of a person who is not a partner, subject to other applicable law.
This section applies to a person winding up the partnership business as the personal or legal representative of the last surviving partner as if the person were a partner.
A partnership may maintain an action against a partner for a breach of the partnership agreement, or for the violation of a duty to the partnership, causing harm to the partnership.
A partner may maintain an action against the partnership or another partner for legal or equitable relief, with or without an accounting as to partnership business, to do any of the following:
Enforce the partner’s rights under the partnership agreement.
Enforce the partner’s rights under this chapter, including all of the following:
The partner’s right to compel a dissolution and winding up of the partnership business under Section 16801 or enforce any other right under Article 8 (commencing with Section 16801).
Enforce the rights and otherwise protect the interests of the partner, including rights and interests arising independently of the partnership relationship.
The accrual of, and any time limitation on, a right of action for a remedy under this section is governed by other law. A right to an accounting upon a dissolution and winding up does not revive a claim barred by law.
If a partnership for a definite term or particular undertaking is continued, without an express agreement, after the expiration of the term or completion of the undertaking, the rights and duties of the partners remain the same as they were at the expiration or completion, so far as is consistent with a partnership at will.
If the partners, or those of them who habitually acted in the business during the term or undertaking, continue the business without any settlement or liquidation of the partnership, they are presumed to have agreed that the partnership will continue.
ARTICLE 5. Transferees and Creditors of Partner [16501. - 16504.]
A partner is not a coowner of partnership property and has no interest in partnership property that can be transferred, either voluntarily or involuntarily.
The only transferable interest of a partner in the partnership is the partner’s share of the profits and losses of the partnership and the partner’s right to receive distributions. The interest is personal property.
A transfer, in whole or in part, of a partner’s transferable interest in the partnership is permissible. However, a transfer does not do either of the following:
By itself cause the partner’s dissociation or a dissolution and winding up of the partnership business.
As against the other partners or the partnership, entitle the transferee, during the continuance of the partnership, to participate in the management or conduct of the partnership business, to require access to information concerning partnership transactions, or to inspect or copy the partnership books or records.
A transferee of a partner’s transferable interest in the partnership has a right to all of the following:
To receive, in accordance with the transfer, distributions to which the transferor would otherwise be entitled.
To receive upon the dissolution and winding up of the partnership business, in accordance with the transfer, the net amount otherwise distributable to the transferor.
To seek under paragraph (6) of Section 16801 a judicial determination that it is equitable to wind up the partnership business.
In a dissolution and winding up, a transferee is entitled to an account of partnership transactions only from the date of the latest account agreed to by all of the partners.
Upon transfer, the transferor retains the rights and duties of a partner other than the interest in distributions transferred.
A partnership need not give effect to a transferee’s rights under this section until it has notice of the transfer.
A transfer of a partner’s transferable interest in the partnership in violation of a restriction on transfer contained in the partnership agreement is ineffective as to a person having notice of the restriction at the time of transfer.
On application by a judgment creditor of a partner or of a partner’s transferee, a court having jurisdiction may charge the transferable interest of the judgment debtor to satisfy the judgment. The court may appoint a receiver of the share of the distributions due or to become due to the judgment debtor in respect of the partnership and make all other orders, directions, accounts, and inquiries the judgment debtor might have made or that the circumstances of the case may require.
A charging order constitutes a lien on the judgment debtor’s transferable interest in the partnership. The court may order a foreclosure of the interest subject to the charging order at any time. The purchaser at the foreclosure sale has the rights of a transferee.
At any time before foreclosure, an interest charged may be redeemed in any of the following manners:
By the judgment debtor.
With property other than partnership property, by one or more of the other partners.
With partnership property, by one or more of the other partners with the consent of all of the partners whose interests are not so charged.
This chapter does not deprive a partner of a right under exemption laws with respect to the partner’s interest in the partnership.
This section provides the exclusive remedy by which a judgment creditor of a partner or partner’s transferee may satisfy a judgment out of the judgment debtor’s transferable interest in the partnership.
ARTICLE 6. Partner’s Dissociation [16601. - 16603.]
A partner is dissociated from a partnership upon the occurrence of any of the following events:
The partnership’s having notice of the partner’s express will to withdraw as a partner or on a later date specified by the partner.
An event agreed to in the partnership agreement as causing the partner’s dissociation.
The partner’s expulsion pursuant to the partnership agreement.
The partner’s expulsion by the unanimous vote of the other partners if any of the following apply:
It is unlawful to carry on the partnership business with that partner.
There has been a transfer of all or substantially all of that partner’s transferable interest in the partnership, other than a transfer for security purposes, or a court order charging the partner’s interest, that has not been foreclosed.
Within 90 days after the partnership notifies a corporate partner that it will be expelled because it has filed a certificate of dissolution or the equivalent, its charter has been revoked, or its right to conduct business has been suspended by the jurisdiction of its incorporation, there is no revocation of the certificate of dissolution or no reinstatement of its charter or its right to conduct business.
A partnership, limited partnership, or limited liability company that is a partner has been dissolved and its business is being wound up.
On application by the partnership or another partner, the partner’s expulsion by judicial determination because of any of the following:
The partner engaged in wrongful conduct that adversely and materially affected the partnership business.
The partner willfully or persistently committed a material breach of the partnership agreement or of a duty owed to the partnership or the other partners under Section 16404.
The partner engaged in conduct relating to the partnership business that makes it not reasonably practicable to carry on the business in partnership with the partner.
The partner’s act or failure to act in any of the following instances:
By becoming a debtor in bankruptcy.
By executing an assignment for the benefit of creditors.
By seeking, consenting to, or acquiescing in the appointment of a trustee, receiver, or liquidator of that partner or of all or substantially all of that partner’s property.
By failing, within 90 days after the appointment, to have vacated or stayed the appointment of a trustee, receiver, or liquidator of the partner or of all or substantially all of the partner’s property obtained without the partner’s consent or acquiescence, or failing within 90 days after the expiration of a stay to have the appointment vacated.
In the case of a partner who is an individual, by any of the following:
The partner’s death.
The appointment of a guardian or general conservator for the partner.
A judicial determination that the partner has otherwise become incapable of performing the partner’s duties under the partnership agreement.
In the case of a partner that is a trust or is acting as a partner by virtue of being a trustee of a trust, distribution of the trust’s entire transferable interest in the partnership, but not merely by reason of the substitution of a successor trustee.
In the case of a partner that is an estate or is acting as a partner by virtue of being a personal representative of an estate, distribution of the estate’s entire transferable interest in the partnership, but not merely by reason of the substitution of a successor personal representative.
Termination of a partner who is not an individual, partnership, corporation, trust, or estate.
A partner has the power to dissociate at any time, rightfully or wrongfully, by express will pursuant to paragraph (1) of Section 16601.
A partner’s dissociation is wrongful only if any of the following apply:
It is in breach of an express provision of the partnership agreement.
In the case of a partnership for a definite term or particular undertaking, before the expiration of the term or the completion of the undertaking if any of the following apply:
The partner withdraws by express will, unless the withdrawal follows within 90 days after another partner’s dissociation by death or otherwise under paragraphs (6) to (10), inclusive, of Section 16601 or wrongful dissociation under this subdivision.
The partner is expelled by judicial determination under paragraph (5) of Section 16601.
The partner is dissociated by becoming a debtor in bankruptcy.
In the case of a partner who is not an individual, trust other than a business trust, or estate, the partner is expelled or otherwise dissociated because it willfully dissolved or terminated.
A partner who wrongfully dissociates is liable to the partnership and to the other partners for damages caused by the dissociation. The liability is in addition to any other obligation of the partner to the partnership or to the other partners.
Upon a partner’s dissociation, all of the following apply:
The partner’s right to participate in the management and conduct of the partnership business terminates.
The partner’s duty of loyalty under paragraph (3) of subdivision (b) of Section 16404 terminates.
The partner’s duty of loyalty under paragraphs (1) and (2) of subdivision (b) of Section 16404 and duty of care under subdivision (c) of Section 16404 continue only with regard to matters arising and events occurring before the partner’s dissociation.
ARTICLE 7. Partner’s Dissociation When Business Not Wound Up [16701. - 16705.]
Except as provided in Section 16701.5, all of the following shall apply:
If a partner is dissociated from a partnership, the partnership shall cause the dissociated partner’s interest in the partnership to be purchased for a buyout price determined pursuant to subdivision (b).
The buyout price of a dissociated partner’s interest is the amount that would have been distributable to the dissociating partner under subdivision (b) of Section 16807 if, on the date of dissociation, the assets of the partnership were sold at a price equal to the greater of the liquidation value or the value based on a sale of the entire business as a going concern without the dissociated partner and the partnership was wound up as of that date. Interest shall be paid from the date of dissociation to the date of payment.
Damages for wrongful dissociation under Section 16602, and all other amounts owing, whether or not presently due, from the dissociated partner to the partnership, shall be offset against the buyout price. Interest shall be paid from the date the amount owed becomes due to the date of payment.
A partnership shall indemnify a dissociated partner whose interest is being purchased against all partnership liabilities, whether incurred before or after the dissociation, except liabilities incurred by an act of the dissociated partner under Section 16702.
If no agreement for the purchase of a dissociated partner’s interest is reached within 120 days after a written demand for payment, the partnership shall pay, or cause to be paid, in cash to the dissociated partner the amount the partnership estimates to be the buyout price and accrued interest, reduced by any offsets and accrued interest under subdivision (c).
If a deferred payment is authorized under subdivision (h), the partnership may tender a written offer to pay the amount it estimates to be the buyout price and accrued interest, reduced by any offsets under subdivision (c), stating the time of payment, the amount and type of security for payment, and the other terms and conditions of the obligation.
The payment or tender required by subdivision (e) or (f) shall be accompanied by all of the following:
A statement of partnership assets and liabilities as of the date of dissociation.
The latest available partnership balance sheet and income statement, if any.
An explanation of how the estimated amount of the payment was calculated.
Written notice that the payment is in full satisfaction of the obligation to purchase unless, within 120 days after the written notice, the dissociated partner commences an action to determine the buyout price, any offsets under subdivision (c), or other terms of the obligation to purchase.
A partner who wrongfully dissociates before the expiration of a definite term or the completion of a particular undertaking is not entitled to payment of any portion of the buyout price until the expiration of the term or completion of the undertaking, unless the partner establishes to the satisfaction of the court that earlier payment will not cause undue hardship to the business of the partnership. A deferred payment shall be adequately secured and bear interest.
A dissociated partner may maintain an action against the partnership, pursuant to subparagraph (B) of paragraph (2) of subdivision (b) of Section 16405, to determine the buyout price of that partner’s interest, any offsets under subdivision (c), or other terms of the obligation to purchase. The action shall be commenced within 120 days after the partnership has tendered payment or an offer to pay or within one year after written demand for payment if no payment or offer to pay is tendered. The court shall determine the buyout price of the dissociated partner’s interest, any offset due under subdivision (c), and accrued interest, and enter judgment for any additional payment or refund. If deferred payment is authorized under subdivision (h), the court shall also determine the security for payment and other terms of the obligation to purchase. The court may assess reasonable attorney’s fees and the fees and expenses of appraisers or other experts for a party to the action, in amounts the court finds equitable, against a party that the court finds acted arbitrarily, vexatiously, or not in good faith. The finding may be based on the partnership’s failure to tender payment or an offer to pay or to comply with subdivision (g).
For dissociations occurring within 90 days prior to the dissolution, both of the following shall apply:
All partners who dissociated within 90 days prior to the dissolution shall be treated as partners under Section 16807.
For two years after a partner dissociates, the partnership, including a surviving partnership under Article 9 (commencing with Section 16901), is bound by an act of the dissociated partner that would have bound the partnership under Section 16301 before dissociation only if at the time of entering into the transaction all of the following apply to the other party:
The other party reasonably believed that the dissociated partner was then a partner.
The other party did not have notice of the partner’s dissociation.
A dissociated partner is liable to the partnership for any damage caused to the partnership arising from an obligation incurred by the dissociated partner after dissociation for which the partnership is liable under subdivision (a).
A partner’s dissociation does not of itself discharge the partner’s liability for a partnership obligation incurred before dissociation. A dissociated partner is not liable for a partnership obligation incurred after dissociation, except as otherwise provided in subdivision (b).
Except for registered limited liability partnerships and foreign limited liability partnerships, a partner who dissociates is liable as a partner to the other party in a transaction entered into by the partnership, or a surviving partnership under Article 9 (commencing with Section 16901), within two years after the partner’s dissociation, only if at the time of entering into the transaction all of the following apply to the other party:
The other party reasonably believed that the dissociated partner was then a partner.
The other party did not have notice of the partner’s dissociation.
By agreement with the partnership creditor and the partners continuing the business, a dissociated partner may be released from liability for a partnership obligation.
A dissociated partner is released from liability for a partnership obligation if a partnership creditor, with notice of the partner’s dissociation but without the partner’s consent, agrees to a material alteration in the nature or time of payment of a partnership obligation.
A dissociated partner or the partnership may file a statement of dissociation stating the name of the partnership as filed with the Secretary of State, any identification number issued by the Secretary of State, and that the partner is dissociated from the partnership.
A statement of dissociation is a limitation on the authority of a dissociated partner for the purposes of subdivisions (d) and (e) of Section 16303.
Continued use of a partnership name, or a dissociated partner’s name as part thereof, by partners continuing the business does not of itself make the dissociated partner liable for an obligation of the partners or the partnership continuing the business.
ARTICLE 8. Winding Up Partnership Business [16801. - 16807.]
A partnership is dissolved, and its business shall be wound up, only upon the occurrence of any of the following events:
In a partnership at will, by the express will to dissolve and wind up the partnership business of at least half of the partners, including partners, other than wrongfully dissociating partners, who have dissociated within the preceding 90 days, and for which purpose a dissociation under paragraph (1) of Section 16601 constitutes an expression of that partner’s will to dissolve and wind up the partnership business.
In a partnership for a definite term or particular undertaking, when any of the following occurs:
After the expiration of 90 days after a partner’s dissociation by death or otherwise under paragraphs (6) to (10), inclusive, of Section 16601, or a partner’s wrongful dissociation under subdivision (b) of Section 16602 unless before that time a majority in interest of the partners, including partners who have rightfully dissociated pursuant to subparagraph (A) of paragraph (2) of subdivision (b) of Section 16602, agree to continue the partnership.
The express will of all of the partners to wind up the partnership business.
The expiration of the term or the completion of the undertaking.
An event agreed to in the partnership agreement resulting in the winding up of the partnership business.
An event that makes it unlawful for all or substantially all of the business of the partnership to be continued, but a cure of illegality within 90 days after notice to the partnership of the event is effective retroactively to the date of the event for purposes of this section.
On application by a partner, a judicial determination that any of the following apply:
The economic purpose of the partnership is likely to be unreasonably frustrated.
Another partner has engaged in conduct relating to the partnership business that makes it not reasonably practicable to carry on the business in partnership with that partner.
It is not otherwise reasonably practicable to carry on the partnership business in conformity with the partnership agreement.
On application by a transferee of a partner’s transferable interest, a judicial determination that it is equitable to wind up the partnership business after the expiration of the term or completion of the undertaking, if the partnership was for a definite term or particular undertaking at the time of the transfer or entry of the charging order that gave rise to the transfer.
Subject to subdivision (b), a partnership continues after dissolution only for the purpose of winding up its business. The partnership is terminated when the winding up of its business is completed.
At any time after the dissolution of a partnership and before the winding up of its business is completed, all of the partners, including any dissociating partner other than a wrongfully dissociating partner, may waive the right to have the partnership’s business wound up and the partnership terminated. In that event both of the following apply:
The partnership resumes carrying on its business as if dissolution had never occurred, and any liability incurred by the partnership or a partner after the dissolution and before the waiver is determined as if dissolution had never occurred.
The rights of a third party accruing under paragraph (1) of Section 16804 or arising out of conduct in reliance on the dissolution before the third party knew or received a notification of the waiver may not be adversely affected.
After dissolution, a partner who has not dissociated may participate in winding up the partnership’s business, but on application of any partner, partner’s legal representative, or transferee, the court, for good cause shown, may order judicial supervision of the winding up.
The legal representative of the last surviving partner may wind up a partnership’s business.
A person winding up a partnership’s business may preserve the partnership business or property as a going concern for a reasonable time, prosecute and defend actions and proceedings, whether civil, criminal, or administrative, settle and close the partnership’s business, dispose of and transfer the partnership’s property, discharge the partnership’s liabilities, distribute the assets of the partnership pursuant to Section 16807, settle disputes by mediation or arbitration, and perform other necessary acts.
Subject to Section 16805, a partnership is bound by a partner’s act after dissolution that is either of the following:
Appropriate for winding up the partnership business.
Would have bound the partnership under Section 16301 before dissolution, if the other party to the transaction did not have notice of the dissolution.
After dissolution, a partner who has not wrongfully dissociated may file a statement of dissolution stating the name of the partnership as filed with the Secretary of State, any identification number issued by the Secretary of State, and that the partnership has dissolved and is winding up its business.
After filing and, if appropriate, recording a statement of dissolution, a dissolved partnership may file and, if appropriate, record a statement of partnership authority that will operate with respect to a person not a partner as provided in subdivisions (d) and (e) of Section 16303 in any transaction, whether or not the transaction is appropriate for winding up the partnership business.
Except as otherwise provided in subdivision (b) and except for registered limited liability partnerships and foreign limited liability partnerships, after dissolution a partner is liable to the other partners for the partner’s share of any partnership liability incurred under Section 16804.
Except for registered limited liability partnerships and foreign limited liability partnerships, a partner who, with knowledge of the dissolution, incurs a partnership liability under paragraph (2) of Section 16804 by an act that is not appropriate for winding up the partnership business is liable to the partnership for any damage caused to the partnership arising from the liability.
In winding up a partnership’s business, the assets of the partnership, including the contributions of the partners required by this section, shall be applied to discharge its obligations to creditors, including, to the extent permitted by law, partners who are creditors. Any surplus shall be applied to pay in cash the net amount distributable to partners in accordance with their right to distributions under subdivision (b).
Each partner is entitled to a settlement of all partnership accounts upon winding up the partnership business. In settling accounts among the partners, the profits and losses that result from the liquidation of the partnership assets shall be credited and charged to the partners’ accounts. The partnership shall make a distribution to a partner in an amount equal to any excess of the credits over the charges in the partner’s account. Except for registered limited liability partnerships and foreign limited liability partnerships, a partner shall contribute to the partnership an amount equal to any excess of the charges over the credits in the partner’s account.
If a partner fails to contribute the full amount that the partner is obligated to contribute under subdivision (b), all of the other partners shall contribute, in the proportions in which those partners share partnership losses, the additional amount necessary to satisfy the partnership obligations for which they are liable under Section 16306. A partner or partner’s legal representative may recover from the other partners any contributions the partner makes to the extent the amount contributed exceeds that partner’s share of the partnership obligations for which the partner is personally liable under Section 16306.
After the settlement of accounts, each partner shall contribute, in the proportion in which the partner shares partnership losses, the amount necessary to satisfy partnership obligations that were not known at the time of the settlement and for which the partner is personally liable under Section 16306.
The estate of a deceased partner is liable for the partner’s obligation to contribute to the partnership.
An assignee for the benefit of creditors of a partnership or a partner, or a person appointed by a court to represent creditors of a partnership or a partner, may enforce a partner’s obligation to contribute to the partnership.
ARTICLE 9. Conversions and Mergers [16901. - 16917.]
In this article, the following terms have the following meanings:
“Constituent other business entity” means any other business entity that is merged with or into one or more partnerships and includes a surviving other business entity.
“Constituent partnership” means a partnership that is merged with or into one or more other partnerships or other business entities and includes a surviving partnership.
“Disappearing other business entity” means a constituent other business entity that is not the surviving other business entity.
“Disappearing partnership” means a constituent partnership that is not the surviving partnership.
“Domestic” means organized under the laws of this state when used in relation to any partnership, other business entity, or person (other than an individual).
“Foreign other business entity” means any other business entity formed under the laws of any state other than this state or under the laws of the United States or of a foreign country.
“Foreign partnership” means a partnership formed under the laws of any state other than this state or under the laws of a foreign country.
“General partner” means a partner in a partnership and a general partner in a limited partnership.
“Limited liability company” means a limited liability company created under Title 2.6 (commencing with Section 17701.01), or comparable law of another jurisdiction.
“Limited partner” means a limited partner in a limited partnership.
“Limited partnership” means a limited partnership created under Chapter 3 (commencing with Section 15611) or Chapter 5.5 (commencing with Section 15900), predecessor law, or comparable law of another jurisdiction.
“Other business entity” means a limited partnership, limited liability company, corporation, business trust, real estate investment trust, or an unincorporated association (other than a nonprofit association), but excluding a partnership.
“Partner” includes both a general partner and a limited partner.
“Surviving other business entity” means an other business entity into which one or more partnerships are merged.
“Surviving partnership” means a partnership into which one or more other partnerships or other business entities are merged.
A partnership, other than a registered limited liability partnership, may be converted into a domestic other business entity or a foreign other business entity pursuant to this article if, (1) pursuant to a conversion into a domestic or foreign limited partnership or limited liability company, each of the partners of the converting partnership would receive a percentage interest in the profits and capital of the converted other business entity equal to the partner’s percentage interest in profits and capital of the converting partnership as of the effective time of the conversion, and (2) pursuant to a conversion into an other business entity or foreign other business entity not specified in clause (1) above, each of the partnership interests of the same class is treated equally with respect to any distribution of cash, property, rights, interests, or securities of the converted other business entity unless all partners of the same class consent.
Notwithstanding this section, the conversion of a partnership to a domestic or foreign other business entity may be effected only if: (1) the law under which that domestic or foreign other business entity will exist expressly permits the formation of that other entity pursuant to a conversion; and (2) the partnership complies with any and all other requirements of that other law that applies to conversion of the other business entity.
A partnership that desires to convert to a domestic or foreign other business entity shall approve a plan of conversion. The plan of conversion shall state the following:
The terms and conditions of the conversion.
The place of the organization of the converted entity and of the converting partnership and the name of the converted entity after conversion, if different from that of the converting partnership.
The manner of converting the partnership interests of each of the partners into shares of, securities of, or interests in the converted entity.
The provisions of the governing documents for the converted entity, including the limited partnership agreement, limited liability company articles of organization and operating agreement, or articles or certificate of incorporation if the converted entity is a corporation, to which the holders of interest in the converted entity are to be bound.
Any other details or provisions as are required by laws under which the converted entity is organized.
Any other details or provisions that are desired.
The plan of conversion shall be approved by that number or percentage of partners required by the partnership agreement to approve a conversion of the partnership as set forth in the partnership agreement. If the partnership agreement fails to specify the required partner approval for a conversion of the partnership, the plan of conversion shall be approved by that number or percentage of partners required by the partnership agreement to approve an amendment to the partnership agreement unless the conversion effects a change for which the partnership agreement requires a greater number or percentage of partners than that required to amend the partnership agreement, in which case the plan of conversion shall be approved by that greater number or percentage. If the partnership agreement fails to specify the vote required to amend the partnership agreement, the plan of conversion shall be approved by all partners.
If the partnership is converting into a limited partnership, in addition to the approval of the partners as set forth in subdivision (b), the plan of conversion shall be approved by all partners who will become general partners of the converted limited partnership pursuant to the plan of conversion.
All partners of the converting partnership except those that dissociate upon effectiveness of the conversion pursuant to subdivision (e) of Section 16909 shall be deemed parties to any partnership or operating agreement, articles or certificate of incorporation, or organic document for the converted entity adopted as part of the plan of conversion, regardless of whether that partner has executed the plan of conversion or the operating agreement, articles or certificate of incorporation, partnership agreement, or other organic document for the converted entity. Any adoption of a new partnership or operating agreement, articles or certificate of incorporation, or other organic document made pursuant to the foregoing sentence shall be effective at the effective time or date of the conversion.
Notwithstanding its prior approval, a plan of conversion may be amended before the conversion takes effect if the amendment is approved by the partnership in the same manner, and by the same number or percentage of partners, as was required for approval of the original plan of conversion.
The partners of a converting partnership may, at any time before the conversion is effective, in their discretion, abandon a conversion, without further approval by the partners, in the same manner, and by the same number or percentage of partners, as was required for approval of the original plan of conversion at any time before the conversion is effective, subject to the contractual rights of third parties.
The converted entity shall keep the plan of conversion at: (1) the principal place of business of the converted entity, if the converted entity is a foreign other business entity or a corporation; or (2) the office at which records are to be kept under Section 15614 or 15901.14 if the converted entity is a domestic limited partnership, or at the office at which records are to be kept under Section 17701.13 if the converted entity is a domestic limited liability company. Upon the request of a partner of a converting partnership, the authorized person on behalf of the converted entity shall promptly deliver to the partner or the holder of interests or other securities, at the expense of the converted entity, a copy of the plan of conversion. A waiver by a partner of the rights provided in this subdivision shall be unenforceable.
A conversion into a domestic other business entity shall become effective upon the earliest date that all of the following shall have occurred:
The approval of the plan of conversion by the partners of the converting partnership as provided in Section 16903.
The filing of all documents required by law to create the converted other business entity, which documents shall also contain a statement of conversion, if required under Section 16906.
The effective date, if set forth in the plan of conversion, shall have occurred.
A copy of the certificate of limited partnership, articles of organization, or articles of incorporation, complying with Section 16906, if applicable, duly certified by the Secretary of State, is conclusive evidence of the conversion of the partnership.
The conversion of a partnership into a foreign other business entity shall comply with Section 16902.
If the partnership is converting into a foreign other business entity, then the conversion proceedings shall be in accordance with the laws of the state or place of organization of the foreign other business entity and the conversion shall become effective in accordance with that law.
Unless a statement of conversion has been filed to effect the conversion, the converted foreign other business entity shall promptly notify the Secretary of State of the mailing address of its agent for service of process, its principal office, and of any change of address. To enforce an obligation of a partnership that has converted to a foreign other business entity, the Secretary of State shall only be the agent for service of process in an action or proceeding against the converted foreign other business entity, if the agent designated for the service of process for that entity is a natural person and cannot be found with due diligence or if the agent is a corporation and no person, to whom delivery may be made, may be located with due diligence, or if no agent has been designated and if no one of the officers, partners, managers, members, or agents of that entity may be located after diligent search, and it is so shown by affidavit to the satisfaction of the court. The court then may make an order that service be made by personal delivery to the Secretary of State or to an assistant or deputy Secretary of State of two copies of the process together with two copies of the order, and the order shall set forth an address to which the process shall be sent by the Secretary of State. Service in this manner is deemed complete on the 10th day after delivery of the process to the Secretary of State.
Upon receipt of the process and order and the fee set forth in Section 12197 of the Government Code, the Secretary of State shall provide notice to the entity of the service of the process by forwarding by certified mail, return receipt requested, a copy of the process and order to the address specified in the order.
The Secretary of State shall keep a record of all process served upon the Secretary of State and shall record therein the time of service and the Secretary of State’s action with respect thereto. The certificate of the Secretary of State, under the Secretary of State’s official seal, certifying to the receipt of process, the providing of notice thereof to the entity, and the forwarding of the process, shall be competent and prima facie evidence of the matters stated therein.
If the converting partnership has filed a statement of partnership authority under Section 16303 that is effective at the time of the conversion, then upon conversion to a domestic limited partnership, limited liability company, or corporation, the certificate of limited partnership, articles of organization, or articles of incorporation filed by the converted entity, as applicable, shall contain a statement of conversion, in that form as may be prescribed by the Secretary of State. If the converting partnership has not filed a statement of partnership authority under Section 16303 that is effective at the time of the conversion, upon conversion to a domestic limited partnership, limited liability company, or corporation, the converted entity may, but is not required to file, on its certificate of limited partnership, articles of organization, or articles of incorporation, a statement of conversion. A statement of conversion shall set forth all of the following:
The name of the converting partnership and the Secretary of State’s file number, if any, of the converting partnership.
A statement that the principal terms of the plan of conversion were approved by a vote of the partners, which equaled or exceeded the vote required under Section 16903.
The name, mailing address, and street address of the converted entity’s agent for service of process. If a corporation qualified under Section 1505 is designated as the agent, no address for it shall be set forth.
A partnership converting to a foreign other business entity that has filed a statement of partnership authority under Section 16303 that is effective at the time of conversion may file a certificate of conversion with the Secretary of State. The certificate of conversion shall contain the following:
The names of the converting partnership and the converted entity.
The street address of the converted entity’s principal office and of a principal office in California, if any.
The form of organization of the converted entity.
The name, mailing address, and street address of the converted entity’s agent for service of process. If a corporation qualified under Section 1505 is designated as the agent, no address for it shall be set forth.
The filing with the Secretary of State of a certificate of limited partnership, articles of organization, or articles of incorporation containing a statement of conversion as set forth in subdivision (a) or a certificate of conversion filed pursuant to subdivision (b) shall have the effect of the filing of a cancellation by the converting partnership of any statement of partnership authority filed by it.
Whenever a partnership or other business entity having any real property in this state converts into a partnership or an other business entity pursuant to the laws of this state or of the state or place in which the other business entity was organized, and the laws of the state or place of organization (including this state) of the converting partnership or other business entity provide substantially that the conversion of a converting entity vests in the converted partnership or other business entity all the real property of the converting partnership or converting other business entity, the filing for record in the office of the county recorder of any county in this state in which any of the real property of the converting partnership or converting other business entity is located of either (1) a certificate of conversion or a certificate of limited partnership, articles of organization, or articles of incorporation, complying with Section 16906, in the form prescribed by the Secretary of State, certified by the Secretary of State, or (2) a copy of a certificate of conversion or a certificate of limited partnership, articles of organization, articles or certificate of incorporation, or other certificate evidencing the creation of a foreign other business entity by conversion, containing a statement of conversion, certified by the Secretary of State or an authorized public official of the state or place pursuant to the laws of which the conversion is effected, shall evidence record ownership in the converted partnership or converted other business entity of all interest of the converting partnership or converting other business entity in and to the real property located in that county.
A filed and, if appropriate, recorded certificate of conversion, certificate of limited partnership, articles of organization, articles or certificate of incorporation, or other certificate evidencing the creation of an other business entity by conversion, containing a statement of conversion, executed and declared to be accurate pursuant to subdivision (c) of Section 16105, stating the name of the converting partnership or converting other business entity in whose name property was held before the conversion and the name of the converted entity, but not containing all of the other information required by Section 16906, operates with respect to the entities named to the extent provided in subdivision (a).
Recording of a certificate of conversion, a certificate of limited partnership, articles of organization, articles or certificate of incorporation, or other certificate evidencing the creation of another business entity by conversion, containing a statement of conversion, in accordance with Section 16902 shall create, in favor of bona fide purchasers or encumbrancers for value, a conclusive presumption that the conversion was validly completed.
A domestic limited partnership, limited liability company, or corporation, or a foreign other business entity may be converted to a domestic partnership pursuant to this article, but only if the converting entity is authorized by the laws under which it is organized to effect the conversion.
An entity that desires to convert into a domestic partnership shall approve a plan of conversion or the instrument that is required to be approved to effect the conversion pursuant to the laws under which the entity is organized.
The conversion of a domestic limited partnership, limited liability company, or corporation, or foreign other business entity shall be approved by the number or percentage of the partners, members, shareholders, or holders of interest of the converting entity as is required by the law under which the entity is organized, or a greater or lesser percentage (subject to applicable laws) as set forth in the limited partnership agreement, articles of organization, operating agreement, or articles or certificate of organization, or other governing document for the converting entity.
The conversion by a domestic limited partnership, limited liability company, or corporation, or a foreign other business entity into a partnership shall be effective under this article at the time that the conversion is effective under the laws under which the converting entity is organized.
The filing with the Secretary of State of a certificate of conversion or a statement of partnership authority containing a statement of conversion pursuant to subdivision (a) shall have the effect of the filing of a certificate of cancellation by the converting foreign limited partnership or foreign limited liability company, and no converting foreign limited partnership or foreign limited liability company that has made the filing is required to file a certificate of cancellation under Section 15909.07 or 17708.08 as a result of that conversion. If a converting other business entity is a foreign corporation qualified to transact business in this state, the foreign corporation shall, by virtue of the filing, automatically surrender its right to transact intrastate business.
Subdivision (g) of Section 16105 shall apply to a statement of partnership authority containing a statement of conversion filed pursuant to this section.
An entity that converts into another entity pursuant to this article is for all purposes the same entity that existed before the conversion.
When a conversion takes effect, all of the following apply:
All the rights and property, whether real, personal, or mixed, of the converting entity remains vested in the converted entity.
All debts, liabilities, and obligations of the converting entity continue as debts, liabilities, and obligations of the converted entity.
All rights of creditors and liens upon the property of the converting entity shall be preserved unimpaired and remain enforceable against the converted entity to the same extent as against the converting entity as if the conversion had not occurred.
Any action or proceeding pending by or against the converting entity may be continued against the converted entity as if the conversion had not occurred.
A partner of a converting partnership is liable for:
A partner of a partnership that converted from an other business entity is liable for any and all obligations of the converting other business entity for which the partner was personally liable before the conversion, but only to the extent the partner was liable for the obligation of the converting entity prior to the conversion.
A partner of a converting partnership, who does not vote in favor of the conversion and does not agree to become a partner, member, shareholder, or holder of interest of the converted other business entity shall have the right to dissociate from the partnership, as of the date the conversion takes effect. Within 10 days after the approval of the conversion by the partners as required under this article, the converting partnership shall send notice of the approval of the conversion to each partner that has not approved the conversion, accompanied by copies of Section 16701 and a brief description of the procedure to be followed under that section if the partner wishes to dissociate from the partnership. A partner that desires to dissociate from the converting partnership shall send written notice of that dissociation within 30 days after the date of the notice of the approval of the conversion. The converting partnership shall cause the partner’s interest in the entity to be purchased under Section 16701. The converting partnership is bound under Section 16702 by an act of a general partner dissociated under this subdivision, and the partner is liable under Section 16703 for transactions entered into by the converted entity after the conversion takes effect. The dissociation of a partner in connection with a conversion pursuant to the terms of this subdivision shall not be deemed to be a wrongful dissociation under Section 16602.
The following entities may be merged pursuant to this article:
Two or more partnerships into one partnership.
One or more partnerships and one or more other business entities into one of those other business entities.
One or more partnerships, other than a limited liability partnership, and one or more other business entities into one partnership.
Notwithstanding subdivision (a), the merger of any number of partnerships with any number of other business entities may be effected only if the other business entities that are organized in California are authorized by the laws under which they are organized to effect the merger, and (1) if a domestic partnership is the surviving partnership, the foreign other business entities are not prohibited by the laws under which they are organized from effecting that merger and (2) if a foreign partnership or foreign other business entity is the survivor of the merger, the laws of the jurisdiction under which the survivor is organized authorize that merger.
Each partnership and other business entity which desires to merge shall approve an agreement of merger. The agreement of merger shall be approved by the number or percentage of partners specified for merger in the partnership agreement of the constituent partnership. If the partnership agreement fails to specify the required partner approval for merger of the constituent partnership, then the agreement of merger shall be approved by that number or percentage of partners specified by the partnership agreement to approve an amendment to the partnership agreement. However, if the merger effects a change for which the partnership agreement requires a greater number or percentage of partners than that required to amend the partnership agreement, then the merger shall be approved by that greater number or percentage. If the partnership agreement contains no provision specifying the vote required to amend the partnership agreement, then the agreement of merger must be approved by all the partners. The agreement of merger shall be approved on behalf of each constituent other business entity by those persons required to approve the merger by the laws under which it is organized. Other persons may be parties to the agreement of merger. The agreement of merger shall state all of the following:
The terms and conditions of the merger.
The name and place of organization of the surviving partnership or surviving other business entity, and of each disappearing partnership and disappearing other business entity, and the agreement of merger may change the name of the surviving partnership, which new name may be the same as, or similar to, the name of a disappearing partnership.
The manner of converting the partnership interests of each of the constituent partnerships into interests or other securities of the surviving partnership or surviving other business entity, and if partnership interests of any of the constituent partnerships are not to be converted solely into interest or other securities of the surviving partnership or surviving other business entity, the cash, property, rights, interests, or securities which the holders of the partnership interest are to receive in exchange for the partnership interests, which cash, property, rights, interests, or securities may be in addition to or in lieu of interests or other securities of the surviving partnership or surviving other business entity, or that the partnership interests are canceled without consideration.
Any other details or provisions as are required by the laws under which any constituent other business entity is organized.
Any other details or provisions that are desired, including, without limitation, a provision for the treatment of fractional partnership interests.
If the partnership is merging into a limited partnership, then in addition to the approval of the partners as set forth under subdivision (a), the agreement of merger must be approved by all partners who will become general partners of the surviving limited partnership upon the effectiveness of the merger.
Notwithstanding its prior approval, an agreement of merger may be amended before the merger takes effect if the amendment is approved by the partners of each constituent partnership, in the same manner as required for approval of the original agreement of merger, and by each of the constituent other business entities.
The partners of a constituent partnership may in their discretion, abandon a merger, subject to the contractual rights, if any, of third parties, including other constituent partnerships and constituent other business entities, if the abandonment is approved by the partners of the constituent partnership in the same manner as required for approval of the original agreement of merger.
An agreement of merger approved in accordance with subdivision (a) may (1) effect any amendment to the partnership agreement of any domestic constituent partnership or (2) effect the adoption of a new partnership agreement for a domestic constituent partnership if it is the surviving partnership in the merger. Any amendment to a partnership agreement or adoption of a new partnership agreement made pursuant to the foregoing sentence shall be effective at the effective time or date of the merger.
The surviving partnership or surviving other business entity shall keep the agreement of merger at the principal place of business of the surviving entity if the surviving entity is a partnership or a foreign other business entity, at the office referred to in Section 1500 if the surviving entity is a domestic corporation, at the office referred to in subdivision (a) of Section 15901.14 if the surviving entity is a domestic limited partnership or at the office referred to in Section 17701.13 if the surviving entity is a domestic limited liability company and, upon the request of a partner of a constituent partnership or a holder of interests or other securities of a constituent other business entity, the authorized person on behalf of the partnership or the surviving other business entity shall promptly deliver to the partner or the holder of interests or other securities, at the expense of the surviving partnership or surviving other business entity, a copy of the agreement of merger. A waiver by a partner or holder of interests or other securities of the rights provided in this subdivision shall be unenforceable.
Unless a future effective date or time is provided in a certificate of merger if a certificate of merger is required to be filed under Section 16915 in which event the merger shall be effective at the future effective date or time:
A merger in which no domestic other business entity is a party to the merger shall be effective upon the later of any of the following:
The approval of the agreement of merger by all parties to the merger as provided in Section 16911.
The filing of all documents required by law to be filed as a condition to the effectiveness of the merger; or
Any effective date specified in the agreement of merger; and
A merger in which a domestic other business entity is a party to the merger shall be effective upon the filing of the certificate of merger in the office of the Secretary of State.
For all mergers in which a certificate of merger is required to be filed under Section 16915, a copy of the certificate of merger duly certified by the Secretary of State is conclusive evidence of the merger of (A) the constituent partnerships (either by themselves or together with constituent other business entities) into the surviving other business entity, or (B) the constituent partnerships or the constituent other business entities, or both, into the surviving partnership.
The merger of any number of domestic partnerships with any number of foreign partnerships or foreign other business entities shall be required to comply with Section 16910.
If the surviving entity is a domestic partnership or a domestic other business entity, the merger proceedings with respect to that partnership or other business entity and any domestic disappearing partnership shall conform to the provisions of this chapter governing the merger of domestic partnerships, but if the surviving entity is a foreign partnership or a foreign other business entity, then, subject to the requirements of subdivision (d), the merger proceedings may be in accordance with the laws of the state or place of organization of the surviving partnership or surviving other business entity.
If the surviving entity is a domestic other business entity or is a domestic partnership in a merger in which a domestic other business entity is also a party, the certificate of merger shall be filed as provided in subdivision (b) of Section 16915, and thereupon, subject to subdivision (a) of Section 16912, the merger shall be effective as to each domestic constituent partnership and domestic constituent other business entity.
If the surviving entity is a foreign partnership or foreign other business entity, the merger shall become effective in accordance with the law of the jurisdiction in which the surviving partnership or surviving other business entity is organized, but shall be effective as to any domestic disappearing partnership as of the time of effectiveness in the foreign jurisdiction in accordance with Section 16912.
When a merger takes effect, all of the following apply:
The separate existence of the disappearing partnerships and disappearing other business entities ceases and the surviving partnership or surviving other business entity shall succeed, without other transfer, act, or deed, to all the rights and property whether real, personal, or mixed, of each of the disappearing partnerships and disappearing other business entities and shall be subject to all the debts and liabilities of each in the same manner as if the surviving partnership or surviving other business entity had itself incurred them.
All rights of creditors and all liens upon the property of each of the constituent partnerships and constituent other business entities shall be preserved unimpaired and may be enforced against the surviving partnership or the surviving other business entity to the same extent as if the debt, liability, or duty that gave rise to that lien had been incurred or contracted by it, provided that those liens upon the property of a disappearing partnership or disappearing other business entity shall be limited to the property affected thereby immediately before the time the merger is effective.
Any action or proceeding pending by or against any disappearing partnership or disappearing other business entity may be prosecuted to judgment, which shall bind the surviving partnership or surviving other business entity, or the surviving partnership or surviving other business entity may be proceeded against or be substituted in the disappearing partnership’s or the disappearing other business entity’s place.
Unless a certificate of merger has been filed to effect the merger, the surviving foreign entity shall promptly notify the Secretary of State of the mailing address of its agent for service of process and its principal office, and of any change of address. To enforce an obligation of a partnership that has merged with a foreign partnership or foreign other business entity, the Secretary of State shall only be the agent for service of process in an action or proceeding against the surviving foreign partnership or foreign other business entity, if the agent designated for the service of process for that entity is a natural person and cannot be located with due diligence or if the agent is a corporation and no person to whom delivery may be made can be located with due diligence, or if no agent has been designated and if no one of the officers, partners, managers, members, or agents of the entity can be located after diligent search, and it is so shown by affidavit to the satisfaction of the court. The court then may make an order that service be made by personal delivery to the Secretary of State or to an assistant or deputy Secretary of State of two copies of the process together with two copies of the order, and the order shall set forth an address to which the process shall be sent by the Secretary of State. Service in this manner is deemed complete on the 10th day after delivery of the process to the Secretary of State.
Upon receipt of the process and order and the fee set forth in subdivision (c) of Section 12197 of the Government Code, the Secretary of State shall give notice to the entity of the service of the process by forwarding by certified mail, return receipt requested, a copy of the process and order to the address specified in the order.
The Secretary of State shall keep a record of all process served upon the Secretary of State and shall record therein the time of service and the Secretary of State’s action with respect thereto. The certificate of the Secretary of State, under the Secretary of State’s official seal, certifying to the receipt of process, the giving of notice thereof to the entity, and the forwarding of the process, shall be competent and prima facie evidence of the matters stated therein.
A partner of the surviving partnership or surviving limited partnership, a member of the surviving limited liability company, a shareholder of the surviving corporation, or a holder of equity securities of the surviving other business entity, is liable for all of the following:
If the obligations incurred before the merger by a party to the merger are not satisfied out of the property of the surviving partnership or surviving other business entity, the general partners of that party immediately before the effective date of the merger, to the extent that party was a partnership or a limited partnership, shall contribute the amount necessary to satisfy that party’s obligations to the surviving entity in the manner provided in Section 16807 or in the limited partnership act of the jurisdiction in which the party was formed, as the case may be, as if the merged party were dissolved.
A partner of a domestic disappearing partnership who does not vote in favor of the merger and does not agree to become a partner, member, shareholder, or holder of interest or equity securities of the surviving partnership or surviving other business entity shall have the right to dissociate from the partnership as of the date the merger takes effect. Within 10 days after the approval of the merger by the partners as required under this article, each domestic disappearing partnership shall send notice of the approval of the merger to each partner that has not approved the merger, accompanied by a copy of Section 16701 and a brief description of the procedure to be followed under that section if the partner wishes to dissociate from the partnership. A partner that desires to dissociate from a disappearing partnership shall send written notice of that dissociation within 30 days after the date of the notice of the approval of the merger. The disappearing partnership shall cause the partner’s interest in the entity to be purchased under Section 16701. The surviving entity is bound under Section 16702 by an act of a general partner dissociated under this subdivision, and the partner is liable under Section 16703 for transactions entered into by the surviving entity after the merger takes effect. The dissociation of a partner in connection with a merger pursuant to the terms of this subdivision shall not be deemed a wrongful dissociation under Section 16602.
In a merger involving a domestic partnership, in which another partnership or a foreign other business entity is a party, but in which no other domestic other business entity is a party, the surviving partnership or surviving foreign other business entity may file with the Secretary of State a statement that one or more partnerships have merged into the surviving partnership or surviving foreign other business entity, or that one or more partnerships or foreign other business entities have merged into the surviving domestic partnership. A statement of merger shall contain the following:
The name of each partnership or foreign other business entity that is a party to the merger.
The name of the surviving entity into which the other partnerships or foreign other business entities were merged.
The street address of the surviving entity’s principal office and of an office in this state, if any.
Whether the surviving entity is a partnership or a foreign other business entity, specifying the type of the entity.
In a merger involving a domestic partnership in which a domestic other business entity is also a party, after approval of the merger by the constituent partnerships and any constituent other business entities, the constituent partnerships and constituent other business entities shall file a certificate of merger in the office of, and on a form prescribed by, the Secretary of State, but if the surviving entity is a domestic corporation or a foreign corporation in a merger in which a domestic corporation is a constituent party, the surviving corporation shall file in the office of the Secretary of State a copy of the agreement of merger and attachments required under paragraph (1) of subdivision (g) of Section 1113. The certificate of merger shall be executed and acknowledged by each domestic constituent partnership by two partners (unless a lesser number is provided in the partnership agreement) and by each foreign constituent partnership by one or more partners, and by each constituent other business entity by those persons required to execute the certificate of merger by the laws under which the constituent other business entity is organized. The certificate of merger shall set forth all of the following:
The names and the Secretary of State’s file numbers, if any, of each of the constituent partnerships and constituent other business entities, separately identifying the disappearing partnerships and disappearing other business entities and the surviving partnership or surviving other business entity.
If a vote of the partners was required under Section 16911, a statement that the principal terms of the agreement of merger were approved by a vote of the partners, which equaled or exceeded the vote required.
If the surviving entity is a domestic partnership and not an other business entity, any change to the information set forth in any filed statement of partnership authority of the surviving partnership resulting from the merger, including any change in the name of the surviving partnership resulting from the merger. The filing of a certificate of merger setting forth any changes to any filed statement of partnership authority of the surviving partnership shall have the effect of the filing of a certificate of amendment of the statement of partnership authority by the surviving partnership, and the surviving partnership need not file a certificate of amendment under Section 16105 to reflect those changes.
The future effective date or time (which shall be a date or time certain not more than 90 days subsequent to the date of filing) of the merger, if the merger is not to be effective upon the filing of the certificate of merger with the office of the Secretary of State.
If the surviving entity is an other business entity or a foreign partnership, the full name, type of entity, legal jurisdiction in which the entity was organized and by whose laws its internal affairs are governed, and the address of the principal place of business of the entity.
Any other information required to be stated in the certificate of merger by the laws under which each constituent other business entity is organized.
A statement of merger or a certificate of merger, as is applicable under subdivision (a) or (b), shall have the effect of the filing of a cancellation for each disappearing partnership of any statement of partnership authority filed by it, and shall have the effect of filing the notice of cessation required by Section 16954 or 16960, if applicable.
Upon merger pursuant to this article, a surviving domestic or foreign partnership or other business entity shall be deemed to have assumed the liability of each disappearing domestic or foreign partnership or other business entity that is taxed under Part 10 (commencing with Section 17001) of, or under Part 11 (commencing with Section 23001) of, Division 2 of the Revenue and Taxation Code for the following:
To prepare and file, or to cause to be prepared and filed, tax and information returns otherwise required of that disappearing entity as specified in Chapter 2 (commencing with Section 18501) of Part 10.2 of Division 2 of the Revenue and Taxation Code.
To pay any tax liability determined to be due.
If the surviving entity is a domestic limited liability company, domestic corporation, or registered limited liability partnership or a foreign limited liability company, foreign limited liability partnership, or foreign corporation that is registered or qualified to do business in California, the Secretary of State shall notify the Franchise Tax Board of the merger.
Whenever a domestic or foreign partnership or other business entity having any real property in this state merges with another partnership or other business entity pursuant to the laws of this state or of the state or place in which any constituent partnership or constituent other business entity was organized, and the laws of the state or place of organization (including this state) of any disappearing partnership or disappearing other business entity provide substantially that the making and filing of a statement of merger, agreement of merger or certificate of merger vests in the surviving partnership or surviving other business entity all the real property of any disappearing partnership and disappearing other business entity, the filing for record in the office of the county record of any county in this state in which any of the real property of the disappearing partnership or disappearing other business entity is located of either (1) a certificate of merger or agreement of merger certified by the Secretary of State, or other certificate prescribed by the Secretary of State, or (2) a copy of the statement of merger, agreement of merger or certificate of merger, certified by the Secretary of State or an authorized public official of the state or place pursuant to the laws of which the merger is effected, shall evidence record ownership in the surviving partnership or surviving other business entity of all interest of that disappearing partnership or disappearing other business entity in and to the real property located in that county.
A filed and, if appropriate, recorded statement of merger, executed and declared to be accurate pursuant to subdivision (c) of Section 16105, stating the name of a partnership or other business entity that is a party to the merger in whose name property was held before the merger and the name of the surviving entity, but not containing all of the other information required by Section 16915, operates with respect to the partnerships or other business entities named to the extent provided in subdivision (a).
Recording of the certificate of merger in accordance with subdivision (a) shall create, in favor of bona fide purchasers or encumbrancers for value, a conclusive presumption that the merger was validly completed.
This article is not exclusive. Partnerships, other than limited liability partnerships, may be converted or merged in any other manner provided by law.
ARTICLE 10. Limited Liability Partnerships [16951. - 16962.]
For purposes of this chapter, the only types of limited liability partnerships that shall be recognized are a registered limited liability partnership and a foreign limited liability partnership, as defined in Section 16101. No registered limited liability partnership or foreign limited liability partnership may render professional limited liability partnership services in this state except through licensed persons.
The name of a registered limited liability partnership shall contain the words “Registered Limited Liability Partnership” or “Limited Liability Partnership” or one of the abbreviations “L.L.P.,” “LLP,” “R.L.L.P.,” or “RLLP” as the last words or letters of its name.
To become a registered limited liability partnership, a partnership, other than a limited partnership, shall file with the Secretary of State a registration, executed by one or more partners authorized to execute a registration, stating all of the following:
The name of the partnership.
The street address of its principal office.
The mailing address of its principal office, if different from the street address.
The name and street address of the agent for service of process on the limited liability partnership in California in accordance with subdivision (a) of Section 16309.
A brief statement of the business in which the partnership engages.
Any other matters that the partnership determines to include.
That the partnership is registering as a registered limited liability partnership.
The registration shall be accompanied by a fee as set forth in subdivision (a) of Section 12189 of the Government Code.
The Secretary of State shall register as a registered limited liability partnership any partnership that submits a completed registration with the required fee.
The Secretary of State may cancel the filing of the registration if a check or other remittance accepted in payment of the filing fee is not paid upon presentation. Within 90 days of receiving written notification that the item presented for payment has not been honored for payment, the Secretary of State shall give a first written notice of the applicability of this section to the agent for service of process or to the person submitting the instrument. Thereafter, if the amount has not been paid by cashier’s check or equivalent, the Secretary of State shall give a second written notice of cancellation and the cancellation shall thereupon be effective. The second notice shall be given 20 days or more after the first notice.
A partnership becomes a registered limited liability partnership at the time of the filing of the initial registration with the Secretary of State or at any later date or time specified in the registration and the payment of the fee required by subdivision (b). A partnership continues as a registered limited liability partnership until a notice that it is no longer a registered limited liability partnership has been filed pursuant to subdivision (b) of Section 16954 or, if applicable, until it has been dissolved and finally wound up. The status of a partnership as a registered limited liability partnership and the liability of a partner of the registered limited liability partnership shall not be adversely affected by errors or subsequent changes in the information stated in a registration under subdivision (a) or an amended registration or notice under Section 16954.
The fact that a registration or amended registration pursuant to this section is on file with the Secretary of State is notice that the partnership is a registered limited liability partnership and of those other facts contained therein that are required to be set forth in the registration or amended registration.
The Secretary of State shall provide a form for a registration under subdivision (a), which shall include the form for confirming compliance with the optional security requirement pursuant to subdivision (c) of Section 16956. The Secretary of State shall include with instructional materials provided in conjunction with the form for a registration under subdivision (a) a notice that filing the registration will obligate the limited liability partnership to pay an annual tax for that taxable year to the Franchise Tax Board pursuant to Section 17948 of the Revenue and Taxation Code. That notice shall be updated annually to specify the dollar amount of the tax.
A limited liability partnership providing professional limited liability partnership services in this state shall comply with all statutory and administrative registration or filing requirements of the state board, commission, or other agency that prescribes the rules and regulations governing the particular profession in which the partnership proposes to engage, pursuant to the applicable provisions of the Business and Professions Code relating to that profession. The state board, commission, or other agency shall not disclose, unless compelled by a subpoena or other order of a court of competent jurisdiction, any information it receives in the course of evaluating the compliance of a limited liability partnership with applicable statutory and administrative registration or filing requirements, provided that nothing in this section shall be construed to prevent a state board, commission, or other agency from disclosing the manner in which the limited liability partnership has complied with the requirements of Section 16956, or the compliance or noncompliance by the limited liability partnership with any other requirements of the state board, commission, or other agency.
An agent designated for service of process may deliver to the Secretary of State, on a form prescribed by the Secretary of State for filing, a signed and acknowledged written statement of resignation as an agent for service of process containing the name of the limited liability partnership and the Secretary of State’s file number of the limited liability partnership, the name of the resigning agent for service of process, and a statement that the agent is resigning. On filing of the statement of resignation, the authority of the agent to act in that capacity shall cease and the Secretary of State shall mail or otherwise provide written notice of the filing of the statement of resignation to the limited liability partnership at its principal office.
The resignation of an agent may be effective if, on a form prescribed by the Secretary of State containing the name of the limited liability partnership and Secretary of State’s file number for the limited liability partnership and the name of the agent for service of process, the agent disclaims having been properly appointed as the agent.
If an individual who has been designated agent for service of process dies, resigns, or no longer resides in the state or if the corporate agent for that purpose resigns, dissolves, withdraws from the state, forfeits its right to transact intrastate business, has its corporate rights, powers, and privileges suspended, or ceases to exist, the limited liability partnership shall promptly file an amended registration as a limited liability partnership designating a new agent.
The Secretary of State may destroy or otherwise dispose of any statement of resignation filed pursuant to this section after a new registration is filed pursuant to this section replacing the agent for service of process that has resigned.
The registration of a registered limited liability partnership may be amended by an amended registration executed by one or more partners authorized to execute an amended registration and filed with the Secretary of State, as soon as reasonably practical after any information set forth in the registration or previously filed amended registration becomes inaccurate or to add information to the registration or amended registration.
If a registered limited liability partnership ceases to be a registered limited liability partnership, it shall file with the Secretary of State a notice, executed by one or more partners authorized to execute the notice, that it is no longer a registered limited liability partnership. The notice shall state that a final annual tax return, as described by Section 17948.3 of the Revenue and Taxation Code, has been or will be filed with the Franchise Tax Board, as required under Part 10.2 (commencing with Section 18401) of Division 2 of the Revenue and Taxation Code.
An amendment pursuant to subdivision (a) and a notice pursuant to subdivision (b) shall each be accompanied by a fee as set forth in subdivision (c) of Section 12189 of the Government Code.
The Secretary of State shall provide forms for an amended registration under subdivision (a) and a notice under subdivision (b).
A notice of cessation, signed pursuant to subdivision (b), shall be filed with the Secretary of State. The Secretary of State shall notify the Franchise Tax Board of the cessation.
A certificate of merger or the agreement of merger shall have the effect of the filing of a notice of termination for each disappearing registered limited liability partnership.
A domestic partnership, other than a limited partnership, may convert to a registered limited liability partnership by the vote of the partners possessing a majority of the interests of its partners in the current profits of the partnership or by a different vote as may be required in its partnership agreement.
When such a conversion takes effect, all of the following apply:
All property, real and personal, tangible and intangible, of the converting partnership remains vested in the converted registered limited liability partnership.
All debts, obligations, liabilities, and penalties of the converting partnership continue as debts, obligations, liabilities, and penalties of the converted registered limited liability partnership.
Any action, suit, or proceeding, civil or criminal, then pending by or against the converting partnership may be continued as if the conversion had not occurred.
To the extent provided in the agreement of conversion and in this chapter, the partners of a partnership shall continue as partners in the converted registered limited liability partnership.
A partnership that has been converted to a registered limited liability partnership pursuant to this chapter is the same person that existed prior to the conversion.
At the time of registration pursuant to Section 16953, in the case of a registered limited liability partnership, and Section 16959, in the case of a foreign limited liability partnership, and at all times during which those partnerships shall transact intrastate business, every registered limited liability partnership and foreign limited liability partnership, as the case may be, shall be required to provide security for claims against it as follows:
For claims based upon acts, errors, or omissions arising out of the practice of public accountancy, a registered limited liability partnership or foreign limited liability partnership providing accountancy services shall comply with one, or pursuant to subdivision (b) some combination, of the following:
Maintaining a policy or policies of insurance against liability imposed on or against it by law for damages arising out of claims; however, the total aggregate limit of liability under the policy or policies of insurance for partnerships with five or fewer licensed persons shall not be less than one million dollars ($1,000,000), and for partnerships with more than five licensees rendering professional services on behalf of the partnership, an additional one hundred thousand dollars ($100,000) of insurance shall be obtained for each additional licensee; however, the maximum amount of insurance is not required to exceed five million dollars ($5,000,000) in any one designated period, less amounts paid in defending, settling, or discharging claims as set forth in this subparagraph. The policy or policies may be issued on a claims-made or occurrence basis, and shall cover: (i) in the case of a claims-made policy, claims initially asserted in the designated period, and (ii) in the case of an occurrence policy, occurrences during the designated period. For purposes of this subparagraph, “designated period” means a policy year or any other period designated in the policy that is not greater than 12 months. The impairment or exhaustion of the aggregate limit of liability by amounts paid under the policy in connection with the settlement, discharge, or defense of claims applicable to a designated period shall not require the partnership to acquire additional insurance coverage for that designated period. The policy or policies of insurance may be in a form reasonably available in the commercial insurance market and may be subject to those terms, conditions, exclusions, and endorsements that are typically contained in those policies. A policy or policies of insurance maintained pursuant to this subparagraph may be subject to a deductible or self-insured retention.
Upon the dissolution and winding up of the partnership, the partnership shall, with respect to any insurance policy or policies then maintained pursuant to this subparagraph, maintain or obtain an extended reporting period endorsement or equivalent provision in the maximum total aggregate limit of liability required to comply with this subparagraph for a minimum of three years if reasonably available from the insurer.
Maintaining in trust or bank escrow, cash, bank certificates of deposit, United States Treasury obligations, bank letters of credit, or bonds of insurance or surety companies as security for payment of liabilities imposed by law for damages arising out of all claims; however, the maximum amount of security for partnerships with five or fewer licensed persons shall not be less than one million dollars ($1,000,000), and for partnerships with more than five licensees rendering professional services on behalf of the partnership, an additional one hundred thousand dollars ($100,000) of security shall be obtained for each additional licensee; however, the maximum amount of security is not required to exceed five million dollars ($5,000,000). The partnership remains in compliance with this section during a calendar year notwithstanding amounts paid during that calendar year from the accounts, funds, Treasury obligations, letters of credit, or bonds in defending, settling, or discharging claims of the type described in this paragraph, provided that the amount of those accounts, funds, Treasury obligations, letters of credit, or bonds was at least the amount specified in the preceding sentence as of the first business day of that calendar year. Notwithstanding the pendency of other claims against the partnership, a registered limited liability partnership or foreign limited liability partnership shall be deemed to be in compliance with this subparagraph as to a claim if within 30 days after the time that a claim is initially asserted through service of a summons, complaint, or comparable pleading in a judicial or administrative proceeding, the partnership has provided the required amount of security by designating and segregating funds in compliance with the requirements of this subparagraph.
Unless the partnership has satisfied subparagraph (D), each partner of a registered limited liability partnership or foreign limited liability partnership providing accountancy services, by virtue of that person’s status as a partner, thereby automatically guarantees payment of the difference between the maximum amount of security required for the partnership by this paragraph and the security otherwise provided in accordance with subparagraphs (A) and (B), provided that the aggregate amount paid by all partners under these guarantees shall not exceed the difference. Neither withdrawal by a partner nor the dissolution and winding up of the partnership shall affect the rights or obligations of a partner arising prior to withdrawal or dissolution and winding up, and the guarantee provided for in this subparagraph shall apply only to conduct that occurred prior to the withdrawal or dissolution and winding up. Nothing contained in this subparagraph shall affect or impair the rights or obligations of the partners among themselves, or the partnership, including, but not limited to, rights of contribution, subrogation, or indemnification.
Confirming, pursuant to the procedure in subdivision (c), that, as of the most recently completed fiscal year of the partnership, it had a net worth equal to or exceeding ten million dollars ($10,000,000).
For claims based upon acts, errors, or omissions arising out of the practice of law, a registered limited liability partnership or foreign limited liability partnership providing legal services shall comply with one, or pursuant to subdivision (b) some combination, of the following:
Each registered limited liability partnership or foreign limited liability partnership providing legal services shall maintain a policy or policies of insurance against liability imposed on or against it by law for damages arising out of claims; however, the total aggregate limit of liability under the policy or policies of insurance for partnerships with five or fewer licensed persons shall not be less than one million dollars ($1,000,000), and for partnerships with more than five licensees rendering professional services on behalf of the partnership, an additional one hundred thousand dollars ($100,000) of insurance shall be obtained for each additional licensee; however, the maximum amount of insurance is not required to exceed seven million five hundred thousand dollars ($7,500,000) in any one designated period, less amounts paid in defending, settling, or discharging claims as set forth in this subparagraph. The policy or policies may be issued on a claims-made or occurrence basis, and shall cover (i) in the case of a claims-made policy, claims initially asserted in the designated period, and (ii) in the case of an occurrence policy, occurrences during the designated period. For purposes of this subparagraph, “designated period” means a policy year or any other period designated in the policy that is not greater than 12 months. The impairment or exhaustion of the aggregate limit of liability by amounts paid under the policy in connection with the settlement, discharge, or defense of claims applicable to a designated period shall not require the partnership to acquire additional insurance coverage for that designated period. The policy or policies of insurance may be in a form reasonably available in the commercial insurance market and may be subject to those terms, conditions, exclusions, and endorsements that are typically contained in those policies. A policy or policies of insurance maintained pursuant to this subparagraph may be subject to a deductible or self-insured retention.
Upon the dissolution and winding up of the partnership, the partnership shall, with respect to any insurance policy or policies then maintained pursuant to this subparagraph, maintain or obtain an extended reporting period endorsement or equivalent provision in the maximum total aggregate limit of liability required to comply with this subparagraph for a minimum of three years if reasonably available from the insurer.
Each registered limited liability partnership or foreign limited liability partnership providing legal services shall maintain in trust or bank escrow, cash, bank certificates of deposit, United States Treasury obligations, bank letters of credit, or bonds of insurance or surety companies as security for payment of liabilities imposed by law for damages arising out of all claims; however, the maximum amount of security for partnerships with five or fewer licensed persons shall not be less than one million dollars ($1,000,000), and for partnerships with more than five licensees rendering professional services on behalf of the partnership, an additional one hundred thousand dollars ($100,000) of security shall be obtained for each additional licensee; however, the maximum amount of security is not required to exceed seven million five hundred thousand dollars ($7,500,000). The partnership remains in compliance with this section during a calendar year notwithstanding amounts paid during that calendar year from the accounts, funds, Treasury obligations, letters of credit, or bonds in defending, settling, or discharging claims of the type described in this paragraph, provided that the amount of those accounts, funds, Treasury obligations, letters of credit, or bonds was at least the amount specified in the preceding sentence as of the first business day of that calendar year. Notwithstanding the pendency of other claims against the partnership, a registered limited liability partnership or foreign limited liability partnership shall be deemed to be in compliance with this subparagraph as to a claim if within 30 days after the time that a claim is initially asserted through service of a summons, complaint, or comparable pleading in a judicial or administrative proceeding, the partnership has provided the required amount of security by designating and segregating funds in compliance with the requirement of this subparagraph.
Unless the partnership has satisfied the requirements of subparagraph (D), each partner of a registered limited liability partnership or foreign limited liability partnership providing legal services, by virtue of that person’s status as a partner, thereby automatically guarantees payment of the difference between the maximum amount of security required for the partnership by this paragraph and the security otherwise provided in accordance with the provisions of subparagraphs (A) and (B), provided that the aggregate amount paid by all partners under these guarantees shall not exceed the difference. Neither withdrawal by a partner nor the dissolution and winding up of the partnership shall affect the rights or obligations of a partner arising prior to withdrawal or dissolution and winding up, and the guarantee provided for in this subparagraph shall apply only to conduct that occurred prior to the withdrawal or dissolution and winding up. Nothing contained in this subparagraph shall affect or impair the rights or obligations of the partners among themselves, or the partnership, including, but not limited to, rights of contribution, subrogation, or indemnification.
Confirming, pursuant to the procedure in subdivision (c), that, as of the most recently completed fiscal year of the partnership, it had a net worth equal to or exceeding fifteen million dollars ($15,000,000).
For purposes of satisfying the security requirements of this section, a registered limited liability partnership or foreign limited liability partnership may aggregate the security provided by it pursuant to subparagraphs (A), (B), (C), and (D) of paragraph (1) of subdivision (a) or subparagraphs (A), (B), (C), and (D) of paragraph (2) of subdivision (a) as the case may be. Any registered limited liability partnership or foreign limited liability partnership intending to comply with the alternative security provisions set forth in subparagraph (D) of paragraph (1) of subdivision (a) or subparagraph (D) of paragraph (2) of subdivision (a) shall furnish the following information to the Secretary of State’s office, in the manner prescribed in, and accompanied by all information required by, the applicable section:
Pursuant to subparagraph (D) of paragraph (1) of subdivision (a) or subparagraph (D) of paragraph (2) of subdivision (a), a registered limited liability partnership or foreign limited liability partnership may satisfy the requirements of this section by confirming that, as of the last day of its most recently completed fiscal year, it had a net worth equal to or exceeding the amount required. In order to comply with this alternative method of meeting the requirements established in this section, a registered limited liability partnership or foreign limited liability partnership shall file an annual confirmation with the Secretary of State’s office, signed by an authorized member of the registered limited liability partnership or foreign limited liability partnership, accompanied by a transmittal form as prescribed by subdivision (b). In order to be current in a given year, the partnership form for confirming compliance with the optional security requirement shall be on file within four months of the completion of the fiscal year and, upon being filed, shall constitute full compliance with the financial security requirements for purposes of this section as of the beginning of the fiscal year. A confirmation filed during any particular fiscal year shall continue to be effective for the first four months of the next succeeding fiscal year.
Neither the existence of the requirements of subdivision (a) nor the extent of the registered limited liability partnership’s or foreign limited liability partnership’s compliance with the alternative requirements in this section shall be admissible in court or in any way be made known to a jury or other trier of fact in determining an issue of liability for, or to the extent of, the damages in question.
Notwithstanding any other provision of this section, if a registered limited liability partnership or foreign limited liability partnership is otherwise in compliance with the terms of this section at the time that a bankruptcy or other insolvency proceeding is commenced with respect to the registered limited liability partnership or foreign limited liability partnership, it shall be deemed to be in compliance with this section during the pendency of the proceeding. A registered limited liability partnership that has been the subject of a proceeding and that conducts business after the proceeding ends shall thereafter comply with paragraph (1) or (2) of subdivision (a), in order to obtain the limitations on liability afforded by subdivision (c) of Section 16306.
This section shall become operative on January 1, 2034.
No distribution shall be made by a registered limited liability partnership if, after giving effect to the distribution:
The registered limited liability partnership would not be able to pay its debts as they become due in the usual course of business.
The registered limited liability partnership’s total assets would be less than the sum of its total liabilities plus the amount that would be needed, if the registered limited liability partnership were to be dissolved at the time of the distribution, to satisfy the preferential rights of other partners upon dissolution that are superior to the rights of the partners receiving the distribution.
A cause of action with respect to an obligation to return a distribution is extinguished unless the action is brought within four years after the distribution is made.
A distribution for purposes of this section means the transfer of money or property by a registered limited liability partnership to its partners without consideration.
The laws of the jurisdiction under which a foreign limited liability partnership is organized shall govern its organization and internal affairs and the liability and authority of its partners, subject to compliance with Section 16956, and (2) a foreign limited liability partnership may not be denied registration by reason of any difference between those laws and the laws of this state.
The name of a foreign limited liability partnership transacting intrastate business in this state shall contain the words “Registered Limited Liability Partnership” or “Limited Liability Partnership” or one of the abbreviations “L.L.P.,” “LLP,” “R.L.L.P.,” or “RLLP,” or such other similar words or abbreviations as may be required or authorized by the laws of the jurisdiction of formation of the foreign limited liability partnership, as the last words or letters of its name.
Before transacting intrastate business in this state, a foreign limited liability partnership shall comply with all statutory and administrative registration or filing requirements of the state board, commission, or agency that prescribes the rules and regulations governing a particular profession in which the partnership proposes to be engaged, pursuant to the applicable provisions of the Business and Professions Code relating to the profession or applicable rules adopted by the governing board. A foreign limited liability partnership that transacts intrastate business in this state shall within 30 days after the effective date of the act enacting this section or the date on which the foreign limited liability partnership first transacts intrastate business in this state, whichever is later, register with the Secretary of State by submitting to the Secretary of State an application for registration as a foreign limited liability partnership, signed by a person with authority to do so under the laws of the jurisdiction of formation of the foreign limited liability partnership, stating the name of the partnership, the street address of its principal office, the mailing address of the principal office if different from the street address, the name and street address of its agent for service of process in this state in accordance with subdivision (a) of Section 16309, a brief statement of the business in which the partnership engages, and any other matters that the partnership determines to include.
Annexed to the application for registration shall be a certificate from an authorized public official of the foreign limited liability partnership’s jurisdiction of organization to the effect that the foreign limited liability partnership is in good standing in that jurisdiction, if the laws of that jurisdiction permit the issuance of those certificates, or, in the alternative, a statement by the foreign limited liability partnership that the laws of its jurisdiction of organization do not permit the issuance of those certificates.
The registration shall be accompanied by a fee as set forth in subdivision (b) of Section 12189 of the Government Code.
If the Secretary of State finds that an application for registration conforms to law and all requisite fees have been paid, the Secretary of State shall issue a certificate of registration to transact intrastate business in this state.
The Secretary of State may cancel the filing of the registration if a check or other remittance accepted in payment of the filing fee is not paid upon presentation. Within 90 days of receiving written notification that the item presented for payment has not been honored for payment, the Secretary of State shall give a first written notice of the applicability of this section to the agent for service of process or to the person submitting the instrument. Thereafter, if the amount has not been paid by cashier’s check or equivalent, the Secretary of State shall give a second written notice of cancellation and the cancellation shall thereupon be effective. The second notice shall be given 20 days or more after the first notice.
A partnership becomes registered as a foreign limited liability partnership at the time of the filing of the initial registration with the Secretary of State or at any later date or time specified in the registration and the payment of the fee required by subdivision (b). A partnership continues to be registered as a foreign limited liability partnership until a notice that it is no longer so registered as a foreign limited liability partnership has been filed pursuant to Section 16960 or, if applicable, once it has been dissolved and finally wound up. The status of a partnership registered as a foreign limited liability partnership and the liability of a partner of that foreign limited liability partnership shall not be adversely affected by errors or subsequent changes in the information stated in an application for registration under subdivision (a) or an amended registration or notice under Section 16960.
The fact that a registration or amended registration pursuant to Section 16960 is on file with the Secretary of State is notice that the partnership is a foreign limited liability partnership and of those other facts contained therein that are required to be set forth in the registration or amended registration.
The Secretary of State shall provide a form for a registration under subdivision (a), which shall include the form for confirming compliance with the optional security requirement pursuant to subdivision (c) of Section 16956. The Secretary of State shall include with instructional materials, provided in conjunction with the form for registration under subdivision (a), a notice that filing the registration will obligate the limited liability partnership to pay an annual tax for that taxable year to the Franchise Tax Board pursuant to Section 17948 of the Revenue and Taxation Code. That notice shall be updated annually to specify the dollar amount of this tax.
A foreign limited liability partnership transacting intrastate business in this state shall not maintain any action, suit, or proceeding in any court of this state until it has registered in this state pursuant to this section.
Any foreign limited liability partnership that transacts intrastate business in this state without registration is subject to a penalty of twenty dollars ($20) for each day that unauthorized intrastate business is transacted, up to a maximum of ten thousand dollars ($10,000).
A partner of a foreign limited liability partnership is not liable for the debts or obligations of the foreign limited liability partnership solely by reason of its having transacted business in this state without registration.
A foreign limited liability partnership, transacting business in this state without registration, appoints the Secretary of State as its agent for service of process with respect to causes of action arising out of the transaction of business in this state.
“Transact intrastate business” as used in this section means to repeatedly and successively provide professional limited liability partnership services in this state, other than in interstate or foreign commerce.
Without excluding other activities that may not be considered to be transacting intrastate business, a foreign limited liability partnership shall not be considered to be transacting intrastate business merely because its subsidiary or affiliate transacts intrastate business, or merely because of its status as any one or more of the following:
A shareholder of a domestic corporation.
A shareholder of a foreign corporation transacting intrastate business.
A limited partner of a foreign limited partnership transacting intrastate business.
A limited partner of a domestic limited partnership.
A member or manager of a foreign limited liability company transacting intrastate business.
A member or manager of a domestic limited liability company.
Without excluding other activities that may not be considered to be transacting intrastate business, a foreign limited liability partnership shall not be considered to be transacting intrastate business within the meaning of this subdivision solely by reason of carrying on in this state any one or more of the following activities:
Maintaining or defending any action or suit or any administrative or arbitration proceeding, or effecting the settlement thereof or the settlement of claims or disputes.
Holding meetings of its partners or carrying on any other activities concerning its internal affairs.
Maintaining bank accounts.
Maintaining offices or agencies for the transfer, exchange, and registration of the foreign limited liability partnership’s securities or maintaining trustees or depositories with respect to those securities.
Effecting sales through independent contractors.
Soliciting or procuring orders, whether by mail or through employees or agents or otherwise, where those orders require acceptance without this state before becoming binding contracts.
Creating or acquiring evidences of debt or mortgages, liens, or security interest in real or personal property.
Securing or collecting debts or enforcing mortgages and security interests in property securing the debts.
Conducting an isolated transaction that is completed within 180 days and not in the course of a number of repeated transactions of a like nature.
A person shall not be deemed to be transacting intrastate business in this state merely because of its status as a partner of a registered limited liability partnership or a foreign limited liability company whether or not registered to transact intrastate business in this state.
The Attorney General may bring an action to restrain a foreign limited liability partnership from transacting intrastate business in this state in violation of this chapter.
Nothing in this section is intended to, or shall, augment, diminish, or otherwise alter existing provisions of law, statutes, or court rules relating to services by a California public accountant or California attorney in another jurisdiction, or services by an out-of-state public accountant or out-of-state attorney in California.
An agent designated for service of process may deliver to the Secretary of State, on a form prescribed by the Secretary of State for filing, a signed and acknowledged written statement of resignation as an agent for service of process containing the name of the foreign limited liability partnership and Secretary of State’s file number of the foreign limited liability partnership, the name of the resigning agent for service of process, and a statement that the agent is resigning. On filing of the statement of resignation, the authority of the agent to act in that capacity shall cease and the Secretary of State shall mail or otherwise provide written notice of the filing of the statement of resignation to the foreign limited liability partnership at its principal office.
The resignation of an agent may be effective if, on a form prescribed by the Secretary of State containing the name and Secretary of State’s file number for the foreign limited liability partnership and the name of the agent for service of process, the agent disclaims having been properly appointed as the agent.
If an individual who has been designated agent for service of process dies or resigns or no longer resides in the state, or if the corporate agent for that purpose resigns, dissolves, withdraws from the state, forfeits its right to transact intrastate business, has its corporate rights, powers, and privileges suspended, or ceases to exist, the foreign limited liability partnership shall promptly file an amended application for registration as a foreign limited liability partnership designating a new agent.
The Secretary of State may destroy or otherwise dispose of any resignation filed pursuant to this section after a new application for registration as a foreign limited liability partnership is filed pursuant to this section replacing the agent for service of process that has resigned.
This section shall become operative on January 1, 2034.
The registration of a foreign limited liability partnership may be amended by an amended registration executed by one or more partners authorized to execute an amended registration and filed with the Secretary of State, as soon as reasonably practical after any information set forth in the registration or previously filed amended registration becomes inaccurate, to add information to the registration or amended registration or to withdraw its registration as a foreign limited liability partnership.
If a foreign limited liability partnership ceases to be a limited liability partnership, it shall file with the Secretary of State a notice, executed by one or more partners authorized to execute the notice, that it is no longer a foreign limited liability partnership. The notice shall state that a final annual tax return, as described by Section 17948.3 of the Revenue and Taxation Code, has been or will be filed with the Franchise Tax Board, as required under Part 10.2 (commencing with Section 18401) of the Revenue and Taxation Code.
A foreign limited liability partnership that is, but is no longer required to be, registered under Section 16959 may withdraw its registration by filing a notice with the Secretary of State, executed by one or more partners authorized to execute the notice.
The Secretary of State shall provide forms for an amended registration under subdivision (a) and notices under subdivisions (b) and (c).
If a foreign limited liability partnership files an amendment changing the name of the foreign limited liability partnership in its jurisdiction of organization, annexed to the application for registration shall be a certificate from an authorized public official of the foreign limited liability partnership’s jurisdiction of organization certifying that the foreign limited liability partnership is in good standing and that the change of name was made in accordance with the laws of that jurisdiction, if the laws of that jurisdiction permit the issuance of those certificates, or, in the alternative, a statement by the foreign limited liability partnership that the laws of its jurisdiction of organization do not permit the issuance of those certificates. Unless the Secretary of State determines that the amendment to the application changing the name or alternate name of a foreign limited liability partnership does not comply with the filing requirements of this chapter, the Secretary of State, upon payment of all requisite fees, shall file the amended application and shall issue to the foreign limited liability partnership a new certificate of registration stating the date of filing of the amendment to the application changing the name and that the foreign limited liability partnership is qualified to transact intrastate business, subject to any licensing requirements otherwise imposed by the laws of this state.
The filing of amended registration forms pursuant to subdivision (a) and a notice pursuant to subdivision (b) or (c) shall each be accompanied by a fee as set forth in subdivision (d) of Section 12189 of the Government Code.
A notice of cessation, signed pursuant to subdivision (b), shall be filed with the Secretary of State. The Secretary of State shall notify the Franchise Tax Board of the cessation.
A certificate of merger or the agreement of merger shall have the effect of the filing of a notice of termination for each disappearing foreign limited liability partnership.
The filing of a registration with the Secretary of State under Section 16953 or 16959 shall make it unnecessary for all purposes for the registered limited liability partnership or foreign limited liability partnership to make any of the filings referred to in Chapter 5 (commencing with Section 17900) of Part 3 of Division 7 of the Business and Professions Code.
Each registered limited liability partnership whose principal office is not in this state and each foreign limited liability partnership registered under Section 16959 shall designate as its agent for service of process any natural person or a domestic or foreign corporation entitled to be designated as agent for the service of process pursuant to Section 1505.
In addition to service that may be made as provided in Section 416.40 of the Code of Civil Procedure, delivery by hand of a copy of any process against a registered limited liability partnership or foreign limited liability partnership registered under Section 16959 (1) to any natural person designated by it as agent or (2), if a corporate agent has been designated, to any person named in the latest certificate of the corporate agent filed pursuant to Section 1505 at the office of that corporate agent shall constitute valid service on the registered limited liability partnership or foreign limited liability partnership.
If an agent for the purpose of service of process has resigned and has not been replaced or if the agent designated cannot with reasonable diligence be found at the address designated for personally delivering the process, or if no agent has been designated, and it is shown by affidavit to the satisfaction of the court that process against a registered limited liability partnership or foreign limited liability partnership required to be registered under Section 16959 cannot be served with reasonable diligence upon the designated agent by hand in the manner provided in Section 415.10, subdivision (a) of Section 415.20, or subdivision (a) of Section 415.30 of the Code of Civil Procedure or upon the registered limited liability partnership or foreign limited liability partnership in the manner provided in Section 416.40 of the Code of Civil Procedure, the court may make an order that the service be made upon the registered limited liability partnership or foreign limited liability partnership by delivering by hand to the Secretary of State, or to any person employed in the Secretary of State’s office in the capacity of assistant or deputy, one copy of the process for each defendant to be served, together with a copy of the order authorizing that service. If the court makes that order, the Secretary of State who receives the process, or the person employed in the Secretary of State’s office in the capacity of assistant or deputy who receives the process, is required to accept the process. A fee as set forth in subdivision (b) of Section 12197 of the Government Code shall be paid to the Secretary of State for the use of the state upon receipt of the process. Service in this manner shall be deemed complete on the 10th day after delivery of the process to the Secretary of State.
Upon the receipt of the copy of process and the fee therefor, the Secretary of State shall give notice of the service of process to the registered limited liability partnership or foreign limited liability partnership registered under Section 16959 at its principal office, by forwarding to that office, by registered mail with request for return receipt, the copy of the process or, if the records of the Secretary of State do not disclose an address for that principal office, by forwarding the copy in the same manner to the last designated agent for service of process who has not resigned. If the agent for service of process has resigned and has not been replaced and the records of the Secretary of State do not disclose an address for its principal office, no action need be taken by the Secretary of State.
The Secretary of State shall keep a record of all process served upon the Secretary of State under this section and shall record therein the time of service and the Secretary of State’s action with reference thereto. The certificate of the Secretary of State, under the Secretary of State’s official seal, certifying to the receipt of process, the giving of notice thereof to the registered limited liability partnership or foreign limited liability partnership, and the forwarding of the process pursuant to this section shall be competent and prima facie evidence of the matters stated therein.
The court order pursuant to subdivision (c) that service of process be made upon the registered limited liability partnership or foreign limited liability partnership by delivery to the Secretary of State may be a court order of a court of another state, or of any federal court, if the suit, action, or proceeding has been filed in that court.
TITLE 2.6. CALIFORNIA REVISED UNIFORM LIMITED LIABILITY COMPANY ACT [17701.01. - 17713.13.]
ARTICLE 1. General Provisions [17701.01. - 17701.17.]
This title may be cited as the California Revised Uniform Limited Liability Company Act.
In this title:
“Acknowledged” means that an instrument is either of the following:
Formally acknowledged as provided in Article 3 (commencing with Section 1180) of Chapter 4 of Title 4 of Part 4 of Division 2 of the Civil Code.
Executed to include substantially the following wording preceding the signature:
“It is hereby declared that I am the person who executed this instrument which execution is my act and deed.”
Any certificate of acknowledgment taken without this state before a notary public or a judge or clerk of a court of record having an official seal need not be further authenticated.
“Articles of organization” means the articles required by Section 17702.01. The term includes the articles of organization as amended or restated.
“Contribution” means any benefit provided by a person to a limited liability company:
In order to become a member upon formation of the limited liability company and in accordance with an agreement between or among the persons that have agreed to become the initial members of the limited liability company.
In order to become a member after formation of the limited liability company and in accordance with an agreement between the person and the limited liability company.
In the person’s capacity as a member and in accordance with the operating agreement or an agreement between the member and the limited liability company.
“Debtor in bankruptcy” means a person that is the subject of either of the following:
“Designated office” means either of the following:
The office that a limited liability company is required to designate and maintain under Section 17701.13.
The principal office of a foreign limited liability company.
“Distribution,” except as otherwise provided in subdivision (g) of Section 17704.05, means a transfer of money or other property from a limited liability company to another person on account of a transferable interest.
“Domestic” means organized under the laws of this state when used in relation to any limited liability company, other business entity, or person other than a natural person.
“Effective,” with respect to a record required or permitted to be delivered to the Secretary of State for filing under this title, means effective under subdivision (c) of Section 17702.05.
“Electronic transmission by the limited liability company” means a communication delivered by any of the following means:
Facsimile telecommunication or electronic mail when directed to the facsimile number or electronic mail address, respectively, for that recipient on record with the limited liability company.
Posting on an electronic message board or network that the limited liability company has designated for those communications, together with a separate notice to the recipient of the posting, which transmission shall be validly delivered upon the later of the posting or delivery of the separate notice thereof.
Other means of electronic communication to which both of the following apply:
The communication is delivered to a recipient who has provided an unrevoked consent to the use of those means of transmission.
The communication creates a record that is capable of retention, retrieval, and review, and that may thereafter be rendered into clearly legible tangible form.
“Electronic transmission to the limited liability company” means a communication delivered by any of the following means:
Facsimile telecommunication or electronic mail when directed to the facsimile number or electronic mail address, respectively, that the limited liability company has provided from time to time to members or managers for sending communications to the limited liability company.
Posting on an electronic message board or network that the limited liability company has designated for those communications, which transmission shall be validly delivered upon the posting.
Other means of electronic communication to which both of the following apply:
The limited liability company has placed in effect reasonable measures to verify that the sender is the member or manager, in person or by proxy, purporting to send the transmission.
The communication creates a record that is capable of retention, retrieval, and review, and that may thereafter be rendered into clearly legible tangible form.
“Foreign limited liability company” means an unincorporated entity formed under the law of a jurisdiction other than this state and denominated by that law as a limited liability company.
“Limited liability company,” except in the phrase “foreign limited liability company,” means a domestic entity formed under this title or an entity that becomes subject to this title pursuant to Article 13 (commencing with Section 17713.01).
“Majority of the managers” unless otherwise provided in the operating agreement, means more than 50 percent of the managers of the limited liability company.
“Majority of the members” unless otherwise provided in the operating agreement, means more than 50 percent of the membership interests of members in current profits of the limited liability company.
“Manager” means a person that under the operating agreement of a manager-managed limited liability company is responsible, alone or in concert with others, for performing the management functions stated in subdivision (c) of Section 17704.07.
“Manager-managed limited liability company” means a limited liability company that qualifies under subdivision (a) of Section 17704.07.
“Member-managed limited liability company” means a limited liability company that is not a manager-managed limited liability company.
“Membership interest” means a member’s rights in the limited liability company, including the member’s transferable interest, any right to vote or participate in management, and any right to information concerning the business and affairs of the limited liability company provided by this title.
“Operating agreement” means the agreement, whether or not referred to as an operating agreement and whether oral, in a record, implied, or in any combination thereof, of all the members of a limited liability company, including a sole member, concerning the matters described in subdivision (a) of Section 17701.10. The term “operating agreement” may include, without more, an agreement of all members to organize a limited liability company pursuant to this title. An operating agreement of a limited liability company having only one member shall not be unenforceable by reason of there being only one person who is a party to the operating agreement. The term includes the agreement as amended or restated.
“Organization” means, whether domestic or foreign, a partnership whether general or limited, limited liability company, association, corporation, professional corporation, professional association, nonprofit corporation, business trust, or statutory business trust having a governing statute.
“Organizer” means a person that acts under Section 17702.01 to form a limited liability company.
“Person” means an individual, partnership, limited partnership, trust, a trustee of a trust, including, but not limited to, a trust described under Division 9 (commencing with Section 15000) of the Probate Code, estate, association, corporation, limited liability company, or other entity, whether domestic or foreign. Nothing in this subdivision shall be construed to confer any rights under the California Constitution or the United States Constitution.
“Principal office” means the principal office of a limited liability company or foreign limited liability company, whether or not the office is located in this state.
“Record” means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form.
“State” means a state of the United States, the District of Columbia, Puerto Rico, the United States Virgin Islands, or any territory or insular possession subject to the jurisdiction of the United States.
“Transfer” includes an assignment, conveyance, deed, bill of sale, lease, mortgage, security interest, encumbrance, gift, and transfer by operation of law.
(aa) “Transferable interest” means the right, as originally associated with a person’s capacity as a member, to receive distributions from a limited liability company in accordance with the operating agreement, whether or not the person remains a member or continues to own any part of the right.
(ab) “Transferee” means a person to which all or part of a transferable interest has been transferred, whether or not the transferor is a member.
(ac) “Vote” includes authorization by written consent or consent given by electronic transmission to the limited liability company.
A limited liability company is an entity distinct from its members.
A limited liability company may have any lawful purpose, regardless of whether for profit, except the banking business, the business of issuing policies of insurance and assuming insurance risks, or the trust company business. A domestic or foreign limited liability company may render services that may be lawfully rendered only pursuant to a license, certificate, or registration authorized by the Business and Professions Code, the Chiropractic Act, the Osteopathic Act, or the Yacht and Ship Brokers Act, if the applicable provisions of the Business and Professions Code, the Chiropractic Act, the Osteopathic Act, or the Yacht and Ship Brokers Act authorize a limited liability company or foreign limited liability company to hold that license, certificate, or registration.
A limited liability company has perpetual duration.
Notwithstanding subdivision (b) and as specifically provided in this subdivision, a limited liability company may operate as a health care service plan licensed pursuant to Chapter 2.2 (commencing with Section 1340) of Division 2 of the Health and Safety Code if the limited liability company is a subsidiary of a health care service plan licensed pursuant to those provisions and the limited liability company is established to serve an existing line of business of the parent health care service plan. Notwithstanding any other law, the tort or contract liability of a limited liability company created to operate as a health care service plan under this subdivision and its members is not limited or restricted in any manner because of the limited liability company status of the health care service plan.
Subject to any limitations contained in the articles of organization and to compliance with this title and any other applicable laws, a limited liability company organized under this title shall have all the powers of a natural person in carrying out its business activities, including, without limitation, the power to:
Transact its business, carry on its operations, qualify to do business, and have and exercise the powers granted by this title in any state, territory, district, possession, or dependency of the United States, and in any foreign country.
Sue, be sued, complain, and defend any action, arbitration, or proceeding, whether judicial, administrative, or otherwise, in its own name.
Adopt, use, and at will alter a company seal. However, failure to affix a seal does not affect the validity of any instrument.
Make contracts and guarantees, incur liabilities, act as surety, or borrow money.
Sell, lease, exchange, transfer, convey, mortgage, pledge, or otherwise dispose of all or any part of its property and assets.
Purchase, take, receive, lease, or otherwise acquire, own, hold, improve, use, or otherwise deal in and with any interest in real or personal property, wherever located.
Lend money to and otherwise assist its members and employees.
Issue notes, bonds, and other obligations and secure any of them by mortgage or deed of trust or security interest of any or all of its assets.
Purchase, take, receive, subscribe for, or otherwise acquire, own, hold, vote, use, employ, sell, mortgage, loan, pledge, or otherwise dispose of and otherwise use and deal in and with stock or other interests in and obligations of any person, or direct or indirect obligations of the United States or of any government, state, territory, governmental district, or municipality, or of any instrumentality of any of them.
Invest its surplus funds, lend money from time to time in any manner which may be appropriate to enable it to carry on the operations or fulfill the purposes set forth in its articles of organization, or take and hold real property and personal property as security for the payment of funds so loaned or invested.
Be a promoter, stockholder, partner, member, manager, associate, or agent of any person.
Indemnify or hold harmless any person.
Purchase and maintain insurance.
Issue, purchase, redeem, receive, take, or otherwise acquire, own, hold, sell, lend, exchange, transfer, or otherwise dispose of, pledge, use, and otherwise deal in and with its own bonds, debentures, and other securities.
Pay pensions and establish and carry out pension, profit sharing, bonus, share purchase, option, savings, thrift, and other retirement, incentive, and benefit plans, trusts, and provisions for all or any of the current or former members, managers, officers, or employees of the limited liability company or any of its subsidiary or affiliated entities, or to indemnify and purchase and maintain insurance on behalf of any fiduciary of those plans, trusts, or provisions.
Make donations, regardless of specific benefit to the limited liability company, to the public welfare or for community, civic, religious, charitable, scientific, literary, educational, or similar purposes.
Make payments or donations or do any other act, not inconsistent with this title or any other applicable law, that furthers the business and affairs of the limited liability company.
Pay compensation, and pay additional compensation, to any or all managers, officers, members, and employees on account of services previously rendered to the limited liability company, whether or not an agreement to pay that compensation was made before the services were rendered.
Insure for its benefit the life of any of its members, managers, officers, or employees, insure the life of any member for the purpose of acquiring at his or her death the interest owned by the member, and continue the insurance after the relationship terminates.
Carry out every other act not inconsistent with law that is appropriate to promote and attain the purposes set forth in its articles of organization.
The law of this state governs all of the following:
The internal affairs of a limited liability company.
The liability of a member as member and a manager as manager for the debts, obligations, or other liabilities of a limited liability company.
The authority of the members and agents of a limited liability company.
It is the policy of this title and this state to give maximum effect to the principles of freedom of contract and to the enforceability of operating agreements.
Unless displaced by particular provisions of this title, the principles of law and equity supplement this title.
Rules that statutes in derogation of the common law are to be strictly construed shall have no application to this title.
Unless the context otherwise requires, as used in this title, the singular shall include the plural and the plural may refer to only the singular. The use of any gender shall be applicable to all genders.
The name of a limited liability company shall contain the words “limited liability company,” or the abbreviation “L.L.C.” or “LLC.” “Limited” may be abbreviated as “Ltd.,” and “company” may be abbreviated as “Co.”
The name of a limited liability company shall not be a name that the Secretary of State determines is likely to mislead the public and shall be distinguishable in the records of the Secretary of State from all of the following:
The name of any limited liability company.
The name of any foreign limited liability company authorized to transact intrastate business in this state.
Each name reserved under Section 17701.09.
The use by a limited liability company of a name in violation of this section may be enjoined notwithstanding the filing of its articles by the Secretary of State.
Subject to Section 17708.04, this section applies to a foreign limited liability company transacting intrastate business in this state that has a certificate of registration to transact intrastate business in this state or that has applied for a certificate of registration.
The name shall not include the words “bank,” “trust,” “trustee,” “incorporated,” “inc.,” “corporation,” or “corp.” and shall not include the words “insurer” or “insurance company” or any other words suggesting that it is in the business of issuing policies of insurance and assuming insurance risks.
Upon payment of the fee prescribed in Article 3 (commencing with Section 12180) of Chapter 3 of Part 2 of Division 3 of Title 2 of the Government Code, a person may apply to reserve the exclusive use of the name of a limited liability company or foreign limited liability company, including an alternative name for a foreign limited liability company whose name is not available. If the Secretary of State finds that the name applied for is available, it shall reserve the name for the applicant’s exclusive use for up to 60 days and issue a certificate of reservation. The Secretary of State shall not issue certificates reserving the same name for two or more consecutive 60-day periods to the same applicant or for the use or benefit of the same person; nor shall consecutive reservations be made by or for the use or benefit of the same person for a name so similar as to fall within the prohibitions of subdivision (b) of Section 17701.08.
The owner of a name reserved for a limited liability company or foreign limited liability company may transfer the reservation to another person by delivering to the Secretary of State a signed notice of the transfer which states the reserved name and the name and address of the transferee.
Except as otherwise provided in this section, the operating agreement governs all of the following:
Relations among the members as members and between the members and the limited liability company.
The rights and duties under this title of a person in the capacity of manager.
The activities of the limited liability company and the conduct of those activities.
The means and conditions for amending the operating agreement.
To the extent the operating agreement does not otherwise provide for a matter described in subdivision (a), this title governs the matter.
In addition to the matters specified in paragraphs (1) to (4), inclusive, of subdivision (d), an operating agreement shall not do any of the following:
Vary a limited liability company’s capacity under Section 17701.05 to sue and be sued in its own name.
Vary the law applicable under Section 17701.06.
Vary the power of the court under Section 17702.04.
Subject to paragraphs (14) and (15) of this subdivision and subdivisions (d) to (g), inclusive, eliminate the duty of loyalty, the duty of care, or any other fiduciary duty.
Subject to subdivisions (d) to (g), inclusive, eliminate the contractual obligation of good faith and fair dealing under subdivision (d) of Section 17704.09, but the operating agreement may prescribe the standards by which the performance of the obligation is to be measured, if the standards are not manifestly unreasonable as determined at the time the standards are prescribed.
Vary the power of a court to decree dissolution in the circumstances specified in subdivision (a) of Section 17707.03 or the provisions for avoidance of dissolution in subdivision (c) of Section 17707.03.
Unreasonably restrict the right of a member to maintain an action under Article 9 (commencing with Section 17709.01).
Restrict the right of a member that will have personal liability with respect to a surviving or converted organization to approve a merger or conversion under Article 10 (commencing with Section 17710.01).
Except as otherwise provided in subdivision (b) of Section 17701.12, restrict the rights under this title of a person other than a member or manager.
Except as provided therein, vary any provision under Article 10 (commencing with Section 17710.01).
Eliminate the duty of loyalty under subdivision (b) of Section 17704.09, but the operating agreement may do any of the following:
Identify specific types or categories of activities that do not violate the duty of loyalty, if not manifestly unreasonable.
Specify the number or percentage of members that may authorize or ratify, after full disclosure to all members of all material facts, a specific act or transaction that otherwise would violate the duty of loyalty.
Unreasonably reduce the duty of care under subdivision (c) of Section 17704.09.
Except as provided in subdivision (c) and subdivisions (e) to (g), inclusive, the effects of the provisions of this title may be varied as among the members or as between the members and the limited liability company by the operating agreement; provided, however, that the provisions of Sections 17701.13, 17703.01, and 17704.08 and subdivisions (f) to (r), inclusive, and (u) to (w), inclusive, of Section 17704.07 shall only be varied by a written operating agreement. Notwithstanding the first sentence of this subdivision and in addition to the matters specified in subdivision (c), the operating agreement shall not do any of the following:
The fiduciary duties of a manager to a manager-managed limited liability company and to the members of the limited liability company and of a member to a member-managed limited liability company and to the members of such limited liability company shall only be modified in a written operating agreement with the informed consent of the members. Assenting to the operating agreement pursuant to subdivision (b) of Section 17701.11 shall not constitute informed consent.
To the extent the operating agreement of a member-managed limited liability company expressly relieves a member of a responsibility that the member would otherwise have under this title and imposes the responsibility on one or more other members, the operating agreement may, to the benefit of the member that the operating agreement relieves of the responsibility, also eliminate or limit any fiduciary duty that would have pertained to the responsibility.
The operating agreement may alter or eliminate the indemnification for a member or manager provided by subdivision (a) of Section 17704.08 and may eliminate or limit a member or manager’s liability to the limited liability company and members for money damages, except for the following:
Breach of the duty of loyalty.
A financial benefit received by the member or manager to which the member or manager is not entitled.
A member’s liability for excess distributions under Section 17704.06.
Intentional infliction of harm on the limited liability company or a member.
An intentional violation of criminal law.
A limited liability company is bound by and may enforce the operating agreement.
A person that becomes a member of a limited liability company is deemed to assent to the operating agreement.
Two or more persons intending to become the initial members of a limited liability company may make an agreement providing that upon the formation of the limited liability company the agreement will become the operating agreement. One person intending to become the initial member of a limited liability company may assent to terms providing that upon the formation of the limited liability company the terms will become the operating agreement.
An operating agreement may specify that its amendment requires the approval of a person that is not a party to the operating agreement or the satisfaction of a condition. An amendment is ineffective if its adoption does not include the required approval or satisfy the specified condition.
The obligations of a limited liability company and its members to a person in the person’s capacity as a transferee or dissociated member are governed by the operating agreement. Subject only to any court order issued under paragraph (2) of subdivision (b) of Section 17705.03 to effectuate a charging order, an amendment to the operating agreement made after a person becomes a transferee or dissociated member is effective with regard to any debt, obligation, or other liability of the limited liability company or its members to the person in the person’s capacity as a transferee or dissociated member.
If a record that has been delivered by a limited liability company to the Secretary of State for filing and has become effective under this title contains a provision that would be ineffective under Section 17701.10 if contained in the operating agreement, the provision is likewise ineffective in the record.
Subject to subdivision (c), if a record that has been delivered by a limited liability company to the Secretary of State for filing and has become effective under this title conflicts with a provision of the operating agreement both of the following apply:
The operating agreement prevails as to members, dissociated members, transferees, and managers.
The record prevails as to other persons to the extent they reasonably rely on the record.
A limited liability company shall designate and continuously maintain in this state both of the following:
An office, which need not be a place of its activity in this state.
An agent for service of process.
A foreign limited liability company that has a certificate of registration under Section 17708.02 shall designate and continuously maintain in this state an agent for service of process.
An agent for service of process of a limited liability company or foreign limited liability company shall be an individual who is a resident of this state or a corporation that has complied with Section 1505 and whose capacity to act as an agent has not terminated. If a limited liability company or foreign limited liability company designates a corporation as its agent for service of process in an instrument filed with the Secretary of State, no address for that agent for service of process shall be set forth in that instrument.
Each limited liability company shall maintain in writing or in any other form capable of being converted into clearly legible tangible form at the office referred to in subdivision (a) all of the following:
A current list of the full name and last known business or residence address of each member and of each transferee set forth in alphabetical order, together with the contribution and the share in profits and losses of each member and transferee.
If the limited liability company is a manager-managed limited liability company, a current list of the full name and business or residence address of each manager.
A copy of the articles of organization and all amendments thereto, together with any powers of attorney pursuant to which the articles of organization or any amendments thereto were executed.
Copies of the limited liability company’s federal, state, and local income tax or information returns and reports, if any, for the six most recent fiscal years.
A copy of the limited liability company’s operating agreement, if in writing, and any amendments thereto, together with any powers of attorney pursuant to which any written operating agreement or any amendments thereto were executed.
Copies of the financial statement of the limited liability company, if any, for the six most recent fiscal years.
The books and records of the limited liability company as they relate to the internal affairs of the limited liability company for at least the current and past four fiscal years.
Upon request of an assessor, a domestic or foreign limited liability company owning, claiming, possessing, or controlling property in this state subject to local assessment shall make available at the limited liability company’s principal office in California or at the office required to be kept pursuant to subdivision (a) or at a place mutually acceptable to the assessor and the limited liability company a true copy of the business records relevant to the amount, cost, and value of all property that the limited liability company owns, claims, possesses, or controls within the county.
A limited liability company or foreign limited liability company may change its designated office, its principal office, its agent for service of process, the address of its agent for service of process, its mailing address, or, in the case of a foreign limited liability company, its principal office in California by delivering to the Secretary of State for filing a statement of information as set forth in Section 17702.09.
A statement of information is effective when filed by the Secretary of State.
To resign as an agent for service of process of a limited liability company or foreign limited liability company, the agent shall deliver to the Secretary of State for filing, on a form prescribed by the Secretary of State for filing, a signed and acknowledged statement of resignation as an agent for service of process containing the name of the limited liability company or foreign limited liability company, the Secretary of State’s file number for the limited liability company or foreign limited liability company, the name of the resigning agent for service of process, and a statement that the agent is resigning.
The Secretary of State shall mail or otherwise provide written notice of the statement of resignation to the principal office of the limited liability company or foreign limited liability company.
Upon filing of the statement of resignation, the authority of the agent to act in that capacity shall cease.
The resignation of an agent may be effective if, on a form prescribed by the Secretary of State containing the name of the limited liability company and Secretary of State’s file number for the limited liability company and the name of the agent for service of process, the agent disclaims having been properly appointed as the agent.
If an individual who has been designated agent for service of process dies or resigns or no longer resides in the state, or if the corporate agent for that purpose resigns, dissolves, withdraws from the state, forfeits its right to transact intrastate business in this state, has its corporate rights, powers, and privileges suspended, or ceases to exist, the limited liability company or foreign limited liability company shall promptly file an initial or amended statement of information as set forth in Section 17702.09.
The Secretary of State may destroy or otherwise dispose of a resignation filed pursuant to this section after a new form is filed pursuant to Section 17702.09 replacing the agent for service of process that has resigned.
In addition to Chapter 4 (commencing with Section 413.10) of Title 5 of Part 2 of the Code of Civil Procedure, process may be served upon limited liability companies and foreign limited liability companies as provided in this section.
Personal service of a copy of any process against the limited liability company or the foreign limited liability company by delivery (1) to any individual designated by it as agent, or (2) if the designated agent is a corporation, to any person named in the latest certificate of the corporate agent filed pursuant to Section 1505 at the office of the corporate agent, shall constitute valid service on the limited liability company or the foreign limited liability company. No change in the address of the agent for service of process or appointment of a new agent for service of process shall be effective until an amendment to the statement described in Section 17701.14 is filed. In the case of a foreign limited liability company that has appointed the Secretary of State as agent for service of process pursuant to subdivision (d) of Section 17708.07, process shall be delivered by hand to the Secretary of State, or to any person employed in the capacity of assistant or deputy, and shall include one copy of the process for each defendant to be served, together with a copy of the court order authorizing the service and the fee therefor. The order shall set forth the address to which the process shall be sent by the Secretary of State.
If an agent for service of process has resigned and has not been replaced or if the designated agent cannot with reasonable diligence be found at the address designated for personal delivery of the process, and it is shown by affidavit to the satisfaction of the court that process against a limited liability company or foreign limited liability company cannot be served with reasonable diligence upon the designated agent by hand in the manner provided in Section 415.10, subdivision (a) of Section 415.20, or subdivision (a) of Section 415.30 of the Code of Civil Procedure, the court may make an order that the service shall be made upon a domestic limited liability company or upon a registered foreign limited liability company by delivering by hand to the Secretary of State, or to any person employed in the Secretary of State’s office in the capacity of assistant or deputy, one copy of the process for each defendant to be served, together with a copy of the order authorizing the service. Service in this manner shall be deemed complete on the 10th day after delivery of the process to the Secretary of State.
Upon receipt of the copy of process and the fee therefor, the Secretary of State shall give notice of the service of the process to the limited liability company or foreign limited liability company, at its principal office, by forwarding to that office, by registered mail with request for return receipt, the copy of the process.
The Secretary of State shall keep a record of all process served upon the Secretary of State under this title and shall record therein the time of service and the action taken by the Secretary of State. A certificate under the Secretary of State’s official seal, certifying to the receipt of process, the giving of notice to the limited liability company or foreign limited liability company, and the forwarding of the process pursuant to this section, shall be competent and prima facie evidence of the service of process.
A member may, in a written operating agreement or other writing, consent to be subject to the nonexclusive jurisdiction of the courts of a specified jurisdiction and the courts of this state, or the exclusive jurisdiction of the courts of this state.
If a member desires to use the arbitration process, that member may, in a written operating agreement or other writing, consent to be nonexclusively subject to arbitration in a specified state or states and this state, or to be exclusively subject to arbitration in this state.
Along with this consent to the jurisdiction of courts or arbitration, a member may consent to be served with legal process in the manner prescribed in the operating agreement or other writing.
ARTICLE 2. Formation: Articles of Organization and Other Filings [17702.01. - 17702.10.]
One or more persons may act as organizers to form a limited liability company by signing and delivering to the Secretary of State for filing articles of organization on a form prescribed by the Secretary of State.
The articles of organization shall state all of the following:
A statement that the purpose of the limited liability company is to engage in any lawful act or activity for which a limited liability company may be organized under this title.
The name of the limited liability company, which shall comply with Section 17701.08.
The street address of the initial principal office and the mailing address of the limited liability company if different from the street address of the initial principal office.
The name and street address of the initial agent for service of process of the limited liability company who meets the qualifications specified in subdivision (c) of Section 17701.13. If a corporate agent is designated, only the name of the agent shall be set forth.
If the limited liability company is to be manager-managed, the articles of organization shall contain a statement to that effect.
If the limited liability company is to be managed by only one manager, the articles of organization shall contain a statement to that effect.
Subject to subdivision (c) of Section 17701.12, articles of organization may also contain any other provision not inconsistent with law other than those provisions required by subdivision (b).
A limited liability company is formed when the Secretary of State has filed the articles of organization.
Except in a proceeding by this state to dissolve a limited liability company, the filing of the articles of organization by the Secretary of State is conclusive proof that the organizer satisfied all conditions to the formation of a limited liability company.
The Secretary of State may cancel the filing of the articles of organization, including articles effecting a conversion, if a check or other remittance accepted in payment of the filing fee is not paid upon presentation. Within 90 days of receiving written notification that the item presented for payment has not been honored for payment, the Secretary of State shall give a first written notice of the applicability of this subdivision to the agent for service of process or to the person submitting the instrument. Thereafter, if the amount has not been paid by cashier’s check or equivalent, the Secretary of State shall give a second written notice of cancellation and the cancellation shall thereupon be effective. The second notice shall be given 20 days or more after the first notice.
The Secretary of State shall include with the instructional materials, provided in conjunction with the form for filing the articles of organization under subdivision (a), a notice that filing the registration will obligate the limited liability company to pay an annual tax for that taxable year to the Franchise Tax Board pursuant to Section 17941 of the Revenue and Taxation Code. That notice shall be updated annually to specify the dollar amount of the tax.
The articles of organization may be amended or restated at any time.
To amend its articles of organization, a limited liability company shall deliver to the Secretary of State a certificate of amendment, on a form prescribed by the Secretary of State for filing, stating all of the following:
The present name of the limited liability company.
The Secretary of State’s file number for the limited liability company.
The changes the amendment makes to the articles of organization as most recently amended or restated.
To restate its articles of organization, a limited liability company shall deliver to the Secretary of State for filing, on a form prescribed by the Secretary of State entitled “Restated Articles of Organization,” stating, as applicable, the following:
Subject to subdivision (c) of Section 17701.12 and subdivision (c) of Section 17702.05, an amendment to or restatement of the articles of organization is effective when filed by the Secretary of State and shall be duly executed by at least one manager of a manager-managed limited liability company or at least one member of a member-managed limited liability company unless a greater number is provided in the articles of organization.
If a member of a member-managed limited liability company, or a manager of a manager-managed limited liability company, knows that any information in filed articles of organization was inaccurate when the articles were filed or has become inaccurate owing to changed circumstances, the member or manager shall promptly do the following:
Cause the articles to be amended.
A limited liability company shall not amend its articles of organization pursuant to subdivision (b) or restate its articles of organization pursuant to subdivision (c) in order to change its principal office, its mailing address, its agent for service of process, or the address of its agent for service of process. To change that information, the limited liability company shall deliver to the Secretary of State for filing a statement of information under Section 17701.14.
A record delivered to the Secretary of State for filing pursuant to this title shall be signed as follows:
Except as otherwise expressly provided in this title and in this subdivision, a record signed on behalf of a limited liability company shall be signed by a person authorized by the limited liability company.
A limited liability company’s initial articles of organization shall be signed by at least one person acting as an organizer.
A record filed on behalf of a dissolved limited liability company that has no members shall be signed by the person winding up the limited liability company’s activities or a person appointed under Section 17707.04 to wind up those activities.
A certificate of cancellation under Section 17707.02 shall be signed by each organizer that signed the initial articles of organization, but a personal representative of a deceased or incompetent organizer may sign in the place of the decedent or incompetent.
A certificate of correction shall be executed in the same manner in which the record being corrected was required to be executed.
Except as otherwise expressly provided in this title and in subdivision (a), any record filed under this title may be signed by an agent.
A limited liability company may record in the office of the county recorder of any county in this state, and county recorders, on request, shall record a certified copy of the limited liability company articles of organization and any exhibit or attachment, or any amendment or correction thereto, that has been filed in the office of the Secretary of State. A foreign limited liability company may record in the office of the county recorder of any county in the state a certified copy of the application for registration of the foreign limited liability company, or any amendment thereto, that has been filed in the office of the Secretary of State. The recording shall create a conclusive presumption in favor of any bona fide purchaser or encumbrancer for value of the limited liability company real property located in the county in which the certified copy has been recorded, of the statements contained therein.
If the Secretary of State determines that an instrument submitted for filing or otherwise submitted does not conform to the law and returns it to the person submitting it, the instrument may be resubmitted accompanied by a written opinion of a member of the State Bar of California submitting the instrument or representing the person submitting it, to the effect that the specific provisions of the instrument objected to by the Secretary of State do conform to law and stating the points and authorities upon which the opinion is based. The Secretary of State shall rely, with respect to any disputed point of law, other than the application of Sections 17701.08, 17701.09, 17708.02, and 17708.03, upon that written opinion in determining whether the instrument conforms to law. The date of filing in that case shall be the date the instrument is received on resubmission.
If a person required by this title to sign a record or deliver a record to the Secretary of State for filing under this title does not do so, any other person that is aggrieved may petition the superior court to order any of the following:
The person to sign the record.
The person to deliver the record to the Secretary of State for filing.
The Secretary of State to file the record unsigned.
If a petitioner under subdivision (a) is not the limited liability company or foreign limited liability company to which the record pertains, the petitioner shall make the limited liability company a party to the action.
A record authorized or required to be delivered to the Secretary of State for filing under this title shall be captioned to describe the record’s purpose, be in a medium permitted by the Secretary of State, and be delivered to the Secretary of State. If the filing fees have been paid, unless the Secretary of State determines that a record does not comply with applicable laws, the Secretary of State shall file the record.
Upon request and payment of the requisite fee, the Secretary of State shall send to the requester a certified copy of a requested record.
Except for original articles of organization and except as otherwise provided in Sections 17701.14 and 17702.06, a record delivered to the Secretary of State for filing under this title may specify a delayed effective date. Subject to Section 17702.06, a record filed by the Secretary of State is effective as follows:
If the record does not specify a delayed effective date, on the date the record is filed as evidenced by the Secretary of State’s endorsement of the date on the record.
If the record specifies a delayed effective date, on the date specified in the record. A delayed effective date specified in the record shall not be more than 90 days after the date the record is filed.
In the case of a delayed effective date, the instrument may be prevented from becoming effective by a certificate stating that by appropriate action it has been revoked and is null and void. This certificate shall be executed in the same manner as the original instrument and shall be filed before the delayed effective date.
In the case of a merger agreement or certificate of merger, a certificate revoking the earlier filing need only be executed on behalf of one of the constituent parties to the merger. If no revocation certificate is filed, the instrument becomes effective on the date specified.
A limited liability company or foreign limited liability company may deliver to the Secretary of State for filing a certificate of correction on a form prescribed by the Secretary of State to correct a record previously delivered by the limited liability company or foreign limited liability company to the Secretary of State and filed by the Secretary of State, if at the time of filing the record contained inaccurate information or was defectively signed.
A certificate of correction under subdivision (a) may not state a delayed effective date and shall do all of the following:
State the present name of the limited liability company or foreign limited liability company and the Secretary of State’s file number.
Describe the title to the document to be corrected, including its filing date.
Set forth the name of each party to the document to be corrected.
Specify the inaccurate information and the reason it is inaccurate or the manner in which the signing was defective.
Correct the defective signature or inaccurate information.
A certificate of correction shall be executed in the same manner in which the record being corrected was required to be executed.
When filed by the Secretary of State, a certificate of correction under subdivision (a) is effective retroactively as of the effective date of the record the certificate corrects, but the statement is effective when filed as to persons that previously relied on the uncorrected record and would be adversely affected by the retroactive effect.
If a record delivered to the Secretary of State for filing under this title and filed by the Secretary of State contains inaccurate information, a person that suffers a loss by reliance on the information may recover damages for the loss from the following:
A person that signed the record, or caused another to sign it on the person’s behalf, and knew the information to be inaccurate at the time the record was signed.
Subject to subdivision (b), a member of a member-managed limited liability company or the manager of a manager-managed limited liability company, if all of the following apply:
The record was delivered for filing on behalf of the limited liability company.
The member or manager had notice of the inaccuracy for a reasonably sufficient time before the information was relied upon so that, before the reliance, the member or manager reasonably could have done all of the following:
Effected an amendment under Section 17702.02.
Filed a petition under Section 17702.04.
To the extent that the operating agreement of a member-managed limited liability company expressly relieves a member of responsibility for maintaining the accuracy of information contained in records delivered on behalf of the limited liability company to the Secretary of State for filing under this title and imposes that responsibility on one or more other members, the liability stated in paragraph (2) of subdivision (a) applies to those other members and not to the member that the operating agreement relieves of the responsibility.
An individual who signs a record authorized or required to be filed under this title affirms under penalty of perjury that the information stated in the record is accurate.
Every limited liability company and every foreign limited liability company registered to transact intrastate business in this state shall deliver to the Secretary of State for filing within 90 days after the filing of its original articles of organization or registering to transact intrastate business and biennially thereafter during the applicable filing period, on a form prescribed by the Secretary of State, a statement of information containing:
The name of the limited liability company and the Secretary of State’s file number and, in the case of a foreign limited liability company, the name under which the foreign limited liability company is authorized to transact intrastate business in this state and the state or other jurisdiction under the laws of which it is organized.
The name and street address of the agent in this state for service of process required to be maintained pursuant to Section 17701.13. If a corporate agent is designated, only the name of the agent shall be set forth.
The street address of its principal office. In the case of a foreign limited liability company, the street address of its principal business office in this state, if any, and, in the case of a domestic limited liability company, the street address of the office required to be maintained pursuant to Section 17701.13.
The mailing address of the limited liability company or foreign limited liability company, if different from the street address of its principal office, or principal business office in this state, or, in the case of a domestic limited liability company, the street address of the office required to be maintained pursuant to Section 17701.13.
The name and complete business or residence addresses of any manager or managers and the chief executive officer, if any, appointed or elected in accordance with the articles of organization or operating agreement or, if no manager has been so elected or appointed, the name and business or residence address of each member.
If the limited liability company or foreign limited liability company chooses to receive renewal notices and any other notifications from the Secretary of State by electronic mail instead of by United States mail, the limited liability company or foreign limited liability company shall include a valid electronic mail address for the limited liability company or foreign limited liability company, or for the limited liability company’s or foreign limited liability company’s designee to receive those notices.
The general type of business that constitutes the principal business activity of the limited liability company or foreign limited liability company, such as, for example, manufacturer of aircraft, wholesale liquor distributor, or retail department store.
For a manager-managed limited liability company or a manager-managed foreign limited liability company, a statement indicating whether any manager has an outstanding final judgment issued by the Division of Labor Standards Enforcement or a court of law, for which no appeal therefrom is pending, for the violation of any wage order or provision of the Labor Code.
For a member-managed limited liability company, a statement indicating whether any member has an outstanding final judgment issued by the Division of Labor Standards Enforcement or a court of law, for which no appeal therefrom is pending, for the violation of any wage order or provision of the Labor Code, unless, pursuant to subdivision (d) of Section 17701.10, a written operating agreement limits the members who are agents of the limited liability company for the purpose of its business and affairs to a specified member or specified members, in which case the statement is only required with respect to the specified member or members.
For a foreign limited liability company that is not managed by a manager or managers, a statement indicating whether any member has an outstanding final judgment issued by the Division of Labor Standards Enforcement or a court of law, for which no appeal therefrom is pending, for the violation of any wage order or provision of the Labor Code, unless the member is not an agent of the foreign limited liability company for purposes of its business and affairs, in which case the statement is only required with respect to the member or members who are agents of the foreign limited liability company.
If there has been no change in the information contained in the last filed statement of information of the limited liability company or foreign limited liability company on file in the office of Secretary of State, the limited liability company or foreign limited liability company may, in lieu of filing the statement of information required by subdivision (a), advise the Secretary of State, on a form prescribed by the Secretary of State, that no changes in the required information have occurred during the applicable filing period.
For purposes of this section, the applicable filing period for a limited liability company shall be the calendar month during which its original articles of organization was filed or, in the case of a foreign limited liability company, the month during which its application for registration was filed, and the immediately preceding five calendar months. The Secretary of State shall provide a notice to each limited liability company or foreign limited liability company to comply with this section approximately three months prior to the close of the applicable filing period. The notice shall state the due date for compliance and shall be sent to the last mailing address of the limited liability company or foreign limited liability company according to the records of the Secretary of State, or if none, to the street address of the principal office, or, in the case of a domestic limited liability company, the office required to be maintained pursuant to Section 17701.13, or to the last electronic mail address according to the records of the Secretary of State if the limited liability company or foreign limited liability company has elected to receive notices from the Secretary of State by electronic mail. The failure of the limited liability company or foreign limited liability company to receive the notice shall not exempt the limited liability company or foreign limited liability company from complying with this section.
Whenever any of the information required by subdivision (a) changes, other than the name and address of the agent for service of process, the limited liability company or foreign limited liability company may file a current statement containing all the information required by subdivision (a). When changing its agent for service of process or when the address of the agent changes, the limited liability company or foreign limited liability company shall file a current statement containing all the information required by subdivision (a). Whenever any statement is filed pursuant to this section, that statement supersedes any previously filed statement pursuant to this section, the statement in the original articles of organization, and the statement in any previously filed amended or restated articles of organization that have been filed, or in the case of a foreign limited liability company, in the application for registration.
If a statement of information delivered to the Secretary of State for filing under this section does not contain the information required by subdivision (a), the Secretary of State shall promptly return the statement of information to the reporting limited liability company or foreign limited liability company for correction.
The Secretary of State may destroy or otherwise dispose of any statement filed pursuant to this section after it has been superseded by the filing of a new statement.
This section shall become operative on January 1, 2022, or upon certification by the Secretary of State that California Business Connect is implemented, whichever date is earlier.
If the Secretary of State certifies California Business Connect is implemented prior to January 1, 2022, the Secretary of State shall post notice of the certification on the home page of its internet website and send notice of the certification to the Legislative Counsel.
An instrument shall be deemed filed, and the date of filing endorsed thereon, upon receipt by the Secretary of State of any instrument accompanied by the fee prescribed in Article 3 (commencing with Section 12180) of Chapter 3 of Part 2 of Division 3 of Title 2 of the Government Code. The date of filing shall be the date the instrument is received by the Secretary of State unless the instrument provides that it is to be withheld from filing for a period of time not to exceed 90 days or unless, in the judgment of the Secretary of State, the filing is intended to be coordinated with the filing of some other document that cannot be filed. The Secretary of State shall file a document as of any requested future date not more than 90 days after its receipt, including a Saturday, Sunday, or legal holiday, if that document is received in the office of the Secretary of State at least one business day prior to the requested date of filing. Upon receipt and after filing of any document under this title, the Secretary of State may microfilm or reproduce by other techniques any filings or documents and destroy the original filing or document. The microfilm or other reproduction of any document under this section, or corresponding provision under prior law, shall be admissible in any court of law.
ARTICLE 3. Relations of Members and Managers to Persons Dealing with a Limited Liability Company [17703.01. - 17703.04.]
Unless the articles of organization indicate the limited liability company is a manager-managed limited liability company, every member is an agent of the limited liability company for the purpose of its business or affairs, and the act of any member, including, but not limited to, the execution in the name of the limited liability company of any instrument, for the apparent purpose of carrying on in the usual way the business or affairs of the limited liability company of which that person is a member, binds the limited liability company in the particular matter, unless the member so acting has, in fact, no authority to act for the limited liability company in the particular matter and the person with whom the member is dealing has actual knowledge of the fact that the member has no such authority.
If the articles of organization indicate that the limited liability company is a manager-managed limited liability company, each of the following applies:
No member acting solely in the capacity of a member is an agent of the limited liability company nor can any member bind or execute any instrument on behalf of the limited liability company.
Every manager is an agent of the limited liability company for the purpose of its business or affairs, and the act of any manager, including, but not limited to, the execution in the name of the limited liability company of any instrument for apparently carrying on in the usual way the business or affairs of the limited liability company of which the person is a manager, binds the limited liability company, unless the manager so acting has, in fact, no authority to act for the limited liability company in the particular matter and the person with whom the manager is dealing has actual knowledge of the fact that the manager has no such authority.
No act of a manager or member in contravention of a restriction on authority shall bind the limited liability company to persons having actual knowledge of the restriction.
Notwithstanding the provisions of subdivision (c), any note, mortgage, evidence of indebtedness, contract, certificate, statement, conveyance, or other instrument in writing, and any assignment or endorsement thereof, executed or entered into between any limited liability company and any other person, when signed by at least two managers, or by one manager in the case of a limited liability company whose articles of organization state that it is managed by only one manager, is not invalidated as to the limited liability company by any lack of authority of the signing managers or manager in the absence of actual knowledge on the part of the other person that the signing managers or manager had no authority to execute the same.
All of the following apply to debts, obligations, or other liabilities of a limited liability company, whether arising in contract, tort, or otherwise:
They are solely the debts, obligations, or other liabilities of the limited liability company to which the debts, obligations, or other liabilities relate.
They do not become the debts, obligations, or other liabilities of a member or manager solely by reason of the member acting as a member or manager acting as a manager for the limited liability company.
A member of a limited liability company shall be subject to liability under the common law governing alter ego liability, and shall also be personally liable under a judgment of a court or for any debt, obligation, or liability of the limited liability company, whether that liability or obligation arises in contract, tort, or otherwise, under the same or similar circumstances and to the same extent as a shareholder of a corporation may be personally liable for any debt, obligation, or liability of the corporation; except that the failure to hold meetings of members or managers or the failure to observe formalities pertaining to the calling or conduct of meetings shall not be considered a factor tending to establish that a member or the members have alter ego or personal liability for any debt, obligation, or liability of the limited liability company where the articles of organization or operating agreement do not expressly require the holding of meetings of members or managers.
Nothing in this section shall be construed to affect the liability of a member of a limited liability company to third parties for the member’s participation in tortious conduct, or pursuant to the terms of a written guarantee or other contractual obligation entered into by the member, other than an operating agreement.
A limited liability company or foreign limited liability company shall carry insurance or provide an undertaking to the same extent and in the same amount as is required by any law, rule, or regulation of this state that would be applicable to the limited liability company or foreign limited liability company were it a corporation organized and existing or duly qualified for the transaction of intrastate business under the General Corporation Law.
Notwithstanding subdivision (a), a member of a limited liability company may agree to be obligated personally for any or all of the debts, obligations, and liabilities of the limited liability company as long as the agreement to be so obligated is set forth in the articles of organization or in a written operating agreement that specifically references this subdivision.
ARTICLE 4. Relations of Members to Each Other and to the Limited Liability Company [17704.01. - 17704.10.]
If a limited liability company is to have only one member upon formation, the person becomes a member as agreed by that person and the organizer of the limited liability company. That person and the organizer may be, but need not be, different persons. If different, the organizer acts on behalf of the initial member.
If a limited liability company is to have more than one member upon formation, those persons become members as agreed by the persons before the formation of the limited liability company. The organizer acts on behalf of the persons in forming the limited liability company and may be, but need not be, one of the persons.
After formation of a limited liability company, a person becomes a member as follows:
As provided in the operating agreement.
As the result of a transaction effective under Article 10 (commencing with Section 17710.01).
With the consent of all the members.
If, within 90 consecutive days after the limited liability company ceases to have any members, the last person to have been a member, or the legal representative of that person, designates a person to become a member, and the designated person consents to become a member.
A person may become a member without acquiring a transferable interest and without making or being obligated to make a contribution to the limited liability company.
Any employee of the limited liability company or foreign limited liability company or of any parent or subsidiary of either, pursuant to a membership interest purchase plan or agreement, or a membership interest option plan or agreement.
In any transaction in connection with securing employment, a person who is or is about to become an officer or a manager of the limited liability company or the foreign limited liability company or of any parent or subsidiary of either.
A contribution may consist of tangible or intangible property or other benefit to a limited liability company, including money, services performed, promissory notes, other agreements to contribute money or property, and contracts for services to be performed.
A person’s obligation to make a contribution to a limited liability company is not excused by the person’s death, disability, or other inability to perform personally. If a person does not make a required contribution, the person or the person’s estate is obligated to contribute money equal to the value of the part of the contribution that has not been made, at the option of the limited liability company.
The obligation of a member to make a contribution to a limited liability company may be compromised only by consent of all the members. A conditional obligation of a member to make a contribution to a limited liability company shall not be enforced unless the conditions of the obligation have been satisfied or waived as to or by that member. Conditional obligations include contributions payable upon a discretionary call of a limited liability company before the time the call occurs.
A creditor of a limited liability company that extends credit or otherwise acts in reliance on an obligation described in subdivision (a) may enforce the obligation.
Nothing in this section shall be construed to affect the rights of third-party creditors of the limited liability company to seek equitable remedies or any rights existing under the Uniform Voidable Transactions Act (Chapter 1 (commencing with Section 3439) of Title 2 of Part 2 of Division 4 of the Civil Code).
Any distributions made by a limited liability company before its dissolution and winding up shall be among the members in accordance with the operating agreement. If the operating agreement does not otherwise provide, distributions shall be on the basis of the value, as stated in the required records when the limited liability company decides to make the distribution, of the contributions the limited liability company has received from each member, except to the extent necessary to comply with any transfer effective under Section 17705.02 and any charging order in effect under Section 17705.03.
A person has a right to a distribution before the dissolution and winding up of a limited liability company only if the limited liability company decides to make an interim distribution. Unless the articles of organization or written operating agreement provides otherwise, a person’s dissociation does not entitle the person to a distribution, and, beginning on the date of dissociation, the dissociated person shall have only the right of a transferee of a transferable interest with respect to that person’s interest in the limited liability company, and then only with respect to distributions, if any, to which a transferee is entitled under the operating agreement. If the dissociation is in violation of the operating agreement, the limited liability company shall have the right to offset any damages for the breach of the operating agreement from the amounts, if any, otherwise distributable to the dissociated person with respect to that person’s interest in the limited liability company.
A person does not have a right to demand or receive a distribution from a limited liability company in any form other than money. A limited liability company may distribute an asset in kind if each part of the asset is fungible with each other part and each person receives a percentage of the asset equal in value to the person’s share of distributions.
If a member or transferee becomes entitled to receive a distribution, the member or transferee has the status of, and is entitled to all remedies available to, a creditor of the limited liability company with respect to the distribution.
The profits and losses of a limited liability company shall be allocated among the members, and among classes of members, in the manner provided in the operating agreement. If the operating agreement does not otherwise provide, profits and losses shall be allocated in proportion to the value, as stated in the required records, of the contributions the limited liability company has received from each member.
A limited liability company shall not make a distribution if after the distribution either of the following applies:
The limited liability company would not be able to pay its debts as they become due in the ordinary course of the limited liability company’s activities.
The limited liability company’s total assets would be less than the sum of its total liabilities plus the amount that would be needed, if the limited liability company were to be dissolved, wound up, and terminated at the time of the distribution, to satisfy the preferential rights upon dissolution, winding up, and termination of members whose preferential rights are superior to those of persons receiving the distribution.
A limited liability company may base a determination that a distribution is not prohibited under subdivision (a) on financial statements prepared on the basis of accounting practices and principles that are reasonable in the circumstances or on a fair valuation or other method that is reasonable under the circumstances.
Except as otherwise provided in subdivision (f), the effect of a distribution under subdivision (a) is measured as follows:
In the case of a distribution by purchase, redemption, or other acquisition of a transferable interest in the limited liability company, as of the date money or other property is transferred or debt incurred by the limited liability company.
In all other cases, as of the date the distribution is authorized, if the payment occurs within 120 days after that date, or the payment is made, if the payment occurs more than 120 days after the distribution is authorized.
A limited liability company’s indebtedness to a member incurred by reason of a distribution made in accordance with this section is at parity with the limited liability company’s indebtedness to its general, unsecured creditors.
A limited liability company’s indebtedness, including indebtedness issued in connection with or as part of a distribution, is not a liability for purposes of subdivision (a) if the terms of the indebtedness provide that payment of principal and interest are made only to the extent that a distribution could be made to members under this section.
If indebtedness is issued as a distribution, each payment of principal or interest on the indebtedness is treated as a distribution, the effect of which is measured on the date the payment is made.
In subdivision (f) of Section 17701.02, “distribution” does not include amounts constituting reasonable compensation for present or past services or reasonable payments made in the ordinary course of business under a bona fide retirement plan or other benefits program.
Except as otherwise provided in subdivision (b), if a member of a member-managed limited liability company or manager of a manager-managed limited liability company consents to a distribution made in violation of Section 17704.05, the member or manager is personally liable to the limited liability company for the amount of the distribution that exceeds the amount that could have been distributed without the violation of Section 17704.05.
To the extent the operating agreement of a member-managed limited liability company expressly relieves a member of the authority and responsibility to consent to distributions and imposes that authority and responsibility on one or more other members, the liability stated in subdivision (a) applies to the other members and not the member that the operating agreement relieves of authority and responsibility.
A person that receives a distribution knowing that the distribution to that person was made in violation of Section 17704.05 is personally liable to the limited liability company but only to the extent that the distribution received by the person exceeded the amount that could have been properly paid under Section 17704.05.
A person against which an action is commenced because the person is liable under subdivision (a) may do all of the following:
Implead any other person that is subject to liability under subdivision (a) and seek to compel contribution from the person.
Implead any person that received a distribution in violation of subdivision (c) and seek to compel contribution from the person in the amount the person received in violation of subdivision (c).
An action under this section is barred if not commenced within four years after the distribution.
A limited liability company is a member-managed limited liability company unless the articles of organization contain the statement required by paragraph (5) of subdivision (b) of Section 17702.01.
In a member-managed limited liability company, the following rules apply:
The management and conduct of the limited liability company are vested in the members.
Except as provided in subdivision (r), each member has equal rights in the management and conduct of the limited liability company’s activities including equal voting rights.
A difference arising among members as to a matter in the ordinary course of the activities of the limited liability company shall be decided by a majority of the members.
Except as otherwise provided in Article 10 (commencing with Section 17710.01), an act outside the ordinary course of the activities of the limited liability company may be undertaken only with the consent of all members.
The operating agreement may be amended only with the consent of all members.
In a manager-managed limited liability company, the following rules apply:
Sell, lease, exchange, or otherwise dispose of all, or substantially all, of the limited liability company’s property, with or without the goodwill, outside the ordinary course of the limited liability company’s activities.
Except as otherwise provided in Article 10 (commencing with Section 17710.01), any other act outside the ordinary course of the limited liability company’s activities.
A person need not be a member to be a manager, but the dissociation of a member that is also a manager removes the person as a manager. If a person that is both a manager and a member ceases to be a manager, that cessation does not by itself dissociate the person as a member.
A person’s ceasing to be a manager does not discharge any debt, obligation, or other liability to the limited liability company or members which the person incurred while a manager.
Except for such orders as may be made by a court of competent jurisdiction over a dissolution under Section 17707.03, the dissolution of a limited liability company does not affect the applicability of this section. However, a person that wrongfully causes dissolution of the limited liability company loses the right to participate in management as a member and a manager.
This title does not entitle a member to remuneration for services performed for a member-managed limited liability company, except for reasonable compensation for services rendered in winding up the activities of a limited liability company.
Meetings of members may be held at any place, by electronic video screen communication or by electronic transmission by and to the limited liability company pursuant to paragraphs (1) and (2) of subdivision (i) of Section 17701.02, either within or without this state, selected by the person or persons calling the meeting or as may be stated in or fixed in accordance with the articles of organization or a written operating agreement. If no other place is stated or so fixed, all meetings shall be held at the principal office of the limited liability company. Unless prohibited by the articles of organization of the limited liability company, if authorized by the operating agreement, members not physically present in person or by proxy at a meeting of members may, by electronic transmission by and to the limited liability company pursuant to paragraphs (1) and (2) of subdivision (i) of Section 17701.02 or by electronic video screen communication, participate in a meeting of members, be deemed present in person or by proxy, and vote at a meeting of members whether that meeting is to be held at a designated place or in whole or in part by means of electronic transmission by and to the limited liability company or by electronic video screen communication, in accordance with subdivision (l).
A meeting of the members may be called by any manager or by any member or members representing more than 10 percent of the interests in current profits of members for the purpose of addressing any matters on which the members may vote.
Whenever members are required or permitted to take any action at a meeting, a written notice of the meeting shall be given not less than 10 days nor more than 60 days before the date of the meeting to each member entitled to vote at the meeting. The notice shall state the place, date, and hour of the meeting, the means of electronic transmission by and to the limited liability company or electronic video screen communication, if any, and the general nature of the business to be transacted. No other business may be transacted at that meeting.
Any report or any notice of a members’ meeting shall be given personally, by electronic transmission by the limited liability company, or by mail or other means of written communication, addressed to the member at the address of the member appearing on the books of the limited liability company or given by the member to the limited liability company for the purpose of notice, or, if no address appears or is given, at the place where the principal office of the limited liability company is located or by publication at least once in a newspaper of general circulation in the county in which the principal office is located. The notice or report shall be deemed to have been given at the time when delivered personally, delivered by electronic transmission by the limited liability company, deposited in the mail, or sent by other means of written communication. An affidavit of mailing or delivered by electronic transmission by the limited liability company of any notice or report in accordance with this article, executed by a manager, shall be prima facie evidence of the giving of the notice or report.
If any notice or report addressed to the member at the address of the member appearing on the books of the limited liability company is returned to the limited liability company by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice or report to the member at the address, all future notices or reports shall be deemed to have been duly given without further mailing if they are available for the member at the principal office of the limited liability company for a period of one year from the date of the giving of the notice or report to all other members.
Notice given by electronic transmission by the limited liability company under this subdivision shall be valid only if it complies with paragraph (1) of subdivision (i) of Section 17701.02.
Notwithstanding this condition, notice shall not be given by electronic transmission by the limited liability company under this subdivision after either of the following has occurred:
The limited liability company is unable to deliver two consecutive notices to the member by that means.
The inability to so deliver the notices to the member becomes known to the secretary, any assistant secretary, the transfer agent, or any other person responsible for the giving of the notice.
Upon written request to a manager by any person entitled to call a meeting of members, the manager shall immediately cause notice to be given to the members entitled to vote that a meeting will be held at a time requested by the person calling the meeting, not less than 10 days nor more than 60 days after the receipt of the request. If the notice is not given within 20 days after receipt of the request, the person entitled to call the meeting may give the notice or, upon the application of that person, the superior court of the county in which the principal office of the limited liability company is located, or if the principal office is not in this state, the county in which the limited liability company’s address in this state is located, shall summarily order the giving of the notice, after notice to the limited liability company affording it an opportunity to be heard. The procedure provided in subdivision (c) of Section 305 shall apply to the application. The court may issue any order as may be appropriate, including, without limitation, an order designating the time and place of the meeting, the record date for determination of members entitled to vote, and the form of notice.
When a members’ meeting is adjourned to another time or place, unless the articles of organization or a written operating agreement otherwise require and except as provided in this subdivision, notice need not be given of the adjourned meeting if the time and place thereof or the means of electronic transmission by and to the limited liability company or electronic video screen communication, if any, are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the limited liability company may transact any business that may have been transacted at the original meeting. If the adjournment is for more than 45 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each member of record entitled to vote at the meeting.
The actions taken at any meeting of members, however called and noticed, and wherever held, have the same validity as if taken at a meeting duly held after regular call and notice, if a quorum is present either in person or by proxy, and if, either before or after the meeting, each of the members entitled to vote, not present in person or by proxy, provides a waiver of notice or consents to the holding of the meeting or approves the minutes of the meeting in writing. All waivers, consents, and approvals shall be filed with the limited liability company records or made a part of the minutes of the meeting after conversion to the form in which those records or minutes are kept. Attendance of a person at a meeting shall constitute a waiver of notice of the meeting, except when the person objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Attendance at a meeting is not a waiver of any right to object to the consideration of matters required by this title to be included in the notice but not so included, if the objection is expressly made at the meeting. Neither the business to be transacted nor the purpose of any meeting of members need be specified in any written waiver of notice, unless otherwise provided in the articles of organization or operating agreement, except as provided in subdivision (l).
Members may participate in a meeting of the limited liability company through the use of conference telephones or electronic video screen communication, as long as all members participating in the meeting can hear one another, or by electronic transmission by and to the limited liability company pursuant to paragraphs (1) and (2) of subdivision (i) of Section 17701.02. Participation in a meeting pursuant to this provision constitutes presence in person at that meeting.
Any action approved at a meeting, other than by unanimous approval of those entitled to vote, shall be valid only if the general nature of the proposal so approved was stated in the notice of meeting or in any written waiver of notice.
A majority of the members represented in person or by proxy shall constitute a quorum at a meeting of members.
The members present at a duly called or held meeting at which a quorum is present may continue to transact business until adjournment, notwithstanding the loss of a quorum, if any action taken after loss of a quorum, other than adjournment, is approved by the requisite percentage of interests of members specified in this title or in the articles of organization or a written operating agreement.
In the absence of a quorum, any meeting of members may be adjourned from time to time by the vote of a majority of the interests represented either in person or by proxy, but no other business may be transacted, except as provided in paragraph (2).
Any action that may be taken at any meeting of the members may be taken without a meeting if a consent in writing, setting forth the action so taken, is signed and delivered to the limited liability company within 60 days of the record date for that action by members having not less than the minimum number of votes that would be necessary to authorize or take that action at a meeting at which all members entitled to vote thereon were present and voted.
Unless the consents of all members entitled to vote have been solicited in writing, (A) notice of any member approval of an amendment to the articles of organization or operating agreement, a dissolution of the limited liability company as provided in Section 17707.01, or a merger of the limited liability company as provided in Section 17710.10, without a meeting by less than unanimous written consent shall be given at least 10 days before the consummation of the action authorized by the approval, and (B) prompt notice shall be given of the taking of any other action approved by members without a meeting by less than unanimous written consent, to those members entitled to vote who have not consented in writing.
Any member giving a written consent, or the member’s proxyholder, may revoke the consent personally or by proxy by a writing received by the limited liability company prior to the time that written consents of members having the minimum number of votes that would be required to authorize the proposed action have been filed with the limited liability company, but may not do so thereafter. This revocation is effective upon its receipt at the office of the limited liability company required to be maintained pursuant to Section 17701.13.
The use of proxies in connection with this section shall be governed in the same manner as in the case of corporations formed under the General Corporation Law, Division 1 (commencing with Section 100) of Title 1.
In order that the limited liability company may determine the members of record entitled to notices of any meeting or to vote, or entitled to receive any distribution or to exercise any rights in respect of any other lawful action, a manager, or members representing more than 10 percent of the interests of members, may fix, in advance, a record date, that is not more than 60 days nor less than 10 days prior to the date of the meeting and not more than 60 days prior to any other action. If no record date is fixed the following shall apply:
The record date for determining members entitled to notice of or to vote at a meeting of members shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held.
The record date for determining members entitled to give consent to limited liability company action in writing without a meeting shall be the day on which the first written consent is given.
The record date for determining members for any other purpose shall be at the close of business on the day on which the managers adopt the resolution relating thereto, or the 60th day prior to the date of the other action, whichever is later.
The determination of members of record entitled to notice of or to vote at a meeting of members shall apply to any adjournment of the meeting unless a manager or the members who called the meeting fix a new record date for the adjourned meeting, but the manager or the members who called the meeting shall fix a new record date if the meeting is adjourned for more than 45 days from the date set for the original meeting.
A meeting of the members may be conducted, in whole or in part, by electronic transmission by and to the limited liability company or by electronic video screen communication if both of the following requirements are met:
The limited liability company implements reasonable measures to provide members, in person or by proxy, a reasonable opportunity to participate in the meeting and to vote on matters submitted to the members, including an opportunity to read or hear the proceedings of the meeting substantially concurrently with those proceedings.
When any member votes or takes other action at the meeting by means of electronic transmission to the limited liability company or electronic video screen communication, a record of that vote or action shall be maintained by the limited liability company.
The articles of organization or a written operating agreement may provide to all or certain identified members of a specified class or group of members the right to vote separately or with all or any class or group of members on any matter. Voting by members may be on a per capita, number, financial interest, class, group, or any other basis. If no voting provision is contained in the articles of organization or written operating agreement, each of the following shall apply:
The members of a limited liability company shall vote in proportion to their interests in current profits of the limited liability company or, in the case of a member who has assigned the member’s entire transferable interest in the limited liability company to a person who has not been admitted as a member, in proportion to the interest in current profits that the assigning member would have, had the assignment not been made.
Any amendment to the articles of organization or operating agreement shall require the unanimous vote of all members.
In all other matters in which a vote is required, except as otherwise provided in this section, a vote of a majority of the members shall be sufficient.
Notwithstanding any provision to the contrary in the articles of organization or operating agreement, in no event shall the articles of organization be amended by a vote of less than a majority of the members.
Notwithstanding any provision to the contrary in the articles of organization or operating agreement, members shall have the right to vote on a dissolution of the limited liability company as provided in subdivision (b) of Section 17707.01, on a conversion to another business entity as provided in subdivision (b) of Section 17710.03, and on a merger of the limited liability company as provided in Section 17710.12.
A written operating agreement may provide for the appointment of officers, including, but not limited to, a chairperson or a president, or both a chairperson and a president, a secretary, a chief financial officer, and any other officers with the titles, powers, and duties as shall be specified in the articles of organization or operating agreement or as determined by the managers or members. An officer may, but does not need to, be a member or manager of the limited liability company, and any number of offices may be held by the same person.
Officers, if any, shall be appointed in accordance with the written operating agreement or, if no such provision is made in the operating agreement, any officers shall be appointed by the managers and shall serve at the pleasure of the managers, subject to the rights, if any, of an officer under any contract of employment. Any officer may resign at any time upon written notice to the limited liability company without prejudice to the rights, if any, of the limited liability under any contract to which the officer is a party.
Subject to the provisions of the articles of organization, any note, mortgage, evidence of indebtedness, contract, certificate, statement, conveyance, or other instrument in writing, and any assignment or endorsement thereof, executed or entered into between any limited liability company and any other person, when signed by the chairperson of the board, the president, or any vice president and any secretary, any assistant secretary, the chief financial officer, or any assistant treasurer of the limited liability company, is not invalidated as to the limited liability company by any lack of authority of the signing officers in the absence of actual knowledge on the part of the other person that the signing officers had no authority to execute the same.
A limited liability company shall reimburse for any payment made and indemnify for any debt, obligation, or other liability incurred by a member of a member-managed limited liability company or the manager of a manager-managed limited liability company in the course of the member’s or manager’s activities on behalf of the limited liability company, if, in making the payment or incurring the debt, obligation, or other liability, the member or manager complied with the duties stated in Section 17704.09.
Except as provided in subdivision (g) of Section 17701.10, a limited liability company may reimburse for any payment made and may indemnify for any debt, obligation, or other liability incurred by a person not identified in subdivision (a), including, without limitation, any officer, employee, or agent of the limited liability company, in the course of that person’s activities on behalf of the limited liability company.
A limited liability company may purchase and maintain insurance on behalf of any person against liability asserted against or incurred by that person even if, under subdivision (g) of Section 17701.10, the operating agreement could not eliminate or limit the person’s liability to the limited liability company for the conduct giving rise to the liability.
Without limiting subdivision (a), to the extent that an agent of a limited liability company has been successful on the merits in defense or settlement of any claim, issue, or matter in any proceeding in which the agent was or is a party or is threatened to be made a party by reason of the fact that the person is or was an agent of the limited liability company, if the agent acted in good faith and in a manner that the agent reasonably believed to be in the best interests of the limited liability company and its members, the agent shall be indemnified against expenses actually and reasonably incurred by the agent in connection therewith.
For purposes of this subdivision, the following terms have the following meanings:
“Agent” means any person who is or was a member of a member-managed limited liability company, manager of a manager-managed limited liability company, officer, employee, or other agent of the limited liability company, or is or was serving at the request of the limited liability company as a manager, director, officer, employee, or agent of another foreign or domestic corporation, limited liability company or foreign limited liability company, partnership, joint venture, trust, or other enterprise, or was a manager, director, officer, employee, or agent of a foreign or domestic limited liability company, partnership, joint venture, trust, or other enterprise that was a predecessor of the limited liability company or of another enterprise at the request of the predecessor entity or other enterprise.
“Expenses” include, without limitation, the attorney’s fees and any expenses of establishing a right to indemnification under this subdivision.
“Proceeding” means any threatened, pending, or completed action or proceeding, whether civil, criminal, administrative, or investigative.
The fiduciary duties that a member owes to a member-managed limited liability company and the other members of the limited liability company are the duties of loyalty and care under subdivisions (b) and (c).
A member’s duty of loyalty to the limited liability company and the other members is limited to the following:
To account to the limited liability company and hold as trustee for it any property, profit, or benefit derived by the member in the conduct and winding up of the activities of a limited liability company or derived from a use by the member of a limited liability company property, including the appropriation of a limited liability company opportunity.
To refrain from dealing with the limited liability company in the conduct or winding up of the activities of the limited liability company as or on behalf of a person having an interest adverse to the limited liability company.
To refrain from competing with the limited liability company in the conduct or winding up of the activities of the limited liability company.
A member’s duty of care to a limited liability company and the other members in the conduct and winding up of the activities of the limited liability company is limited to refraining from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law.
A member shall discharge the duties to a limited liability company and the other members under this title or under the operating agreement and exercise any rights consistent with the obligation of good faith and fair dealing.
A member does not violate a duty or obligation under this article or under the operating agreement merely because the member’s conduct furthers the member’s own interest.
In a manager-managed limited liability company, all of the following rules apply:
Subdivisions (a), (b), (c), and (e) apply to the manager or managers and not the members.
Subdivision (d) applies to the members and managers.
Except as otherwise provided, a member does not have any fiduciary duty to the limited liability company or to any other member solely by reason of being a member.
Upon the request of a member or transferee, for purposes reasonably related to the interest of that person as a member or a transferee, a manager or, if the limited liability company is member-managed, a member in possession of the requested information, shall promptly deliver, in writing, to the member or transferee, at the expense of the limited liability company, a copy of the information required to be maintained by paragraphs (1), (2), and (4) of subdivision (d) of Section 17701.13, and any written operating agreement of the limited liability company.
Each member, manager, and transferee has the right, upon reasonable request, for purposes reasonably related to the interest of that person as a member, manager, or transferee, to each of the following:
To inspect and copy during normal business hours any of the records required to be maintained pursuant to Section 17701.13.
To obtain in writing from the limited liability company, promptly after becoming available, a copy of the limited liability company’s federal, state, and local income tax returns for each year.
In the case of a limited liability company with more than 35 members, each of the following shall apply:
The financial statements referred to in this section shall be accompanied by the report thereon, if any, of the independent accountants engaged by the limited liability company or, if there is no report, the certificate of the manager of the limited liability company that the financial statements were prepared without audit from the books and records of the limited liability company.
A manager shall promptly furnish to a member a copy of any amendment to the articles of organization or operating agreement executed by a manager pursuant to a power of attorney from the member. The articles of organization or operating agreement may be sent by electronic transmission by the limited liability company.
The limited liability company shall send or cause information to be sent in writing to each member or holder of a transferable interest within 90 days after the end of each taxable year the information necessary to complete federal and state income tax or information returns and, in the case of a limited liability company with 35 or fewer members, a copy of the limited liability company’s federal, state, and local income tax or information returns for the year.
In addition to the remedies provided in Sections 17713.06 and 17713.07 and any other remedies, a court of competent jurisdiction may enforce the duty of making and mailing or delivering the information and financial statements required by this section and, for good cause shown, extend the time therefor.
In any action under this section or under Section 17713.07, if the court finds the failure of the limited liability company to comply with the requirements of this section is without justification, the court may award an amount sufficient to reimburse the person bringing the action for the reasonable expenses incurred by that person, including attorney’s fees, in connection with the action or proceeding.
Any waiver of the rights provided in this section shall be unenforceable.
Any request, inspection, or copying by a member or holder of a transferable interest may be made by that person or by that person’s agent or attorney.
Upon complaint that a limited liability company is failing to comply with the provisions of this section, or to afford to the members rights given to them in the articles of organization or operating agreement, the Attorney General may, in the name of the people of the State of California, send to the office required to be maintained pursuant to Section 17701.13, notice of the complaint.
If the answer of the limited liability company is not received within 30 days of the date the notice was transmitted, or if the answer is not satisfactory, and if the enforcement of the rights of the aggrieved persons by private civil action, by class action, or otherwise, would be so burdensome or expensive as to be impracticable, the Attorney General may institute, maintain, or intervene in any court of competent jurisdiction or before any administrative agency for relief by way of injunction, the dissolution of entities, the appointment of receivers, or any other temporary, preliminary, provisional, or final remedies as may be appropriate to protect the rights of members or to restore the position of the members for the failure to comply with the requirements of Section 17701.13 or the articles of organization or the operating agreement. In any action, suit, or proceeding, there may be joined as parties all persons and entities responsible for or affected by the activity.
ARTICLE 5. Transferable Interests and Rights of Transferees and Creditors [17705.01. - 17705.04.]
A transferable interest is personal property.
With respect to a transfer, in whole or in part, of a transferable interest, all of the following apply:
A transfer is permissible.
A transfer does not by itself cause a member’s dissociation or a dissolution and winding up of the activities of a limited liability company.
Subject to Section 17705.04, a transfer does not entitle the transferee to do any of the following:
Vote or otherwise participate in the management or conduct of the activities of a limited liability company.
Except as otherwise provided in subdivision (c) and Section 17704.10, have access to records or other information concerning the activities of a limited liability company.
A transferee has the right to receive, in accordance with the transfer, distributions to which the transferor would otherwise be entitled; provided, however, that the pledge or granting of a security interest, lien, or other encumbrance in or against any or all of the transferable interest of a transferor shall not cause the transferor to cease to be a member or grant to the transferee or to anyone else the power to exercise any rights or powers of a member, including, without limitation, the right to receive distributions to which the member is entitled.
In a dissolution and winding up of a limited liability company, a transferee is entitled to an account of the limited liability company’s transactions only from the date of dissolution.
A transferable interest may be evidenced by a certificate of the interest issued by the limited liability company in a record, and, subject to this article, the interest represented by the certificate may be transferred by a transfer of the certificate.
A limited liability company need not give effect to a transferee’s rights under this section until the limited liability company has notice of the transfer.
A transfer of a transferable interest in violation of a restriction on transfer contained in the operating agreement is ineffective as to a person having notice of the restriction at the time of transfer.
Except as otherwise provided in subdivision (b) of this section and paragraph (2) of subdivision (d) of Section 17706.02, when a member transfers a transferable interest, the transferor retains the rights of a member, other than the interest in distributions transferred, and retains all duties and obligations of a member.
When a member transfers a transferable interest to a person that becomes a member with respect to the transferred interest, the transferee is liable for the member’s obligations under Section 17704.03 and subdivision (c) of Section 17704.06 known to the transferee when the transferee becomes a member.
On application by a judgment creditor of a member or transferee, a court may enter a charging order against the transferable interest of the judgment debtor for the unsatisfied amount of the judgment. A charging order constitutes a lien on a judgment debtor’s transferable interest and requires the limited liability company to pay over to the person to which the charging order was issued any distribution that would otherwise be paid to the judgment debtor.
To the extent necessary to effectuate the collection of distributions pursuant to a charging order in effect under subdivision (a), the court may do any of the following:
Appoint a receiver of the distributions subject to the charging order, with the power to make all inquiries the judgment debtor might have made.
Make all other orders necessary to give effect to the charging order.
Upon a showing that distributions under a charging order will not pay the judgment debt within a reasonable time, foreclose the lien and order the sale of the transferable interest. The purchaser at the foreclosure sale obtains only the transferable interest, does not thereby become a member, and is subject to Section 17705.02.
At any time before foreclosure under paragraph (3) of subdivision (b), the member or transferee whose transferable interest is subject to a charging order under subdivision (a) may extinguish the charging order by satisfying the judgment and filing a certified copy of the satisfaction with the court that issued the charging order.
At any time before foreclosure under paragraph (3) of subdivision (b), a limited liability company or one or more members whose transferable interests are not subject to the charging order may pay to the judgment creditor the full amount due under the judgment and thereby succeed to the rights of the judgment creditor, including the charging order.
This title does not deprive any member or transferee of the benefit of any exemption laws applicable to the member’s or transferee’s transferable interest.
This section provides the exclusive remedy by which a person seeking to enforce a judgment against a member or transferee may, in the capacity of judgment creditor, satisfy the judgment from the judgment debtor’s transferable interest.
ARTICLE 6. Member’s Dissociation [17706.01. - 17706.03.]
A person has the power to dissociate as a member at any time, rightfully or wrongfully, by withdrawing as a member by express will pursuant to subdivision (a) of Section 17706.02.
A person’s dissociation from a limited liability company is wrongful only if either of the following apply to the dissociation:
The dissociation is in breach of an express provision of the operating agreement.
The dissociation occurs before the termination of the limited liability company and any of the following:
The person withdraws as a member by express will.
The person is expelled as a member by judicial order under subdivision (e) of Section 17706.02.
The person is dissociated under subdivision (g) of Section 17706.02 by becoming a debtor in bankruptcy.
In the case of a person that is not a trust other than a business trust, an estate, or an individual, the person is expelled or otherwise dissociated as a member because it dissolved or terminated.
A person that wrongfully dissociates as a member is liable to the limited liability company and to the other members for any damages caused by the dissociation. The liability is in addition to any other debt, obligation, or other liability of the member to the limited liability company or the other members.
A person is dissociated as a member from a limited liability company when any of the following occur:
The limited liability company has notice of the person’s express will to withdraw as a member, but, if the person specified a withdrawal date later than the date the limited liability company had notice, on that later date.
An event stated in the operating agreement as causing the person’s dissociation to occur.
The person is expelled as a member pursuant to the operating agreement.
The person is expelled as a member by the unanimous consent of the other members because any of the following applies:
It is unlawful to carry on the limited liability company’s activities with the person as a member.
There has been a transfer of all of the person’s transferable interest in the limited liability company, other than either of the following:
A transfer for security purposes.
A charging order in effect under Section 17705.03 that has not been foreclosed.
The person is a corporation and, within 90 days after the limited liability company notifies the person that it will be expelled as a member because the person has filed a certificate of dissolution or the equivalent, its charter has been revoked, or its right to conduct business has been suspended by the jurisdiction of its incorporation and the certificate of dissolution has not been revoked or its charter or right to conduct business has not been reinstated.
The person is a limited liability company or partnership that has been dissolved and whose business is being wound up.
On application by the limited liability company, the person is expelled as a member by judicial order because the person has done any of the following:
Engaged, or is engaging, in wrongful conduct that has adversely and materially affected, or will adversely and materially affect, the limited liability company’s activities.
Willfully or persistently committed, or is willfully and persistently committing, a material breach of the operating agreement or the person’s duties or obligations under Section 17704.09.
Engaged, or is engaging, in conduct relating to the limited liability company’s activities that makes it not reasonably practicable to carry on the activities with the person as a member.
In the case of a person who is an individual, if either of the following applies:
The person dies.
In a member-managed limited liability company if either of the following applies:
A guardian or general conservator for the person is appointed.
There is a judicial order that the person has otherwise become incapable of performing the person’s duties as a member under this title or the operating agreement.
In a member-managed limited liability company, the person becomes a debtor in bankruptcy.
In the case of a person that is a trust or is acting as a member by virtue of being a trustee of a trust, the trust’s entire transferable interest in the limited liability company is distributed but not solely by reason of a substitution of a successor trustee.
In the case of a person that is an estate or is acting as a member by virtue of being a personal representative of an estate, the estate’s entire transferable interest in the limited liability company is distributed but not solely by reason of a substitution of a successor personal representative.
In the case of a member that is not an individual, partnership, limited liability company, corporation, trust, or estate, the termination of the member.
The limited liability company participates in a merger under Article 10 (commencing with Section 17710.01), and either of the following applies:
The limited liability company is not the surviving entity.
Otherwise as a result of the merger, the person ceases to be a member.
The limited liability company terminates.
When a person is dissociated as a member of a limited liability company all of the following apply:
The person’s right to vote or participate as a member in the management and conduct of the limited liability company’s activities terminates.
If the limited liability company is member-managed, the person’ s fiduciary duties as a member end with regard to matters arising and events occurring after the person’s dissociation.
A person’s dissociation as a member of a limited liability company does not of itself discharge the person from any debt, obligation, or other liability to the limited liability company or the other members that the person incurred while a member.
If a member dies, or a guardian or conservator of the estate is appointed for the member, or a member’s interest is being administered by an attorney-in-fact under a valid power of attorney, the member’s executor, administrator, guardian, conservator, attorney-in-fact, or other legal representative may exercise all of the member’s rights for the purpose of settling the member’s estate or administering the member’s property, including any power the member had under the articles of organization or an operating agreement to give a transferee the right to become a member.
ARTICLE 7. Dissolution and Winding Up [17707.01. - 17707.09.]
A limited liability company is dissolved, and its activities shall be wound up, upon the happening of the first to occur of the following:
On the happening of an event set forth in a written operating agreement or the articles of organization.
By the vote of 50 percent or more of the voting interests of the members of the limited liability company or a greater percentage of the voting interests of members as may be specified in the articles of organization, or a written operating agreement.
The passage of 90 consecutive days during which the limited liability company has no members, except that, on the death of a natural person who is the sole member of a limited liability company, the status of the member, including a membership interest, may pass to one or more heirs, successors, and assigns of the member by will or applicable law. An heir, successor, or assign of the member’s interest becomes a substituted member pursuant to paragraph (4) of subdivision (c) of Section 17704.01, subject to administration as provided by applicable law, without the permission or consent of the heirs, successors, or assigns or those administering the estate of the deceased member.
Entry of a decree of judicial dissolution pursuant to Section 17707.03.
Notwithstanding any other provision of this title, if a domestic limited liability company has not conducted any business, 50 percent or more of the voting interests of the members, or, if there are no members, 50 percent or more of the voting interests of the managers, if any, or if no members or managers, the person or 50 percent or more of the persons signing the articles of organization, may execute and acknowledge a certificate of cancellation of articles of organization, on a form prescribed by the Secretary of State, stating all of the following:
The name of the domestic limited liability company and the Secretary of State’s file number.
That the certificate of cancellation is being filed within 12 months from the date the articles of organization was filed.
That the limited liability company does not have any debts or other liabilities, except as provided in paragraph (4).
That a final franchise tax return, as described by Section 23332 of the Revenue and Taxation Code, or a final annual tax return, as described by Section 17947 of the Revenue and Taxation Code, has been or will be filed with the Franchise Tax Board, as required under Part 10.2 (commencing with Section 18401) of Division 2 of the Revenue and Taxation Code.
That the known assets of the limited liability company remaining after payment of, or adequately providing for, known debts and liabilities have been distributed to the persons entitled thereto or that the limited liability company acquired no known assets, as the case may be.
That the limited liability company has not conducted any business from the time of the filing of the articles of organization.
That 50 percent or more of the voting interests of the managers or members voted, or, if no managers or members, the person or 50 percent or more of the persons signing the articles of organization, voted to dissolve the limited liability company.
If the limited liability company has received payments for interests from investors, that those payments have been returned to those investors.
A certificate of cancellation executed and acknowledged pursuant to subdivision (a) shall be filed with the Secretary of State within 12 months from the date that the articles of organization was filed. The Secretary of State shall notify the Franchise Tax Board of the cancellation.
Upon filing a certificate of cancellation pursuant to subdivision (a), a limited liability company shall be canceled and its powers, rights, and privileges shall cease.
Pursuant to an action filed by any manager or by any member or members of a limited liability company, a court of competent jurisdiction may decree the dissolution of a limited liability company whenever any of the events specified in subdivision (b) occurs.
It is not reasonably practicable to carry on the business in conformity with the articles of organization or operating agreement.
Dissolution is reasonably necessary for the protection of the rights or interests of the complaining members.
The business of the limited liability company has been abandoned.
The management of the limited liability company is deadlocked or subject to internal dissension.
Those in control of the limited liability company have been guilty of, or have knowingly countenanced, persistent and pervasive fraud, mismanagement, or abuse of authority.
A dismissal of any suit for judicial dissolution by a manager, member, or members shall not affect the other members’ rights to avoid dissolution pursuant to this section.
Nothing in this section shall be construed to limit the remedies otherwise available to a court of competent jurisdiction over the dissolution.
In the event of a dissolution of a limited liability company all of the following apply:
The managers who have not wrongfully dissolved the limited liability company, or, if none, the members, or, if none, the person or a majority of the persons signing the articles of organization, may wind up the affairs of the limited liability company, unless the dissolution occurs pursuant to Section 17707.03, in which event the winding up shall be conducted in accordance with the decree of dissolution. The persons winding up the affairs of the limited liability company shall give written notice of the commencement of winding up by mail to all known creditors and claimants whose addresses appear on the records of the limited liability company.
Upon the petition of any manager or of any member or members, or three or more creditors of a limited liability company, a court of competent jurisdiction may enter a decree ordering the winding up of the limited liability company, if that appears necessary for the protection of any parties in interest. The decree shall designate the managers or members, or if good cause is shown, another person or persons, who are to wind up the affairs of the limited liability company.
Except as otherwise provided in the articles of organization or a written operating agreement, the persons winding up the affairs of the limited liability company pursuant to this section shall be entitled to reasonable compensation.
Except as otherwise provided in the articles of organization or the written operating agreement, after determining that all the known debts and liabilities of a limited liability company in the process of winding up, including, without limitation, debts and liabilities to members who are creditors of the limited liability company, have been paid or adequately provided for, the remaining assets shall be distributed among the members according to their respective rights and preferences as follows:
To members of the limited liability company for the return of their contributions.
To members in the proportions in which those members share in distributions.
If the winding up is by court proceeding or subject to court supervision, the distribution shall not be made until after the expiration of any period for the presentation of claims that has been prescribed by order of the court.
The payment of a debt or liability, whether the whereabouts of the creditor is known or unknown, has been adequately provided for if the payment has been provided for by either of the following means:
Payment for the debt or liability has been assumed or guaranteed in good faith by one or more financially responsible persons or by the United States government or any agency of the United States government, and the provision, including the financial responsibility of the person, was determined in good faith and with reasonable care by the members or managers of the limited liability company to be adequate at the time of any distribution of the assets pursuant to this section.
The amount of the debt or liability has been deposited as provided in Section 2008 of the General Corporation Law.
This subdivision shall not prescribe the exclusive means of making adequate provision for debts and liabilities.
A limited liability company that has filed a certificate of cancellation nevertheless continues to exist for the purpose of winding up its affairs, prosecuting and defending actions by or against it in order to collect and discharge obligations, disposing of and conveying its property, and collecting and dividing its assets. A limited liability company shall not continue business except so far as necessary for its winding up.
No action or proceeding to which a limited liability company is a party abates by the filing of a certificate of cancellation for the limited liability company or by reason of proceedings for its winding up and dissolution.
Any assets inadvertently or otherwise omitted from the winding up continue in the canceled limited liability company for the benefit of the persons entitled to those assets upon cancellation and on realization shall be used to discharge unsatisfied liabilities, if any, known to the company, and any excess shall be distributed to the members. If assets are inadvertently or otherwise omitted from the winding up, any person authorized to wind up the affairs of a limited liability company that has filed a certificate of cancellation under Section 17707.04 may use the assets to discharge the liabilities of the limited liability company and may distribute to the members the assets not so used.
After cancellation of the limited liability company, the limited liability company is bound by both of the following:
The act of a person authorized to wind up the affairs of the limited liability company, if the act is appropriate for winding up the activities of the limited liability company.
The act of a person authorized to act on behalf of the limited liability company, if the act would have bound the limited liability company before cancellation, if the other party to the transaction did not have notice of the cancellation.
Causes of action against a dissolved limited liability company, whether arising before or after the dissolution of the limited liability company, may be enforced against any of the following:
Against the dissolved limited liability company to the extent of its undistributed assets, including, without limitation, any insurance assets held by the limited liability company that may be available to satisfy claims.
If any of the assets of the dissolved limited liability company have been distributed to members, against members of the dissolved limited liability company to the extent of the limited liability company assets distributed to them upon dissolution of the limited liability company.
Any member compelled to return distributed assets in an amount that exceeds the sum of the member’s pro rata share of the claim and the amount for which the member could otherwise be held liable under Section 17704.05 or 17704.06 may seek contribution for the excess from any other member or manager, up to the sum of that other person’s pro rata share of the claim and that other person’s liabilities under Section 17704.05 or 17704.06.
Except as set forth in subdivision (c), all causes of action against a member of a dissolved limited liability company arising under this section are extinguished unless the claimant commences a proceeding to enforce the cause of action against that member of a dissolved limited liability company prior to the earlier of the following:
The expiration of the statute of limitations applicable to the cause of action.
Four years after the effective date of the dissolution of the limited liability company.
As a matter of procedure only, and not for purposes of determining liability, members of the dissolved limited liability company may be sued in the name of the limited liability company upon any cause of action against the limited liability company. This section does not affect the rights of the limited liability company or its creditors under Sections 17704.05 and 17704.06, or the rights, if any, of creditors under the Uniform Voidable Transactions Act (Chapter 1 (commencing with Section 3439) of Title 2 of Part 2 of Division 4 of the Civil Code), that may arise against the member of a limited liability company.
Summons or other process against a limited liability company may be served by delivering a copy thereof to a manager, member, officer, or person having charge of its assets or, if none of these persons can be found, to any agent upon whom process might be served at the time of dissolution. If none of those persons can be found with due diligence and it is so shown by affidavit to the satisfaction of the court, then the court may make an order that summons or other process be served upon the dissolved limited liability company by personally delivering a copy of the summons or other process, together with a copy of the order, to the Secretary of State or an assistant or Deputy Secretary of State. Service in this manner is deemed complete on the 10th day after delivery of the process to the Secretary of State. Upon receipt of process and the fee therefor, the Secretary of State shall give notice to the limited liability company as provided in Section 17701.16.
Every limited liability company shall survive and continue to exist indefinitely for the purpose of being sued in any quiet title action. Any judgment rendered in that action shall bind each and all of its members or other persons having any equity or other interest in the limited liability company to the extent of that interest and the action shall have the same force and effect as an action brought under the provisions of Sections 410.50 and 410.60 of the Code of Civil Procedure. Service of summons or other process in any action may be made as provided in Chapter 4 (commencing with Section 413.10) of Title 5 of Part 2 of the Code of Civil Procedure or as provided in subdivision (b).
For purposes of Article 4 (commencing with Section 19071) of Chapter 4 of Part 10.2 of Division 2 of the Revenue and Taxation Code, the liability described in this section shall be considered a liability at law with respect to a dissolved limited liability company.
The managers shall sign and cause to be filed in the office of, and on a form prescribed by, the Secretary of State, a certificate of dissolution upon the dissolution of the limited liability company pursuant to this article unless the event causing the dissolution is that specified in subdivision (c) of Section 17707.01, in which case the persons conducting the winding up of the limited liability company’s affairs pursuant to Section 17707.04 shall have the obligation to sign and cause to be filed the certificate of dissolution.
The certificate of dissolution shall set forth all of the following:
The name of the limited liability company and the Secretary of State’s file number.
Any other information the persons filing the certificate of dissolution determine to include.
The event listed in Section 17707.01 causing dissolution.
If a dissolution pursuant to subdivision (b) of Section 17707.01 is made by the vote of all of the members and a statement to that effect is added to the certificate of cancellation of articles of organization pursuant to subdivision (b), the separate filing of a certificate of dissolution pursuant to this subdivision is not required.
The managers shall sign and cause to be filed in the office of, and on a form prescribed by, the Secretary of State, a certificate of cancellation of articles of organization upon the completion of the winding up of the affairs of the limited liability company pursuant to Section 17707.04 and distribution of its assets pursuant to Section 17707.05, unless the event causing the dissolution is that specified in subdivision (c) of Section 17707.01, in that case the persons conducting the winding up of the limited liability company’s affairs pursuant to Section 17707.04 shall have the obligation to sign and cause to be filed the certificate of cancellation of articles of organization.
The certificate of cancellation of articles of organization shall set forth all of the following:
The name of the limited liability company and the Secretary of State’s file number.
That a final franchise tax return, as described by Section 23332 of the Revenue and Taxation Code, or a final annual tax return, as described by Section 17947 of the Revenue and Taxation Code, has been or will be filed with the Franchise Tax Board, as required under Part 10.2 (commencing with Section 18401) of Division 2 of the Revenue and Taxation Code.
That upon the filing of the certificate of cancellation, except as provided in Section 17707.06, the limited liability company shall be canceled and its powers, rights, and privileges shall cease.
Any other information the persons filing the certificate of cancellation of articles of organization determine to include.
The Secretary of State shall notify the Franchise Tax Board of the filing.
Upon filing a certificate of cancellation pursuant to subdivision (b), except as provided in Section 17707.06, a limited liability company shall be canceled and its powers, rights, and privileges shall cease.
Notwithstanding the filing of a certificate of dissolution, a majority of the members may cause to be filed, in the office of, and on a form prescribed by, the Secretary of State, a certificate of continuation, in any of the following circumstances:
The business of the limited liability company is to be continued pursuant to a unanimous vote of the remaining members.
The dissolution of the limited liability company was by vote of the members pursuant to subdivision (b) of Section 17707.01 and each member who consented to the dissolution has agreed in writing to revoke his or her vote in favor of or consent to the dissolution.
The limited liability company was not, in fact, dissolved.
The certificate of continuation shall set forth all of the following:
The name of the limited liability company and the Secretary of State’s file number.
The grounds provided by subdivision (a) that are the basis for filing the certificate of continuation.
Upon the filing of a certificate of continuation, the certificate of dissolution shall be of no effect from the time of the filing of the certificate of dissolution.
ARTICLE 8. Foreign Limited Liability Companies [17708.01. - 17708.09.]
The law of the state or other jurisdiction under which a foreign limited liability company is formed governs all of the following:
The organization of the limited liability company, its internal affairs, and the authority of its members and managers.
The liability of a member as member and a manager as manager for the debts, obligations, or other liabilities of the limited liability company.
A foreign limited liability company shall not be denied a certificate of registration by reason of any difference between the law of the jurisdiction under which the limited liability company is formed and the law of this state.
A certificate of registration does not authorize a foreign limited liability company to engage in any business or exercise any power that a limited liability company shall not engage in or exercise in this state.
A foreign limited liability company may apply for a certificate of registration to transact business in this state by delivering an application to the Secretary of State for filing on a form prescribed by the Secretary of State. The application shall state all of the following:
The state or other jurisdiction under whose law the foreign limited liability company is organized and a statement that the foreign limited liability company is authorized to exercise its powers and privileges in that state or other jurisdiction.
The street address of the foreign limited liability company’s principal office and of its principal office in California, if any.
The name and street address of the foreign limited liability company’s initial agent for service of process in this state who consents to service of process and meets the qualifications specified in subdivision (c) of Section 17701.13. If a corporate agent is designated, only the name of the agent shall be set forth.
Consent under this paragraph extends to service of process directed to the foreign limited liability company’s agent in this state for a search warrant issued pursuant to Section 1524.2 of the Penal Code, or for any other validly issued and properly served search warrant, for records or documents that are in the possession of the foreign limited liability company and are located inside or outside of this state. This subparagraph shall apply to a foreign limited liability company that is a party or a nonparty to the matter for which the search warrant is sought. For purposes of this subparagraph, “properly served” means delivered by hand, or in a manner reasonably allowing for proof of delivery if delivered by United States mail, overnight delivery service, facsimile, or any other means specified by the foreign limited liability company, including email or submission via an internet web portal the foreign limited liability company has designated for the purpose of service of process.
A statement that the Secretary of State is appointed the agent of the foreign limited liability company for service of process if the agent has resigned and has not been replaced or if the agent cannot be found or served with the exercise of reasonable diligence.
The mailing address of the foreign limited liability company if different than the street address of the principal office, or principal office in California.
A foreign limited liability company shall deliver with a completed application under subdivision (a) a certificate of existence, status, or good standing or a record of similar import, issued within the past six months from the submission of the application for filing in California, signed by the Secretary of State or other official having custody of the foreign limited liability company’s publicly filed records in the state or other jurisdiction under whose law the foreign limited liability company is formed.
The Secretary of State shall include with instructional materials, provided in conjunction with registration under subdivision (a), a notice that filing the registration will obligate the foreign limited liability company to pay an annual tax to the Franchise Tax Board pursuant to Section 17941 of the Revenue and Taxation Code. That notice shall be updated annually to specify the dollar amount of the tax.
A foreign limited liability company that enters into repeated and successive transactions of business in this state, other than in interstate or foreign commerce, is considered to be transacting intrastate business in this state within the meaning of this article.
Without excluding other activities that may not be considered to be transacting intrastate business in this state within the meaning of this article, activities of a foreign limited liability company that do not constitute transacting intrastate business in this state include all of the following:
Maintaining or defending any action or suit or any administrative or arbitration proceeding, or effecting the settlement of those, or the settlement of claims or disputes.
Carrying on any activity concerning its internal affairs, including holding meetings of its members or managers.
Maintaining accounts in financial institutions.
Maintaining offices or agencies for the transfer, exchange, and registration of the limited liability company’s own securities or maintaining trustees or depositories with respect to those securities.
Selling through independent contractors.
Soliciting or procuring orders, whether by mail or electronic means or through employees or agents or otherwise, if the orders require acceptance outside this state before they become contracts.
Creating or acquiring indebtedness, evidences of indebtedness, mortgages, liens, or security interests in real or personal property.
Securing or collecting debts or enforcing mortgages or other security interests in property securing the debts and holding, protecting, or maintaining property so acquired.
Conducting an isolated transaction that is completed within 180 days and is not in the course of a number of repeated transactions of a like nature.
Transacting business in interstate commerce.
Without excluding other activities that may not be considered to be transacting intrastate business in this state within the meaning of this article, a foreign limited liability company shall not be considered to be transacting intrastate business in this state merely because its subsidiary transacts intrastate business in this state, or merely because of its status as any one or more of the following:
A person shall not be deemed to be transacting intrastate business in this state within the meaning of this article merely because of its status as a member or manager of a domestic limited liability company or a foreign limited liability company registered to transact intrastate business in this state.
This section does not apply in determining the contacts or activities that may subject a foreign limited liability company to service of process, taxation, or regulation under the law of this state other than this article.
Unless the Secretary of State determines that an application for a certificate of registration does not comply with the filing requirements of this article, the Secretary of State, upon payment of all required filing fees, shall file the application of a foreign limited liability company, and issue a certificate of registration to transact intrastate business in this state to the foreign limited liability company or its representative.
A foreign limited liability company whose name does not comply with Section 17701.08 shall not obtain a certificate of registration until it adopts, for the purpose of transacting intrastate business in this state, an alternate name that complies with Section 17701.08. A foreign limited liability company that adopts an alternate name under this subdivision and obtains a certificate of registration with the alternate name need not comply with fictitious or assumed name statutes. After obtaining a certificate of registration with an alternate name, a foreign limited liability company shall transact intrastate business in this state under the alternate name unless the limited liability company is authorized under fictitious or assumed name statutes to transact intrastate business in this state under another name.
If a foreign limited liability company authorized to transact intrastate business in this state changes its name or its alternate name or relinquishes its alternate name, the foreign limited liability company shall not thereafter transact intrastate business in this state under that name or alternate name until it delivers an amended application to register, on a form prescribed by the Secretary of State, to the Secretary of State for filing. A foreign limited liability company shall not change its alternate name unless its name does not comply with Section 17701.08.
If the new name of the foreign limited liability company does not comply with Section 17701.08, an alternate name, if one has not been adopted, shall be adopted pursuant to subdivision (a).
If the new name of the foreign limited liability company complies with Section 17701.08, the foreign limited liability company shall not adopt an alternate name pursuant to subdivision (a) and shall relinquish any alternate name. A foreign limited liability company that registered to transact intrastate business with an alternate name before January 1, 2014, shall not be required to relinquish the alternate name.
If the foreign limited liability company is changing its alternate name, the new alternate name shall comply with Section 17701.08.
The amended application for registration shall state the Secretary of State’s file number, the name or alternate name, and the new name or new alternate name adopted under subdivision (a). Except as otherwise provided in subparagraph (B) of paragraph (1), if the name of the limited liability company complies with Section 17701.08, the amended application for registration also shall contain the alternate name being relinquished.
The foreign limited liability company shall deliver with the amended application to register a certificate, issued by the Secretary of State or other official having custody of the foreign limited liability company’s publicly filed records in the state or other jurisdiction under whose law the limited liability company is formed, issued within the past six months from the submission of the amended application for filing in California, that certifies the change of name was made in accordance with the laws of that state or other jurisdiction. The certificate is not required if the foreign limited liability company is changing only its alternate name and the foreign limited liability company’s name does not comply with Section 17701.08.
Upon the filing of the amended application to register with the Secretary of State, the Secretary of State shall issue to the foreign limited liability company a new certificate of registration in accordance with Section 17708.04.
To cancel its registration to transact intrastate business in this state, a foreign limited liability company shall deliver to the Secretary of State for filing a certificate of cancellation, signed by a person with authority to do so under the law of the state of its organization, stating all of the following:
The name under which the foreign limited liability company is authorized to transact intrastate business in this state, and the Secretary of State’s file number for the foreign limited liability company.
That a final franchise tax return, as described by Section 23332 of the Revenue and Taxation Code, or a final annual tax return, as described by Section 17947 of the Revenue and Taxation Code, has been or will be filed with the Franchise Tax Board, as required under Part 10.2 (commencing with Section 18401) of Division 2 of the Revenue and Taxation Code.
That upon the filing of the certificate of cancellation the registration of the foreign limited liability company shall be canceled and its right to conduct intrastate business shall cease.
The registration is canceled when the certificate of cancellation becomes effective.
The Secretary of State may cancel the application and certificate of registration of a foreign limited liability company if a check or other remittance accepted in payment of the filing fee is not paid upon presentation. Within 90 days of receiving written notification that the item presented for payment has not been honored for payment, the Secretary of State shall give a first written notice of the applicability of the section to the agent for service of process or to the person submitting the instrument. Thereafter, if the amount has not been paid by cashier’s check or equivalent, the Secretary of State shall give a second written notice of cancellation and the cancellation shall thereupon be effective. The second notice shall be given 20 days or more after the first notice.
A foreign limited liability company transacting intrastate business in this state shall not maintain an action or proceeding in this state unless it has a certificate of registration to transact intrastate business in this state.
The failure of a foreign limited liability company to have a certificate of registration to transact intrastate business in this state does not prevent the foreign limited liability company from defending an action or proceeding in this state.
A member or manager of a foreign limited liability company is not liable for the debts, obligations, or other liabilities of the foreign limited liability company solely because the foreign limited liability company transacted intrastate business in this state without a certificate of registration.
If a foreign limited liability company transacts intrastate business in this state without a certificate of registration or cancels its certificate of registration, it shall be deemed to have appointed the Secretary of State as its agent for service of process for rights of action arising out of the transaction of intrastate business in this state.
If the members of a foreign limited liability company residing in this state represent 25 percent or more of the voting interests of the members of that foreign limited liability company, those members shall be entitled to all information and inspection rights provided in Section 17704.10.
The Attorney General may maintain an action to enjoin a foreign limited liability company from transacting intrastate business in this state in violation of this title.
ARTICLE 9. Actions by Members [17709.01. - 17709.02.]
Any member of a foreign or domestic limited liability company may bring a class action on behalf of all or a class of members to enforce any claim common to those members and any of those actions shall be governed by the law governing class actions generally, provided that in order to maintain the class action there shall be no requirement that the class be so numerous that joinder of all members of the class is impracticable.
No action shall be instituted or maintained in right of any domestic or foreign limited liability company by any member of the limited liability company unless both of the following conditions exist:
The plaintiff alleges in the complaint that the plaintiff was a member, of record or beneficially, at the time of the transaction or any part of the transaction of which the plaintiff complains, or that the plaintiff’s interest later devolved upon the plaintiff by operation of law from a member who was a member at the time of the transaction or any part of the transaction complained of. Any member who does not meet these requirements may nevertheless be allowed in the discretion of the court to maintain the action on a preliminary showing to and determination by the court, by motion and after a hearing at which the court shall consider any evidence, by affidavit or testimony, as it deems material, of all of the following:
There is a strong prima facie case in favor of the claim asserted on behalf of the limited liability company.
No other similar action has been or is likely to be instituted.
The plaintiff acquired the interest before there was disclosure to the public or to the plaintiff of the wrongdoing of which plaintiff complains.
Unless the action can be maintained, the defendant may retain a gain derived from defendant’s willful breach of a fiduciary duty.
The requested relief will not result in unjust enrichment of the limited liability company or any member of the limited liability company.
The plaintiff alleges in the complaint with particularity the plaintiff’s efforts to secure from the managers the action the plaintiff desires or the reasons for not making that effort, and alleges further that the plaintiff has either informed the limited liability company or the managers in writing of the ultimate facts of each cause of action against each defendant or delivered to the limited liability company or the managers a true copy of the complaint that the plaintiff proposes to file.
In any action referred to in subdivision (a), at any time within 30 days after service of summons upon the limited liability company or upon any defendant who is a manager of the limited liability company or held that position at the time of the acts complained of, the limited liability company or the defendant may move the court for an order, upon notice and hearing, requiring the plaintiff to furnish security as hereinafter provided. The motion shall be based upon one or both of the following grounds:
That there is no reasonable possibility that the prosecution of the cause of action alleged in the complaint against the moving party will benefit the limited liability company or its members.
That the moving party, if other than the limited liability company did not participate in the transaction complained of in any capacity. The court, on application of the limited liability company or any defendant, may, for good cause shown, extend the 30-day period for an additional period not exceeding 60 days.
If the plaintiff, either before or after a motion is made pursuant to subdivision (b), or any order or determination pursuant to that motion, posts good and sufficient bond or bonds in the aggregate amount of fifty thousand dollars ($50,000) to secure the reasonable expenses of the parties entitled to make the motion, the plaintiff shall be deemed to have complied with the requirements of this section and with any order for security made pursuant to this section. Any motion then pending shall be dismissed and no further or additional bond or other security shall be required.
If a motion is filed pursuant to subdivision (b), no pleadings need be filed by the limited liability company or any other defendant and the prosecution of the action shall be stayed until 10 days after the motion has been disposed of.
ARTICLE 10. Merger and Conversion [17710.01. - 17710.19.]
For purposes of this article, the following definitions apply:
“Converted entity” means the other business entity or foreign other business entity or foreign limited liability company that results from a conversion of a domestic limited liability company under this title.
“Converted limited liability company” means a domestic limited liability company that results from a conversion of an other business entity or a foreign other business entity or a foreign limited liability company pursuant to Section 17710.08.
“Converting limited liability company” means a domestic limited liability company that converts to an other business entity or a foreign other business entity or a foreign limited liability company pursuant to this title.
“Converting entity” means an other business entity or a foreign other business entity or a foreign limited liability company that converts to a domestic limited liability company pursuant to Section 17710.08.
“Constituent corporation” means a corporation that is merged with or into one or more limited liability companies, foreign limited liability companies, or other business entities and that includes a surviving corporation.
“Constituent limited liability company” means a limited liability company that is merged with or into one or more other limited liability companies, foreign limited liability companies, or other business entities and that includes a surviving limited liability company.
“Constituent other business entity” means an other business entity that is merged with or into one or more limited liability companies or foreign limited liability companies and that includes a surviving other business entity.
“Disappearing limited liability company” means a constituent limited liability company or foreign limited liability company that is not the surviving limited liability company.
“Disappearing other business entity” means a constituent other business entity that is not the surviving other business entity.
“Foreign other business entity” means an other business entity formed under the laws of a jurisdiction other than this state.
“Other business entity” means a corporation, general partnership, limited partnership, business trust, real estate investment trust, or unincorporated association, other than a nonprofit association, but excludes a limited liability company or a foreign limited liability company.
“Surviving limited liability company” means a limited liability company or foreign limited liability company into which one or more other limited liability companies, foreign limited liability companies, other business entities, or foreign business entities are merged.
“Surviving other business entity” means an other business entity into which one or more limited liability companies or foreign limited liability companies are merged.
A limited liability company may be converted into an other business entity or a foreign other business entity or a foreign limited liability company pursuant to this article if both of the following apply:
Pursuant to a conversion into a domestic or foreign general partnership or limited partnership or into a foreign limited liability company, each of the members of the converting limited liability company receives a percentage interest in the profits and capital of the converted entity equal to that member’s percentage interest in profits and capital of the converting limited liability company as of the effective time of the conversion.
Pursuant to a conversion into an other business entity or foreign other business entity not specified in paragraph (1), both of the following occur:
Each limited liability company interest of the same class is treated equally with respect to any distribution of cash, property, rights, interests, or securities of the converted entity, unless all members of the class consent.
The nonredeemable limited liability company interests of the converting limited liability company are converted only into nonredeemable interests or securities of the converted entity, unless all holders of the unredeemable interests consent.
The conversion of a limited liability company to an other business entity or a foreign other business entity or a foreign limited liability company may be effected only if both of the following conditions are satisfied:
The law under which the converted entity will exist expressly permits the formation of that entity pursuant to a conversion.
The limited liability company complies with all other requirements of any other law that applies to conversion to the converted entity.
A limited liability company that desires to convert to an other business entity or a foreign other business entity or a foreign limited liability company shall approve a plan of conversion.
The plan of conversion shall state all of the following:
The terms and conditions of the conversion.
The place of the organization of the converted entity and of the converting limited liability company and the name of the converted entity after conversion.
The manner of converting the membership interests of each of the members into shares of, securities of, or interests in, the converted entity.
The provisions of the governing documents for the converted entity, including the limited liability company articles of organization and operating agreement, or articles or certificate of incorporation if the converted entity is a corporation, to which the holders of interests in the converted entity are to be bound.
Any other details or provisions that are required by the laws under which the converted entity is organized, or that are desired by the parties.
The plan of conversion shall be approved by all managers and a majority of the members of each class of membership interest or if there are no managers, a majority of the members of each class of membership of the converting limited liability company, unless a greater approval is required by the operating agreement of the converting limited liability company.
However, if the members of the limited liability company would become personally liable for any obligations of the converted entity as a result of the conversion, the plan of conversion shall be approved by all of the members of the converting limited liability company, unless the plan of conversion provides that all members will have dissenters’ rights as provided in Article 11 (commencing with Section 17711.01).
Upon the effectiveness of the conversion, all members of the converting limited liability company, except those that exercise dissenters’ rights as provided in Article 11 (commencing with Section 17711.01), shall be deemed parties to any governing documents for the converted entity adopted as part of the plan of conversion, regardless of whether or not the member has executed the plan of conversion or the governing documents for the converted entity. Any adoption of governing documents made pursuant to the conversion shall be effective at the effective time or date of the conversion.
Notwithstanding its prior approval, a plan of conversion may be amended before the conversion takes effect if the amendment is approved by all managers and a majority of the members or if there are no managers, a majority of the members of the converting limited liability company and, if the amendment changes any of the principal terms of the plan of conversion, the amendment is approved by the managers and members of the converting limited liability company in the same manner and to the same extent as required for the approval of the original plan of conversion.
The managers by unanimous approval and the members of a converting limited liability company may, by majority approval at any time before the conversion is effective, in their discretion, abandon a conversion, without further approval by the managers or members, subject to the contractual rights of third parties other than managers or members.
The converted entity shall keep the plan of conversion at the principal place of business of the converted entity if the converted entity is a domestic limited liability company or foreign other business entity, at the principal office of, or registrar or transfer agent of, the converted entity, if the converted entity is a domestic corporation, or at the office where records are to be kept pursuant to Section 17701.13 if the converted entity is a domestic limited liability company. Upon the request of a member of a converting limited liability company, the authorized person on behalf of the converted entity shall promptly deliver to the member or the holder of shares, interests, or other securities, at the expense of the converted entity, a copy of the plan of conversion. A waiver by a member of the rights provided in this subdivision shall be unenforceable.
A conversion into an other business entity or a foreign other business entity or a foreign limited liability company shall become effective upon the earliest date that all of the following occur:
The plan of conversion is approved by the members of the converting limited liability company, as provided in Section 17710.03.
All documents required by law to create the converted entity are filed, which documents shall also contain a statement of conversion, if required under Section 17710.06.
The effective date, if set forth in the plan of conversion, occurs.
A copy of the certificate of limited partnership, statement of partnership authority, articles of incorporation, or certificate of conversion complying with Section 17710.06, if applicable, duly certified by the Secretary of State, is conclusive evidence of the conversion of the limited liability company.
If the limited liability company is converting into a foreign limited liability company or foreign other business entity, those conversion proceedings shall be in accordance with the laws of the state or place of organization of the foreign limited liability company or foreign other business entity and the conversion shall become effective in accordance with that law.
To enforce an obligation of a limited liability company that has converted to a foreign limited liability company or foreign other business entity, the Secretary of State shall only be the agent for service of process in an action or proceeding against that converted foreign entity, if the agent designated for the service of process for that entity is a natural person and cannot be found with due diligence or if the agent is a corporation and no person, to whom delivery may be made, may be located with due diligence, or if no agent has been designated and if none of the officers, members, managers, or agents of that entity may be located after diligent search, and it is shown by affidavit to the satisfaction of the court. The court then may make an order that service be made by personal delivery to the Secretary of State or to an assistant or Deputy Secretary of State of two copies of the process together with two copies of the order, and the order shall set forth an address to which the process shall be sent by the Secretary of State. Service in this manner is deemed complete on the 10th day after delivery of the process to the Secretary of State.
Upon receipt of the process and order and the fee set forth in Section 12197 of the Government Code, the Secretary of State shall provide notice to that entity of the service of the process by forwarding by certified mail, return receipt requested, a copy of the process and order to the address specified in the order.
The Secretary of State shall keep a record of all process served upon the Secretary of State and shall record the time of service and the Secretary of State’s action with respect to the process served. The certificate of the Secretary of State, under the Secretary of State’s official seal, certifying to the receipt of process, the providing of notice of process to that entity, and the forwarding of the process shall be competent and prima facie evidence of the matters stated therein.
Upon conversion of a limited liability company, one of the following applies:
If the limited liability company is converting into a domestic limited partnership, a statement of conversion shall be completed on a certificate of limited partnership for the converted entity and shall be filed with the Secretary of State.
If the limited liability company is converting into a domestic partnership, a statement of conversion shall be completed on the statement of partnership authority for the converted entity. If no statement of partnership authority is filed, a certificate of conversion shall be filed separately with the Secretary of State.
If the limited liability company is converting into a domestic corporation, a statement of conversion shall be completed on the articles of incorporation for the converted entity and shall be filed with the Secretary of State.
If the limited liability company is converting to a foreign limited liability company or foreign other business entity, a certificate of conversion shall be filed with the Secretary of State.
Any certificate or statement of conversion shall be executed and acknowledged by all members of a member-managed limited liability company or all managers of a manager-managed limited liability company, unless a lesser number is provided in the articles of organization or operating agreement, and shall set forth all of the following:
The name of the converting limited liability company and the Secretary of State’s file number of the converting limited liability company.
A statement that the principal terms of the plan of conversion were approved by a vote of the members, that equaled or exceeded the vote required under Section 17710.03, specifying each class entitled to vote and the percentage vote required of each class.
A certificate of conversion shall set forth all of the following:
The street address of the converted entity’s principal office.
The filing with the Secretary of State of a certificate of conversion, a certificate of limited partnership, a statement of partnership authority, or articles of incorporation containing a statement of conversion as set forth in subdivision (a) shall have the effect of the filing of a certificate of cancellation by the converting limited liability company, and no converting limited liability company that has made the filing is required to take any action under Article 7 (commencing with Section 17707.01) as a result of that conversion.
For the purposes of this title, the certificate of conversion shall be on a form prescribed by the Secretary of State.
Whenever a limited liability company or other business entity having any real property in this state converts into a limited liability company or an other business entity pursuant to the laws of this state or of the state or place where the limited liability company or other business entity was organized, and the laws of the state or place of organization, including this state, of the converting limited liability company or other converting entity provide substantially that the conversion vests in the converted limited liability company or other converted entity all the real property of the converting limited liability company or other converting entity, the filing for record in the office of the county recorder of any county in this state where any of the real property of the converting limited liability company or other converting entity is located of either of the following shall evidence record ownership in the converted limited liability company or other converted entity of all interest of the converting limited liability company or other converting entity in and to the real property located in that county:
A certificate of conversion or a statement of partnership authority, a certificate of limited partnership, or articles of incorporation complying with Section 17710.06 certified on or after the effective date of the conversion by the Secretary of State.
A copy of a certificate of conversion or a statement of partnership authority, certificate of limited partnership, articles of organization, articles of incorporation, or other certificate or document evidencing the creation of a foreign other business entity or foreign limited liability company by conversion, containing a statement of conversion, certified by the Secretary of State or an authorized public official of the state or place pursuant to the laws of which the conversion is effected.
A filed and, if appropriate, recorded certificate of conversion or a statement of partnership authority, certificate of limited partnership, articles of organization, articles or certificate of incorporation, or other certificate evidencing the creation of a foreign other business entity or foreign limited liability company by conversion, containing a statement of conversion, filed pursuant to subdivision (a) of Section 17710.06, stating the name of the converting limited liability company or other converting entity in whose name property was held before the conversion and the name of the converted entity or converted limited liability company, but not containing all of the other information required by Section 17710.06, operates with respect to the entities named to the extent provided in subdivision (a).
Recording of a certificate of conversion, or a statement of partnership authority, certificate of limited partnership, articles of organization, articles of incorporation, or other certificate evidencing the creation of an other business entity or a limited liability company by conversion, containing a statement of conversion, in accordance with subdivision (a), shall create, in favor of bona fide purchasers or encumbrances for value, a conclusive presumption that the conversion was validly completed.
An other business entity or a foreign other business entity or a foreign limited liability company may be converted to a domestic limited liability company pursuant to this article only if the converting entity is authorized by the laws pursuant to which it is organized to effect the conversion.
An other business entity or a foreign other business entity or a foreign limited liability company that desires to convert into a domestic limited liability company shall approve a plan of conversion or another instrument as is required to be approved to effect the conversion pursuant to the laws under which that entity is organized.
The conversion of an other business entity or a foreign other business entity or a foreign limited liability company into a domestic limited liability company shall be approved by the number or percentage of the members, managers, shareholders, or holders of interest of the converting entity as is required by the laws under which that entity is organized, or a greater or lesser percentage, subject to applicable laws, as set forth in the converting entity’s partnership agreement, articles of organization, operating agreement, articles or certificate of incorporation, or other governing document.
The conversion by an other business entity or a foreign other business entity or a foreign limited liability company into a domestic limited liability company shall be effective under this article at the time the conversion is effective under the laws under which the converting entity is organized, as long as the articles of organization containing a statement of conversion has been filed with the Secretary of State. If the converting entity’s governing law is silent as to the effectiveness of the conversion, the conversion shall be effective upon the completion of all acts required under this title to form a limited liability company.
If the converting foreign limited liability company or foreign limited liability partnership is authorized to transact intrastate business in this state, the filing with the Secretary of State of its articles of organization containing a statement of conversion pursuant to the laws under which the converting foreign limited liability company or foreign other business entity is organized shall have the effect of the filing of a certificate of cancellation by the converting foreign limited partnership or foreign limited liability company and no converting foreign limited liability company or foreign limited partnership that has made the filing is required to file a certificate of cancellation under Section 15909.07 or 17708.06 as a result of that conversion. If a converting other business entity is a foreign corporation qualified to transact intrastate business in this state, the foreign corporation shall, by virtue of the filing, automatically surrender its right to transact intrastate business.
An entity that converts into another entity pursuant to this article is for all purposes other than for the purposes of Part 10 (commencing with Section 17001), Part 10.2 (commencing with Section 18401), and Part 11 (commencing with Section 23001) of Division 2 of the Revenue and Taxation Code, the same entity that existed before the conversion and the conversion shall not be deemed a transfer of property.
Upon a conversion taking effect, all of the following apply:
All the rights and property, whether real, personal, or mixed, of the converting entity or converting limited liability company are vested in the converted entity or converted limited liability company.
All debts, liabilities, and obligations of the converting entity or converting limited liability company continue as debts, liabilities, and obligations of the converted entity or converted limited liability company.
All rights of creditors and liens upon the property of the converting entity or converting limited liability company shall be preserved unimpaired and remain enforceable against the converted entity or converted limited liability company to the same extent as against the converting entity or converting limited liability company as if the conversion had not occurred.
Any action or proceeding pending by or against the converting entity or converting limited liability company may be continued against the converted entity or converted limited liability company as if the conversion had not occurred.
A member of a converting limited liability company is liable for both of the following:
A member of a converted limited liability company remains liable for any and all obligations of the converting entity for which the member was personally liable before the conversion, but only to the extent that the member was liable for the obligations of the converting entity prior to the conversion.
If the other party to a transaction with the limited liability company reasonably believes when entering into the transaction that the limited liability company member is a general partner, the limited liability company member is liable for the obligations incurred by the limited liability company within 90 days after the conversion takes effect. The limited liability company member’s liability for all other obligations of the limited liability company incurred after the conversion takes effect is that of a limited liability company member.
The following entities may be merged pursuant to this article:
Two or more limited liability companies, two or more foreign limited liability companies, or one or more limited liability companies and one or more foreign limited liability companies into one limited liability company or foreign limited liability company except that there must be at least one constituent domestic limited liability company for a surviving limited liability company.
One or more limited liability companies, one or more foreign limited liability companies, and one or more other business entities into one of those other business entities or foreign other business entities.
One or more limited liability companies, one or more foreign limited liability companies, and one or more other business entities or foreign other business entities into one limited liability company or foreign limited liability company.
Notwithstanding this section, the merger of any number of limited liability companies with any number of other business entities or foreign other business entities may be effected only if the other business entities that are organized in this state are authorized by the laws under which they are organized to effect the merger, and the following apply:
If a limited liability company is the surviving limited liability company, the foreign other business entities are not prohibited by the laws under which they are organized from effecting that merger.
If a foreign limited liability company or foreign other business entity is the survivor of the merger, the laws of the jurisdiction under which the survivor is organized authorize that merger. Notwithstanding the first sentence of this paragraph, if one or more domestic corporations is also a party to the merger described in that sentence, the merger may be effected only if, with respect to any foreign other business entity that is a corporation, the foreign corporation is authorized by the laws under which it is organized to effect that merger.
Each limited liability company and other business entity that desires to merge shall approve an agreement of merger.
The agreement of merger shall be approved by all managers and a majority of the members of each class of membership interests of each constituent limited liability company, unless a greater approval is required by the operating agreement of the constituent limited liability company. Notwithstanding the previous sentence, if the members of any constituent limited liability company become personally liable for any obligations of a constituent limited liability company or constituent other business entity as a result of the merger, the principal terms of the agreement of merger shall be approved by all of the members of the constituent limited liability company, unless the agreement of merger provides that all members shall have the dissenters’ rights provided in Article 11 (commencing with Section 17711.01). The agreement of merger shall be approved on behalf of each constituent other business entity by those persons required to approve the merger by the laws under which it is organized. Other persons, including a parent of a constituent limited liability company, may be parties to the agreement of merger. The agreement of merger shall state all of the following:
The terms and conditions of the merger.
The name and place of the organization of the surviving limited liability company or surviving other business entity, and of each disappearing limited liability company and disappearing other business entity, and the agreement of merger may change the name of the surviving limited liability company, the new name may be the same as or similar to the name of a disappearing domestic or foreign limited liability company, subject to Section 17701.08.
The manner of converting the membership interests of each of the constituent limited liability companies into interests, shares, or other securities of the surviving limited liability company or surviving other business entity, and if limited liability company interests of any of the constituent limited liability companies are not to be converted solely into interests, shares, or other securities of the surviving limited liability company or surviving other business entity, the cash, property, rights, interests, or securities that the holders of the limited liability company interests are to receive in exchange for the membership interests, the cash, property, rights, interests, or securities that may be in addition to or in lieu of interests, shares, or other securities of the surviving limited liability company or surviving other business entity, or that the limited liability company interests are canceled without consideration.
The amendments to the articles of organization of the surviving limited liability company, if applicable, to be effected by the merger, if any.
Any other details or provisions that are required by the laws under which any constituent other business entity is organized, including, if a domestic corporation is a party to the merger, as provided in subdivision (b) of Section 1113.
Any other details or provisions that are desired, including, without limitation, a provision for the treatment of fractional membership interests.
Each membership interest of the same class of any constituent limited liability company, other than a membership interest in another constituent limited liability company that is being canceled and that is held by a constituent limited liability company or its parent or a limited liability company of which the constituent limited liability company is a parent shall, unless all members of the class consent, be treated equally with respect to any distribution of cash, property, rights, interests, or securities.
Notwithstanding paragraph (1), except in a merger of a limited liability company with a limited liability company that controls at least 90 percent of the membership interests entitled to vote with respect to the merger, the unredeemable membership interests of a constituent limited liability company may be converted only into unredeemable interests or securities of the surviving limited liability company or other business entity, or a parent if a constituent limited liability company or a constituent other business entity or its parent owns, directly or indirectly, prior to the merger, membership interests of another constituent limited liability company or interests or securities of a constituent other business entity representing more than 50 percent of the interests or securities entitled to vote with respect to the merger of the other constituent limited liability company or constituent other business entity or more than 50 percent of the voting power, as defined in Section 194.5, of a constituent other business entity that is a domestic corporation, unless all of the members of the class consent.
The provisions of this subdivision do not apply to any transaction if the commissioner has approved the terms and conditions of the transaction and the fairness of those terms pursuant to Section 25142.
Notwithstanding its prior approval, an agreement of merger may be amended prior to the filing of the certificate of merger or the agreement of merger, as provided in Section 17710.14, if the amendment is approved by the managers and members of each constituent limited liability company in the same manner as required for approval of the original agreement of merger and, if the amendment changes any of the principal terms of the agreement of merger, the amendment is approved by the managers and members of each constituent limited liability company in the same manner and to the same extent as required for the approval of the original agreement of merger, and by each of the constituent other business entities.
The managers and members of a constituent limited liability company may, in their discretion, abandon a merger, subject to the contractual rights, if any, of third parties, including other constituent limited liability companies and constituent other business entities, without further approval by the membership interests, at any time before the merger is effective.
An agreement of merger approved in accordance with subdivision (a) may do the following:
Effect any amendment to the operating agreement of any constituent limited liability company.
Effect the adoption of a new operating agreement for a constituent limited liability company if it is the surviving limited liability company in the merger. Any amendment to an operating agreement or adoption of a new operating agreement made pursuant to the foregoing sentence shall be effective at the effective time or date of the merger. Notwithstanding the above provisions of this subdivision, if a greater number of members is required to approve an amendment to the operating agreement of a constituent limited liability company than is required to approve the agreement of merger pursuant to subdivision (a), and the number of members that approve the agreement of merger is less than the number of members required to approve an amendment to the operating agreement of the constituent limited liability company, any amendment to the operating agreement or adoption of a new operating agreement of that constituent limited liability company made pursuant to the first sentence of this subdivision shall be effective only if the agreement of merger provides that all of the members shall have the dissenters’ rights provided in Article 11 (commencing with Section 17711.01).
The surviving limited liability company or surviving other business entity shall keep the agreement of merger at its designated office or at the business address specified in paragraph (5) of subdivision (a) of Section 17710.14, as applicable, and, upon the request of a member of a constituent limited liability company or a holder of shares, interests, or other securities of a constituent other business entity, the managers or members of the surviving limited liability company or the authorized person of the surviving other business entity shall promptly deliver to the member or the holder of shares, interests, or other securities, at the expense of the surviving limited liability company or surviving other business entity, a copy of the agreement of merger. A waiver by a member or holder of shares, interests, or other securities of the rights provided in this subdivision shall be unenforceable.
Subdivision (b) of Section 17710.12 shall not apply to any transaction if the commissioner has approved the terms and conditions of the transaction and the fairness of such terms and conditions pursuant to Section 25142.
If the surviving entity is a limited liability company or an other business entity, other than a corporation in a merger in which a domestic corporation is a constituent party, after approval of a merger by the constituent limited liability companies and any constituent other business entities, the constituent limited liability companies and constituent other business entities shall file a certificate of merger in the office of, and on a form prescribed by, the Secretary of State. The certificate of merger shall be executed and acknowledged by each domestic constituent limited liability company by all managers, or if none, all members unless a lesser number is provided in the articles of organization or operating agreement of the domestic constituent limited liability company and by each foreign constituent limited liability company by one or more managers, or if none, members, and by each constituent other business entity by those persons required to execute the certificate of merger by the laws under which the constituent other business entity is organized. The certificate of merger shall set forth all of the following:
The names and the Secretary of State’s file numbers, if any, of each of the constituent limited liability companies and constituent other business entities, separately identifying the disappearing limited liability companies and disappearing other business entities and the surviving limited liability company or surviving other business entity.
If a vote of the members was required pursuant to Section 17710.12, a statement setting forth the total number of outstanding interests of each class entitled to vote on the merger and that the principal terms of the agreement of merger were approved by a vote of the number of interests of each class that equaled or exceeded the vote required, specifying each class entitled to vote and the percentage vote required of each class.
If the surviving entity is a limited liability company and not an other business entity, any change required to the information set forth in the articles of organization of the surviving limited liability company resulting from the merger, including any change in the name of the surviving limited liability company resulting from the merger. The filing of a certificate of merger setting forth any such changes to the articles of organization of the surviving limited liability company shall have the effect of the filing of a certificate of amendment by the surviving limited liability company, and the surviving limited liability company need not file an amendment under Section 17702.02 to reflect those changes.
The future effective date, that shall be a date certain not more than 90 days subsequent to the date of filing of the merger, if the merger is not to be effective upon the filing of the certificate of merger with the office of the Secretary of State.
If the surviving entity is an other business entity or a foreign limited liability company, the full name of the entity, type of entity, legal jurisdiction where the entity was organized and by whose laws its internal affairs are governed, and the address of the principal place of business of the entity.
Any other information required to be stated in the certificate of merger by the laws where each constituent other business entity is organized, including if a domestic corporation is a party to the merger, as required under paragraph (2) of subdivision (g) of Section 1113. If the surviving entity is a foreign limited liability company in a merger where a domestic corporation is a disappearing other business entity, a copy of the agreement of merger and attachments as required under paragraph (1) of subdivision (g) of Section 1113 shall be filed at the same time as the filing of the certificate of merger.
If the surviving entity is a domestic corporation or a foreign corporation in a merger that a domestic corporation is a constituent party, after approval of the merger by the constituent limited liability companies and constituent other business entities, the surviving corporation shall file in the office of the Secretary of State a copy of the agreement of merger and attachments required under paragraph (1) of subdivision (g) of Section 1113. The certificate of merger shall be executed and acknowledged by each domestic constituent limited liability company by all of the managers, unless a lesser number is provided in the articles of organization of the limited liability company.
A certificate of merger or the agreement of merger, as is applicable under subdivisions (a) and (b), shall have the effect of the filing of a certificate of cancellation for each disappearing limited liability company, and no disappearing limited liability company need take any action under Article 7 (commencing with Section 17707.01) concerning dissolution as a result of the merger.
If a disappearing other entity is a foreign corporation qualified to transact intrastate business in this state, the filing of the certificate of merger or agreement of merger, as is applicable, by the foreign corporation shall automatically surrender its right to transact intrastate business.
Unless a future effective date is provided in a certificate of merger or the agreement of merger, if an agreement of merger is required to be filed under Section 17710.14, in which event the merger shall be effective at that future effective date, a merger shall be effective upon the filing of the certificate of merger or the agreement of merger, as is applicable, in the office of the Secretary of State.
For all purposes, a copy of the certificate of merger duly certified by the Secretary of State is conclusive evidence of the merger of the constituent limited liability companies, either by themselves or together with constituent other business entities, into the surviving other business entity, or the constituent limited liability companies or the constituent other business entities, or both, into the surviving limited liability company.
In a merger in which the surviving entity is a corporation in a merger in which a domestic corporation and a domestic limited liability company are parties to the merger, a copy of an agreement of merger certified on or after the effective date by an official having custody thereof has the same force in evidence as the original and, except as against the state, is conclusive evidence of the performance of all conditions precedent to the merger, the existence on the effective date of the surviving corporation, and the performance of the conditions necessary to the adoption of any amendment to the articles of incorporation of the surviving corporation, if applicable, contained in the agreement of merger.
Upon a merger of limited liability companies or limited liability companies and other business entities pursuant to this article, the separate existence of the disappearing limited liability companies and disappearing other business entities ceases and the surviving limited liability company or surviving other business entity shall succeed, without other transfer, act or deed, to all the rights and property, whether real, personal, or mixed, of each of the disappearing limited liability companies and disappearing other business entities, and shall be subject to all the debts and liabilities of each in the same manner as if the surviving limited liability company or surviving other business entity had itself incurred them.
All rights of creditors and all liens upon the property of each of the constituent limited liability companies and constituent other business entities shall be preserved unimpaired and may be enforced against the surviving limited liability company or the surviving other business entity to the same extent as if the debt, liability, or duty which gave rise to that lien had been incurred or contracted by the surviving limited liability company or the surviving other business entity, provided that such liens upon the property of a disappearing limited liability company or disappearing other business entity shall be limited to the property affected thereby immediately prior to the time the merger is effective.
Any action or proceeding pending by or against any disappearing limited liability company or disappearing other business entity may be prosecuted to judgment, which shall bind the surviving limited liability company or surviving other business entity, or the surviving limited liability company or surviving other business entity may be proceeded against or be substituted in the place of the disappearing limited liability company or disappearing other business entity.
Nothing in this article is intended to affect the liability a member of a disappearing limited liability company may have in connection with the debts and liabilities of the disappearing limited liability company existing prior to the time the merger is effective.
If the surviving entity is a domestic limited liability company or a domestic other business entity, the merger proceedings with respect to that limited liability company or other business entity and any domestic disappearing limited liability company shall conform to the provisions of this article governing the merger of domestic limited liability companies, but if the surviving entity is a foreign limited liability company or a foreign other business entity, then, subject to the requirements of subdivision (d) and Article 11 (commencing with Section 17711.01) and, with respect to any domestic constituent corporation, Section 1113, Chapter 12 (commencing with Section 1200), and Chapter 13 (commencing with Section 1300) of Division 1 of Title 1 and, with respect to any domestic constituent limited partnership, Article 11.5 (commencing with Section 15911.20) of Chapter 5.5 of Title 2, the merger proceedings may be in accordance with the laws of the state or place of organization of the surviving limited liability company or surviving other business entity.
If the surviving entity is a domestic limited liability company or domestic other business entity, other than a domestic corporation, the certificate of merger shall be filed as provided in subdivision (a) of Section 17710.14, and thereupon, subject to subdivision (a) of Section 17710.15, the merger shall be effective as to each domestic constituent limited liability company and domestic constituent other business entity. If the surviving entity is a domestic corporation, the agreement of merger with attachments shall be filed pursuant to subdivision (b) of Section 17710.14, and thereupon, subject to subdivision (a) of Section 17710.15, the merger shall be effective as to each domestic constituent limited liability company and domestic constituent other business entity unless another effective date is provided pursuant to Article 11 (commencing with Section 17711.01), with respect to any constituent corporation or constituent limited liability company.
If the surviving entity is a foreign limited liability company or foreign other business entity, the merger shall become effective in accordance with the laws of the jurisdiction where the surviving limited liability company or surviving other business entity is organized, but shall be effective as to any domestic disappearing limited liability company as of the time of effectiveness in the foreign jurisdiction upon the filing in this state of a certificate of merger or agreement of merger pursuant to Section 17710.14.
If a merger described in subdivision (c) or (d) also includes a foreign disappearing limited liability company previously registered for the transaction of intrastate business in this state pursuant to Section 17708.02, the filing of the certificate of merger or agreement of merger, as is applicable under Section 17710.14, automatically has the effect of a cancellation of registration for that foreign limited liability company pursuant to Section 17708.07 without the necessity of the filing of a certificate of cancellation.
The provisions of subdivision (b) of Section 17710.12 and Article 11 (commencing with Section 17711.01) apply to the rights of the members of any of the constituent limited liability companies that are domestic limited liability companies and of any domestic limited liability company that is a parent of any foreign constituent limited liability company.
If the surviving entity is a foreign limited liability company or foreign other business entity, the surviving entity shall file the following with the Secretary of State:
An agreement that it may be served in this state in a proceeding for the enforcement of an obligation of any constituent entity and in a proceeding to enforce the rights of any holder of a dissenting interest or dissenting shares in a constituent domestic limited liability company or domestic other business entity.
An irrevocable appointment of the Secretary of State as its agent for service of process, and an address to which process may be forwarded.
An agreement that it will promptly pay the holder of any dissenting interest or dissenting share in a constituent domestic limited liability company or domestic other business entity the amount to which that person is entitled under the laws of this state.
Whenever a domestic or foreign limited liability company or other business entity having any real property in this state merges with another limited liability company or other business entity pursuant to the laws of this state or of the state or place where any constituent limited liability company or constituent other business entity was organized, and the laws of the state or place of organization, including this state of any disappearing limited liability company or disappearing other business entity provide substantially that the making and filing of the agreement of merger or certificate of merger vests in the surviving limited liability company or surviving other business entity all the real property of any disappearing limited liability company and disappearing other business entity, the filing for record in the office of the county recorder of any county in this state where any of the real property of the disappearing limited liability company or disappearing other business entity is located of either of the following shall evidence record ownership in the surviving limited liability company or surviving other business entity of all interest of the disappearing limited liability company or disappearing other business entity in and to the real property located in that county in which both of the following occur:
A certificate of merger certified by the Secretary of State, or other certificate prescribed by the Secretary of State.
A copy of the agreement of merger or certificate of merger, certified by the Secretary of State or an authorized public official of the state or place pursuant to the laws of which the merger is effected.
Upon a merger pursuant to this article, a surviving domestic or foreign limited liability company or other business entity shall be deemed to have assumed the liability of each disappearing domestic or foreign limited liability company or other business entity that is taxed under Part 10 (commencing with Section 17001) or Part 11 (commencing with Section 23001) of Division 2 of the Revenue and Taxation Code for the following:
To prepare and file, or to cause to be prepared and filed, tax and information returns otherwise required of that disappearing entity as specified in Chapter 2 (commencing with Section 18501) of Part 10.2 of Division 2 of the Revenue and Taxation Code.
To pay any tax liability determined to be due.
If the surviving entity is a domestic limited liability company, domestic corporation, or registered limited liability partnership or a foreign limited liability company, foreign limited liability partnership, or foreign corporation that is registered or qualified to do business in this state, the Secretary of State shall notify the Franchise Tax Board of the merger.
ARTICLE 11. Dissenters’ Rights [17711.01. - 17711.14.]
For purposes of this article, “reorganization” refers to any of the following:
A conversion pursuant to Article 10 (commencing with Section 17710.01).
A merger pursuant to Article 10 (commencing with Section 17710.01).
The acquisition by one limited liability company in exchange, in whole or in part, for its membership interests, or the membership interests or equity securities of a limited liability company or other business entity that is in control of the acquiring limited liability company, of membership interests or equity securities of another limited liability company or other business entity if, immediately after the acquisition, the acquiring limited liability company has control of the other limited liability company or other business entity.
The acquisition by one limited liability company in exchange, in whole or in part, for its membership interests, or the membership interests or equity securities of a limited liability company or other business entity which is in control of the acquiring limited liability company, or for its debt securities, or debt securities of a limited liability company or other business entity which is in control of the acquiring limited liability company, that are not adequately secured and that have a maturity date in excess of five years after the consummation of the acquisition, or both, of all or substantially all of the assets of another limited liability company or other business entity.
For purposes of this article, “control” means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a limited liability company or other business entity.
If the approval of outstanding membership interests is required for a limited liability company to participate in a reorganization, pursuant to the limited liability company agreement, or otherwise, then each member of the limited liability company holding those interests may, by complying with this article, require the limited liability company to purchase for cash, at its fair market value, the interest owned by the member in the limited liability company, if the interest is a dissenting interest as defined in subdivision (b). The fair market value shall be determined as of the day before the first announcement of the terms of the proposed reorganization, excluding any appreciation or depreciation in consequence of the proposed reorganization.
As used in this article, “dissenting interest” means the interest of a member that satisfies all of the following conditions:
Either:
Was not, immediately prior to the reorganization, either (i) listed on any national securities exchange certified by the Commissioner of Financial Protection and Innovation under subdivision (o) of Section 25100, or (ii) listed on the list of OTC margin stocks issued by the Board of Governors of the Federal Reserve System, provided that in either instance the limited liability company whose outstanding interests are so listed provides, in its notice to members requesting their approval of the proposed reorganization, a summary of the provisions of this section and Sections 17711.03, 17711.04, 17711.05, and 17711.06.
If the interest is of a class of interests listed as described in clause (i) or (ii) of subparagraph (A), demands for payment are filed with respect to 5 percent or more of the outstanding interests of that class.
Was outstanding on the date for the determination of members entitled to vote on the reorganization.
Either:
Was not voted in favor of the reorganization.
If the interest is described in clause (i) or (ii) of subparagraph (A) of paragraph (1), was voted against the reorganization; provided, however, that subparagraph (A) rather than this subparagraph applies in any event where the approval for the proposed reorganization is sought by written consent rather than at a meeting.
The member has demanded that the interest be purchased by the limited liability company at its fair market value in accordance with Section 17711.03.
The member has submitted the interest for endorsement, if applicable, in accordance with Section 17711.04.
As used in this article, “dissenting member” means the recordholder of a dissenting interest, and includes an assignee of record of that interest.
If members have a right under Section 17711.02, subject to compliance with paragraphs (4) and (5) of subdivision (b) of Section 17711.02, to require the limited liability company to purchase their membership interests for cash, the limited liability company shall mail to each member a notice of the approval of the reorganization by the requisite vote or consent of the members, within 10 days after the date of the approval, accompanied by a copy of this section and Sections 17711.01, 17711.02, 17711.04, and 17711.05, a statement of the price determined by the limited liability company to represent the fair market value of its outstanding interests, and a brief description of the procedure to be followed if the member desires to exercise the member’s rights under those sections. The statement of price constitutes an offer by the limited liability company to purchase at the price stated any dissenting interests as defined in subdivision (b) of Section 17711.02, unless they lose their status as dissenting interests under Section 17711.11.
Any member who has a right to require the limited liability company to purchase the member’s interest for cash under Section 17711.02, subject to compliance with paragraphs (4) and (5) of subdivision (b) of Section 17711.02, and who desires the limited liability company to purchase that interest, shall make written demand upon the limited liability company for the purchase of that interest and the payment to the member in cash of its fair market value. The demand is not effective for any purpose unless it is received by the limited liability company or any transfer agent thereof (1) in the case of interests described in clause (i) or (ii) of subparagraph (A) of paragraph (1) of subdivision (b) of Section 17711.02, not later than the date of the members’ meeting to vote upon the reorganization, or (2) in any other case, within 30 days after the date on which notice of the approval of the reorganization by the requisite vote or consent of the members is mailed by the limited liability company to the members.
The demand shall state the number or amount of the member’s interest in the limited liability company and shall contain a statement of what the member claims to be the fair market value of that interest on the day before the announcement of the proposed reorganization. The statement of fair market value constitutes an offer by the member to sell the interest at such price.
Within 30 days after the date on which notice of the approval of the outstanding interests of the limited liability company is mailed to the member pursuant to subdivision (a) of Section 17711.03, the member shall submit to the limited liability company at its principal office or at the office of any transfer agent thereof, if the interest is evidenced by a certificate, the member’s certificate representing the interest which the member demands that the limited liability company purchase, to be stamped or endorsed with a statement that the interest is a dissenting interest or to be exchanged for certificates of appropriate denominations so stamped or endorsed, or if the interest is not evidenced by a certificate, written notice of the number or amount of interest which the member demands that the limited liability company purchase. Upon subsequent transfers of the dissenting interest on the books of the limited liability company, the new certificates or other written statement issued therefor shall bear a like statement, together with the name of the original holder of the dissenting interest.
If the limited liability company and the dissenting member agree that the member’s interest is a dissenting interest and agree upon the price to be paid for the dissenting interest, the dissenting member is entitled to the agreed price with interest thereon at the legal rate on judgments from the date of consummation of the reorganization. All agreements fixing the fair market value of any dissenting member’s interest as between the limited liability company and that member shall be in writing and filed in the records of the limited liability company.
Subject to the provisions of Section 17711.08, payment of the fair market value for a dissenting interest shall be made within 30 days after the amount has been agreed to or within 30 days after any statutory or contractual conditions to the reorganization are satisfied, whichever is later, and in the case of dissenting interests evidenced by certificates of interest, subject to surrender of such certificates of interest, unless provided otherwise by agreement.
If the limited liability company denies that a membership interest is a dissenting interest, or the limited liability company and a dissenting member fail to agree upon the fair market value of a dissenting interest, then the member or any interested limited liability company, within six months after the date when notice of the approval of the reorganization by the requisite vote or consent of the members was mailed to the member, but not later, may file a complaint in the superior court of the proper county praying the court to determine whether the interest is a dissenting interest, or the fair market value of the dissenting interest, or both, or may intervene in any action pending on such a complaint.
Two or more dissenting members may join as plaintiffs or be joined as defendants in any of those actions and two or more of those actions may be consolidated.
On the trial of the action, the court shall determine the issues. If the status of the membership interest as a dissenting interest is in issue, the court shall first determine that issue. If the fair market value of the dissenting interest is in issue, the court shall determine, or shall appoint one or more impartial appraisers to determine, the fair market value of the dissenting interest.
If the court appoints an appraiser or appraisers, they shall proceed forthwith to determine the fair market value per interest of the outstanding membership interests of the limited liability company, by class if necessary. Within the time fixed by the court, the appraisers, or a majority of them, shall make and file a report in the office of the clerk of the court. Thereupon, on the motion of any party, the report shall be submitted to the court and considered on such additional evidence as the court considers relevant. If the court finds the report reasonable, the court may confirm it.
If a majority of the appraisers appointed fails to make and file a report within 30 days from the date of their appointment, or within a further time as may be allowed by the court, or the report is not confirmed by the court, the court shall determine the fair market value per interest of the outstanding membership interests of the limited liability company, by class if necessary.
Subject to Section 17711.08, judgment shall be rendered against the limited liability company for payment of an amount equal to the fair market value, as determined by the court, of each dissenting interest that any dissenting member who is a party, or has intervened, is entitled to require the limited liability company to purchase, with interest thereon at the legal rate on judgments from the date of consummation of the reorganization.
Any of those judgments shall be payable forthwith, provided, however, that with respect to membership interests evidenced by transferable certificates of interest, only upon the endorsement and delivery to the limited liability company of those certificates representing the interests described in the judgment. Any party may appeal from the judgment.
The costs of the action, including reasonable compensation for the appraisers, to be fixed by the court, shall be assessed or apportioned as the court considers equitable, but, if the appraisal exceeds the price offered by the limited liability company, the limited liability company shall pay the costs, including, in the discretion of the court, if the value awarded by the court for the dissenting interest is more than 125 percent of the price offered by the limited liability company under subdivision (a) of Section 17711.02, attorney’s fees and fees of expert witnesses.
To the extent that the payment to dissenting members of the fair market value of their dissenting interests would require the dissenting members to return payment or a portion of the payment by reason of Section 17711.09 or the Uniform Voidable Transactions Act (Chapter 1 (commencing with Section 3439) of Title 2 of Part 2 of Division 4 of the Civil Code), then that payment or portion thereof shall not be made and the dissenting members shall become creditors of the limited liability company for the amount not paid, together with interest thereon at the legal rate on judgments until the date of payment, but subordinate to all other creditors in any proceeding relating to the winding up and dissolution of the limited liability company, such debt to be payable when permissible.
Any cash distributions made by a limited liability company to a dissenting member after the date of consummation of the reorganization, but prior to any payment by the limited liability company for that dissenting member’s interest, shall be credited against the total amount to be paid by the limited liability company for such dissenting interest.
Except as expressly limited by this article, dissenting members shall continue to have all the rights and privileges incident to their interests immediately prior to the reorganization, including limited liability, until payment by the limited liability company for their dissenting interests. A dissenting member may not withdraw a demand for payment unless the limited liability company consents thereto.
A dissenting interest loses its status as a dissenting interest and the holder thereof ceases to be a dissenting member and ceases to be entitled to require the limited liability company to purchase the interest upon the happening of any of the following:
The limited liability company abandons the reorganization.
Upon abandonment of the reorganization, the limited liability company shall pay, on demand, to any dissenting member who has initiated proceeding in good faith under this article, all reasonable expenses incurred in such proceedings and reasonable attorney’s fees.
The interest is transferred prior to its submission for endorsement in accordance with Section 17711.04.
The dissenting member and the limited liability company do not agree upon the status of the interest as a dissenting interest or upon the purchase price of the dissenting interest, and neither files a complaint nor intervenes in a pending action, as provided in Section 17711.06, within six months after the date upon which notice of the approval of the reorganization by the requisite vote or consent of members was mailed to the member.
The dissenting member, with the consent of the limited liability company, withdraws the member’s demand for purchase of the dissenting interest.
This article applies to the following:
A domestic limited liability company formed on or after January 1, 2014.
A foreign limited liability company if the foreign limited liability company was formed on or after January 1, 2014, or filed an application to qualify to do business on or after January 1, 2014, and members holding more than 50 percent of the voting power held by all members of the foreign limited liability company reside in this state.
A limited liability company if the operating agreement so provides or if all managers and a majority of the members, if it is a manager-managed limited liability company, or a majority, if it is a member-managed limited liability company, determine that this article shall apply.
This article does not apply to membership interests governed by operating agreements whose terms and provisions specifically set forth the amount to be paid in respect of those interests in the event of a reorganization of the limited liability company, or to any limited liability company with 35 or fewer members if all the members have waived the application of this article in writing, whether in an operating agreement or otherwise, provided that if, at the time of the reorganization, the limited liability company had more than 35 members, any waiver shall be ineffective as to that reorganization.
No member of a limited liability company who has a right under this article to demand payment of cash for the interest owned by a member in a limited liability company shall have any right at law or in equity to attack the validity of the reorganization, or to have the reorganization set aside or rescinded, except in an action to test whether the vote or consent of members required to authorize or approve the reorganization has been obtained in accordance with the procedures established therefor by the operating agreement of the limited liability company.
If one of the parties to a reorganization is directly or indirectly controlled by, or under common control with, another party to the reorganization, subdivision (a) shall not apply to any member of the controlled party who has not demanded payment of cash for the member’s interest pursuant to this article; but if the member institutes any action to attack the validity of the reorganization or to have the reorganization set aside or rescinded, the member shall not thereafter have any right to demand payment of cash for the member’s interest pursuant to this article.
If one of the parties to a reorganization is directly or indirectly controlled by, or under common control with, another party to the reorganization, then, in any action to attack the validity of the reorganization or to have the reorganization set aside or rescinded, both of the following apply:
A party to a reorganization that controls another party to a reorganization shall have the burden of proving that the transaction is just and reasonable as to the members of the controlled party.
A person that controls two or more parties to a reorganization shall have the burden of proving that the transaction is just and reasonable as to the members of any party so controlled.
Subdivisions (b) and (c) shall not apply if a majority of the members other than members who are directly or indirectly controlled by, or under common control with, another party to the reorganization approve or consent to the reorganization.
This section shall not prevent a member of a limited liability company that is a party to a reorganization from bringing an action against a manager of the limited liability company, the limited liability company, or any person controlling a manager at law or in equity as to any matters, including, without limitation, an action for breach of fiduciary obligation or fraud, other than to attack the validity of the reorganization or to have the reorganization set aside or rescinded.
ARTICLE 12. Class Provisions [17712.01. - 17712.01.]
The articles of organization or the operating agreement may provide for the creation of classes of members having those relative rights, powers, and duties as the articles of organization or operating agreement may provide, including rights, powers, and duties senior to other classes of members.
ARTICLE 13. Miscellaneous Provisions [17713.01. - 17713.13.]
In applying and construing this uniform act, consideration shall be given to the need to promote uniformity of the law with respect to its subject matter among states that enact it.
This title modifies, limits, and supersedes the federal Electronic Signatures in Global and National Commerce Act (15 U.S.C. Sec. 7001 et seq.), but does not modify, limit, or supersede Section 101(c) of that act (15 U.S.C. Sec. 7001(c)), or authorize electronic delivery of any of the notices described in Section 103(b) of that act (15 U.S.C. Sec. 7003(b)).
This title does not affect an action commenced, proceeding brought, or right accrued or accruing before this title takes effect.
Except as otherwise provided in subdivisions (b) and (c), this title shall apply to all domestic limited liability companies existing on or after January 1, 2014, to all foreign limited liability companies registered with the Secretary of State prior to January 1, 2014, whose registrations have not been canceled as of January 1, 2014, to all foreign limited liability companies registered with the Secretary of State on or after January 1, 2014, and to all actions taken by the managers or members of a limited liability company on or after that date.
Except as otherwise specified in this title, this title applies only to the acts or transactions by a limited liability company or by the members or managers of the limited liability company occurring, or an operating agreement or other contracts entered into by the limited liability company or by the members or managers of the limited liability company, on or after January 1, 2014. The prior law governs all acts or transactions by a limited liability company or by the members or managers of the limited liability company occurring, and any operating agreement or other contracts entered into by the limited liability company or by the members or managers of the limited liability company, prior to January 1, 2014.
Any vote or consent by the managers or members of a limited liability company prior to January 1, 2014, shall be governed by prior law. If a certificate or document is required to be filed in a public office of this state relating to a vote or consent by the managers or members of the limited liability company prior to January 1, 2014, it may be filed after that date pursuant to the filing requirements of this title, even though the vote or consent is governed by prior law.
This title does not cancel or otherwise affect the status of, or create a new filing requirement with the Secretary of State or any other agency, board, commission, or department for, any domestic limited liability company in existence on December 31, 2013, or any foreign limited liability company registered to transact intrastate business in this state prior to January 1, 2014.
For the purposes of this section, “prior law” means Title 2.5 (commencing with Section 17000) as it read on December 31, 2013.
This title, or any division, part, chapter, article, or section thereof, may at any time be amended or repealed.
If a manager or member required by this title to execute or file any document fails, after demand, to do so within a reasonable time or refuses to do so, any other manager or member, or any person appointed by a court of competent jurisdiction, may prepare, execute, and file that document with the Secretary of State.
If there is any dispute concerning the filing of a document, or the failure to file a document, any manager or member may petition the superior court to direct the execution of the document.
If the court finds that it is proper for the document to be executed and that any person so designated has failed or refused to execute the document, or if the court determines that any document should be filed, it shall order a party to file the document, on a form prescribed by the Secretary of State if appropriate, as ordered by the court.
In any action under this section, if the court finds the failure of the manager or member to comply with the requirement to file any document to have been without justification, the court may award an amount sufficient to reimburse the managers or members bringing the action for the reasonable expenses incurred by them, including attorney’s fees, in connection with the action or proceeding.
Any member who is not a manager, or any person filing any document under this section, shall state the statutory authority after the signature on the appropriate document.
Every limited liability company that neglects, fails, or refuses to keep or cause to be kept or maintained the documents, books, and records required by Section 17701.13 to be kept or maintained shall be subject to a penalty of twenty-five dollars ($25) for each day that the failure or refusal continues, beginning 30 days after receipt of written request by any member that the duty be performed, up to a maximum of one thousand five hundred dollars ($1,500). The penalty shall be paid to the member or members jointly making the request for performance of the duty and damaged by the neglect, failure, or refusal, if suit therefor is commenced within 90 days after the written request is made; but the maximum daily penalty because of failure to comply with any number of separate requests made on any one day or for the same act shall be two hundred fifty dollars ($250).
Upon the failure of a limited liability company, or a foreign limited liability company registered to transact intrastate business in this state, to file the statement required by Section 17702.09, the Secretary of State shall provide a notice of that delinquency to the limited liability company or foreign limited liability company. The notice shall also contain information concerning the application of this section, advise the limited liability company or foreign limited liability company of the penalty imposed by this subdivision for failure to timely file the required statement after notice of delinquency has been provided by the Secretary of State, and shall advise the limited liability company or foreign limited liability company of its right to request relief from the Secretary of State because of reasonable cause or unusual circumstances that justify the failure to file. If, within 60 days after providing notice of the delinquency, a statement pursuant to Section 17702.09 has not been filed by the limited liability company or foreign limited liability company, the limited liability company or foreign limited liability company shall be subject to a penalty of two hundred fifty dollars ($250).
Any penalty prescribed by Section 17713.07 shall be in addition to any remedy by injunction or action for damages or by writ of mandate for the nonperformance of acts and duties enjoined by law upon the limited liability company or its managers, including, without limitation, the remedies provided in subdivisions (f) and (g) of Section 17704.10. The court in which an action for any penalty is brought may reduce, remit, or suspend the penalty on any terms and conditions as it may deem reasonable when it is made to appear that the neglect, failure, or refusal was inadvertent or excusable.
Upon the failure of a limited liability company to file the statement required by Section 17702.09, the Secretary of State shall provide a notice of the delinquency to the limited liability company. The notice shall also contain information concerning the application of this section, advise the limited liability company of the penalty imposed by Section 19141 of the Revenue and Taxation Code for failure to timely file the required statement after notice of delinquency has been mailed by the Secretary of State, and shall advise the limited liability company of its right to request relief from the Secretary of State because of reasonable cause or unusual circumstances that justify such failure to file. If, within 60 days after providing notice of the delinquency, a statement pursuant to Section 17702.09 has not been filed by the limited liability company, the Secretary of State shall certify the name of such limited liability company to the Franchise Tax Board.
Upon certification pursuant to subdivision (a), the Franchise Tax Board shall assess against the limited liability company the penalty provided in Section 19141 of the Revenue and Taxation Code.
The penalty provided by Section 19141 of the Revenue and Taxation Code shall not apply to a limited liability company that on or prior to the date of certification pursuant to subdivision (a) has been canceled, has been merged into another limited liability company, other business entity, foreign other business entity, or foreign limited liability company, or has converted into another foreign business entity, foreign other business entity, or foreign limited liability company.
The penalty herein provided shall not apply and the Secretary of State need not provide notice of the delinquency to a limited liability company the powers, rights, and privileges of which have been suspended by the Franchise Tax Board pursuant to Section 23301, 23301.5, or 23775 of the Revenue and Taxation Code on or prior to, and remain suspended on, the last day of the filing period pursuant to Section 17702.09. The Secretary of State need not provide notice of the filing requirement pursuant to Section 17702.09 to a limited liability company the powers, rights, and privileges of which have been so suspended by the Franchise Tax Board on or prior to, and remain suspended on, the day the Secretary of State prepares the notice for sending.
If, after certification pursuant to subdivision (a) the Secretary of State finds (1) the required statement was filed or the required fee was paid before the expiration of the 60-day period after providing notice of the delinquency, or (2) the failure to provide notice of delinquency was due to an error of the Secretary of State, the Secretary of State shall promptly decertify the name of the limited liability company to the Franchise Tax Board. The Franchise Tax Board shall then promptly abate any penalty assessed against the limited liability company pursuant to Section 19141 of the Revenue and Taxation Code.
If the Secretary of State determines that the failure of a limited liability company to file the statement required by Section 17702.09 is excusable because of reasonable cause or unusual circumstances that justify such failure, the Secretary of State may waive the penalty imposed by this section and by Section 19141 of the Revenue and Taxation Code, in which case the Secretary of State shall not certify the name of the limited liability company to the Franchise Tax Board, or if already certified, the Secretary of State shall promptly decertify the name of the limited liability company.
A limited liability company that (1) fails to file a statement pursuant to Section 17702.09 for an applicable filing period, (2) has not filed a statement pursuant to Section 17702.09 during the preceding 24 months, and (3) was certified for penalty pursuant to Section 17713.09 for the same filing period, shall be subject to suspension pursuant to this section rather than to penalty pursuant to Section 17713.09.
When subdivision (a) is applicable, the Secretary of State shall notify the limited liability company that its powers, rights, and privileges will be suspended after 60 days if it fails to file a statement pursuant to Section 17702.09.
After the expiration of the 60-day period without any statement filed pursuant to Section 17702.09, the Secretary of State shall notify the Franchise Tax Board of the suspension, and shall provide a notice of the suspension to the limited liability company and thereupon, except for the purpose of amending the articles of organization to set forth a new name, the powers, rights, and privileges of the limited liability company are suspended.
A statement pursuant to Section 17702.09 may be filed notwithstanding suspension of the powers, rights, and privileges pursuant to this section or Section 23301 or 23301.5 of the Revenue and Taxation Code. Upon the filing of a statement pursuant to Section 17702.09 by a limited liability company that has suffered suspension pursuant to this section, the Secretary of State shall certify that fact to the Franchise Tax Board and the limited liability company may thereupon be relieved from suspension unless the limited liability company is held in suspension by the Franchise Tax Board by reason of Section 23301 or 23301.5 of the Revenue and Taxation Code.
A domestic limited liability company, as described in subdivisions (g) and (k) of Section 17701.02, may be subject to administrative cancellation pursuant to this section if, as of January 1, 2019, or at any time thereafter, the limited liability company’s powers, rights, and privileges are, and have been, suspended by the Franchise Tax Board pursuant to Article 7 (commencing with Section 23301) of Chapter 2 of Part 11 of Division 2 of the Revenue and Taxation Code for a period of not less than 60 continuous months.
Prior to administrative cancellation of the limited liability company, the limited liability company shall be notified of the pending administrative cancellation as follows:
The Franchise Tax Board shall mail written notice to the last known address of the limited liability company.
If the limited liability company does not have a valid address in the records of the Franchise Tax Board, the notice provided in subdivision (d) shall be deemed sufficient notice prior to administrative cancellation.
The Franchise Tax Board shall transmit to the Secretary of State the names and Secretary of State file numbers of limited liability companies subject to administrative cancellation pursuant to this section.
The Secretary of State shall provide 60 days’ notice of the pending administrative cancellation on its Internet Web site by listing the limited liability company’s name and the Secretary of State’s file number. The Secretary of State shall also, in conjunction with the information above, provide instructions for the limited liability company to submit a written objection of the pending administrative cancellation to the Franchise Tax Board, before expiration of the 60 day’s notice.
A limited liability company may provide the Franchise Tax Board with a written objection to the administrative cancellation.
The Franchise Tax Board shall notify the Secretary of State if a written objection has been received.
If a written objection to the administrative cancellation is not received by the Franchise Tax Board during the 60-day period described in subdivision (d), the limited liability company shall be administratively canceled pursuant to this section. The certificate of the Secretary of State shall be prima facie evidence of the administrative cancellation.
If the written objection of a limited liability company to the administrative cancellation has been received by the Franchise Tax Board before the expiration of the 60-day period described in subdivision (d), that limited liability company shall have an additional 90 days from the date the written objection is received by the Franchise Tax Board to file returns and pay or otherwise satisfy all accrued taxes, penalties, and interest, file a current Statement of Information with the Secretary of State, change the entity name if no longer available, and fulfill any other requirements to be eligible and apply for revivor.
If the conditions in paragraph (1) are satisfied, the administrative cancellation shall be withdrawn.
If the conditions in paragraph (1) are not satisfied, the limited liability company shall be administratively canceled pursuant to this section as of the later of the date that is 90 days after the receipt of the written objection or after the period in paragraph (3), if so extended.
The Franchise Tax Board may extend the 90-day period in paragraph (1), but for no more than one period of 90 days.
Upon administrative cancellation in accordance with this section, the limited liability company’s liabilities for qualified taxes, interest, and penalties, as defined in paragraph (2) of subdivision (b) of Section 23310 of the Revenue and Taxation Code, if any, shall be abated.
Any actions taken by the Franchise Tax Board to collect the abated liability shall be released, withdrawn, or otherwise terminated by the Franchise Tax Board and no subsequent administrative or civil action shall be taken or brought to collect all or part of that amount. Any amounts erroneously received by the Franchise Tax Board in contravention of this section may be credited and refunded in accordance with Article 1 (commencing with Section 19301) of Chapter 6 of Part 10.2 of Division 2 of the Revenue and Taxation Code.
An administrative appeal, writ, or other judicial action shall not be taken from the Franchise Tax Board’s or the Secretary of State’s actions under this section except as provided under subdivision (i) related to repayment of amounts erroneously received after administrative cancellation has occurred.
Upon administrative cancellation, the limited liability company’s rights, powers, and privileges shall cease.
Sections 17713.09 and 17713.10 apply to foreign limited liability companies with respect to the statements required to be filed by Section 17702.09. For this purpose, the suspension of the powers, rights, and privileges of a domestic limited liability company shall mean the forfeiture of the exercise of the powers, rights, and privileges of a foreign limited liability company in this state.
The forfeiture of the exercise of the powers, rights, and privileges of a foreign limited liability company in this state as used in subdivision (a) does not prohibit the transaction of business in this state by a foreign limited liability company if the business transacted subsequent to the forfeiture would not, considered as an entirety, require the foreign limited liability company to obtain a certificate of registration pursuant to Section 17708.02.
A limited liability company is liable for a civil penalty in an amount not exceeding one million dollars ($1,000,000) if the limited liability company does both of the following:
Has actual knowledge that a member, officer, manager, or agent of the limited liability company does any of the following:
Makes, publishes, or posts, or has made, published, or posted, either generally or privately to the members or other persons, either of the following:
An oral, written, or electronically transmitted report, exhibit, notice, or statement of its affairs or pecuniary condition that contains a material statement or omission that is false and intended to give membership shares in the limited liability company a materially greater or a materially less apparent market value than they really possess.
An oral, written, or electronically transmitted report, prospectus, account, or statement of operations, values, business, profits, or expenditures that includes a material false statement or omission intended to give membership shares in the limited liability company a materially greater or a materially less apparent market value than they really possess.
Refuses or has refused to make any book entry or post any notice required by law in the manner required by law.
Misstates or conceals or has misstated or concealed from a regulatory body a material fact in order to deceive a regulatory body to avoid a statutory or regulatory duty, or to avoid a statutory or regulatory limit or prohibition.
Within 30 days after actual knowledge is acquired of the actions described in paragraph (1), the limited liability company knowingly fails to do both of the following:
Notify the Attorney General or appropriate government agency in writing, unless the limited liability company has actual knowledge that the Attorney General or appropriate government agency has been notified.
Notify its members and investors in writing, unless the limited liability company has actual knowledge that the members and investors have been notified.
The requirement for notification under this section is not applicable if the action taken or about to be taken by the limited liability company, or by a member, officer, manager, or agent of the limited liability company under paragraph (1) of subdivision (a), is abated within the time prescribed for reporting, unless the appropriate government agency requires disclosure by regulation.
If the action reported to the Attorney General pursuant to this section implicates the government authority of an agency other than the Attorney General, the Attorney General shall promptly forward the written notice to that agency.
If the Attorney General was not notified pursuant to subparagraph (A) of paragraph (2) of subdivision (a), but the limited liability company reasonably and in good faith believed that it had complied with the notification requirements of this section by notifying a government agency listed in paragraph (5) of subdivision (e), no penalties shall apply.
For purposes of this section:
“Manager” means a person defined by subdivision (m) of Section 17701.01 having both of the following:
Management authority over the limited liability company.
Significant responsibility for an aspect of the limited liability company that includes actual authority for the financial operations or financial transactions of the limited liability company.
“Agent” means a person or entity authorized by the limited liability company to make representations to the public about the limited liability company’s financial condition and who is acting within the scope of the agency when the representations are made.
“Member” means a person as defined by subdivision (o) of Section 17701.01 that is a member of the limited liability company at the time the disclosure is required pursuant to subparagraph (B) of paragraph (2) of subdivision (a).
“Notify its members” means to give sufficient description of an action taken or about to be taken that would constitute acts or omissions as described in paragraph (1) of subdivision (a). A notice or report filed by a limited liability company with the United States Securities and Exchange Commission that relates to the facts and circumstances giving rise to an obligation under paragraph (1) of subdivision (a) shall satisfy all notice requirements arising under paragraph (2) of subdivision (a) but shall not be the exclusive means of satisfying the notice requirements, provided that the Attorney General or appropriate agency is informed in writing that the filing has been made together with a copy of the filing or an electronic link where it is available online without charge.
“Appropriate government agency” means an agency on the following list that has regulatory authority with respect to the financial operations of a limited liability company:
Department of Financial Protection and Innovation.
Department of Insurance.
Department of Managed Health Care.
United States Securities and Exchange Commission.
“Actual knowledge of the limited liability company” means the knowledge a member, officer, or manager of a limited liability company actually possesses or does not consciously avoid possessing, based on an evaluation of information provided pursuant to the limited liability company’s disclosure controls and procedures.
“Refuse to make a book entry” means the intentional decision not to record an accounting transaction when all of the following conditions are satisfied:
The independent auditors required recordation of an accounting transaction during the course of an audit.
The audit committee of the limited liability company has not approved the independent auditor’s recommendation.
The decision is made for the primary purpose of rendering the financial statements materially false or misleading.
“Refuse to post any notice required by law” means an intentional decision not to post a notice required by law when all of the following conditions exist:
The decision not to post the notice has not been approved by the limited liability company’s audit committee.
The decision is intended to give the membership shares in the limited liability company a materially greater or a materially less apparent market value than they really possess.
“Misstate or conceal material facts from a regulatory body” means an intentional decision not to disclose material facts when all of the following conditions exist:
The decision not to disclose material facts has not been approved by the limited liability company’s audit committee.
The decision is intended to give the membership shares in the limited liability company a materially greater or a materially less apparent market value than they really possess.
“Material false statement or omission” means an untrue statement of material fact or an omission to state a material fact necessary in order to make the statements made under the circumstances under which they were made not misleading.
“Officer” means a person appointed pursuant to Section 17703.02, except an officer of a specified subsidiary limited liability company who is not also an officer of the parent limited liability company.
This section only applies to limited liability companies that are issuers, as defined in Section 2 of the federal Sarbanes-Oxley Act of 2002 (15 U.S.C. Sec. 7201 et seq.).
An action to enforce this section may only be brought by the Attorney General or a district attorney or city attorney in the name of the people of the State of California.
This title shall become operative on January 1, 2014.
TITLE 3. UNINCORPORATED ASSOCIATIONS [18000. - 24001.5.]
PART 1. GENERAL PROVISIONS [18000. - 18420.]
CHAPTER 1. Definitions [18000. - 18035.]
Unless the provision or context otherwise requires, the definitions in this chapter govern the construction of this title.
“Board” means the board of directors or other governing body of an unincorporated association.
“Director” means a natural person serving as a member of the board or other governing body of the unincorporated association.
“Governing document” means a constitution, articles of association, bylaws, or other writing that governs the purpose or operation of an unincorporated association or the rights or obligations of its members.
“Governing principles” means the principles stated in an unincorporated association’s governing documents. If an association has no governing documents or the governing documents do not include a provision governing an issue, the association’s governing principles regarding that issue may be inferred from its established practices. For the purpose of this section, “established practices” means the practices used by an unincorporated association without material change or exception during the most recent five years of its existence, or if it has existed for less than five years, during its entire existence.
If the governing principles of an unincorporated association define the membership of the association, “member” has the meaning provided by the governing principles.
If the governing principles of an unincorporated association do not define the membership of the association, “member” means a person who, pursuant to the governing principles of the unincorporated association, has a right to participate in the selection of persons authorized to manage the affairs of the unincorporated association or in the development of policy of the unincorporated association, but does not include a person who participates solely as director, officer, or agent of the association.
“Nonprofit association” means an unincorporated association with a primary common purpose other than to operate a business for profit.
A nonprofit association may carry on a business for profit and apply any profit that results from the business activity to any activity in which it may lawfully engage.
“Officer” means a natural person serving as an unincorporated association’s chair, president, secretary, chief financial officer, or other position of authority that is established pursuant to the association’s governing principles.
“Person” includes a natural person, corporation, partnership, or other unincorporated organization, government, or governmental subdivision or agency, or any other entity.
“Unincorporated association” means an unincorporated group of two or more persons joined by mutual consent for a common lawful purpose, whether organized for profit or not.
Joint tenancy, tenancy in common, community property, or other form or property tenure does not by itself establish an unincorporated association, even if coowners share ownership of the property for a common purpose.
Marriage or creation of a registered domestic partnership does not by itself establish an unincorporated association.
CHAPTER 2. Application of Title [18055. - 18070.]
This title does not apply to any of the following persons:
A corporation.
A government or governmental subdivision or agency.
A partnership or joint venture.
A limited liability company.
A labor organization, labor federation, labor council, or labor committee, that is governed by a constitution or bylaws. As used in this subdivision, “labor organization” means any organization of any kind, or any agency or employee representation committee or plan, where employees participate and which exists for the purpose, in whole or in part, of dealing with employers concerning grievances, labor disputes, wages, rates of pay, hours of employment, or conditions of work.
If a statute specific to a particular type of unincorporated association is inconsistent with a general provision of this title, the specific statute prevails to the extent of the inconsistency.
Except to the extent this title provides a specific rule, the general law of agency, including Article 2 (commencing with Section 2019) of Chapter 2 of Title 6 of, and Title 9 (commencing with Section 2295) of, Part 4 of Division 3 of the Civil Code, applies to an unincorporated association.
A provision of this title, insofar as it is substantially the same as a previously existing provision relating to the same subject matter, shall be considered as a restatement and continuation thereof and not as a new enactment, and a reference in a statute to the provision shall be deemed to include a reference to the previously existing provision unless a contrary intent appears.
CHAPTER 3. Property [18100. - 18135.]
The interest of a member in an unincorporated association is personal property.
An unincorporated association may, in its name, acquire, hold, manage, encumber, or transfer an interest in real or personal property.
Property acquired by or for an unincorporated association is property of the unincorporated association and not of the members individually.
The acquisition, transfer, or encumbrance of an interest in real property by an unincorporated association shall be executed by its president and secretary or other comparable officers, or by a person specifically designated by a resolution adopted by the association, or by a committee or other body or person authorized to act by the governing principles of the association.
An unincorporated association may record in a county in which it has an interest in real property a verified and acknowledged statement of authority stating the name of the association, and the names, title, or capacity of its officers and other persons who are authorized on its behalf to acquire, transfer, or encumber real property. For the purposes of this section, “statement of authority” includes a certified copy of a statement recorded in another county.
An unincorporated association may revoke a statement of authority by recording either of the following documents in the county in which the statement of authority is recorded:
A new statement of authority that satisfies the requirements of subdivision (a). The new statement supersedes the revoked statement.
A verified and acknowledged document that expressly revokes the statement of authority.
It shall be conclusively presumed in favor of a bona fide transferor, or purchaser, or encumbrancer for value of real property of the association located in the county in which a statement of authority has been recorded pursuant to subdivision (a), that a person designated in the statement is authorized to acquire, transfer, or encumber real property on behalf of the association.
The presumption provided in subdivision (c) does not apply if, before the acquisition, transfer, or encumbrance, either of the following occurs:
An unincorporated association holding property for charitable purposes shall comply with the Supervision of Trustees and Fundraisers for Charitable Purposes Act, Article 7 (commencing with Section 12580) of Chapter 6 of Part 2 of Division 3 of Title 2 of the Government Code, if applicable.
No limitation on the power of an unincorporated association to acquire, hold, manage, pledge, encumber, or transfer an interest in real or personal property, or the manner of exercise of those powers, shall be asserted as between the unincorporated association or a member of the unincorporated association and a third person, except in the following proceedings:
A proceeding to enjoin an unauthorized act, or the continuation of an unauthorized act, where a third person has not yet acquired rights that would be adversely affected by the injunction, or where, at the time of the unauthorized act, the third person had actual knowledge that the act was unauthorized.
A proceeding to dissolve the unincorporated association.
A proceeding against a director, officer, or agent of the unincorporated association for violation of that person’s authority.
After all of the known debts and liabilities of an unincorporated association in the process of winding up its affairs have been paid or adequately provided for, the assets of the association shall be distributed in the following manner:
Assets held upon a valid condition requiring return, transfer, or conveyance of the assets, which condition has occurred or will occur, shall be returned, transferred, or conveyed in accordance with the condition.
After complying with subdivision (a), any remaining assets that are held in trust shall be distributed in accordance with the trust.
After complying with subdivisions (a) and (b), any remaining assets shall be distributed in accordance with the governing principles of the association. If the governing principles do not provide the manner of distribution of the assets, the assets shall be distributed pro rata to the current members of the association.
Notwithstanding Section 18260, a cause of action against an unincorporated association may be enforced against a person who received assets distributed under Section 18130. Liability under this section shall be limited to the value of the assets distributed to the person or the person’s pro rata share of the claim against the unincorporated association, whichever is less.
An action under this section shall be commenced before the earlier of the following dates:
Expiration of the statute of limitations applicable to the cause of action.
Four years after dissolution of the unincorporated association. This paragraph does not apply in a quiet title action.
CHAPTER 4. Designation of Agent for Service of Process [18200. - 18220.]
An unincorporated association may file with the Secretary of State, on a form prescribed by the Secretary of State, a statement containing either of the following:
A statement designating the location and complete street address of the unincorporated association’s principal office in California. Only one place may be designated.
A statement (A) designating the location and complete street address of the unincorporated association’s principal office in California in accordance with paragraph (1) or, if the unincorporated association does not have an office in this state, designating the complete street address and mailing address, if different, of the unincorporated association to which the Secretary of State shall send any notices required to be sent to the association under Sections 18210 and 18215, and (B) designating as agent of the association for service of process any natural person residing in this state or any corporation that has complied with Section 1505 and whose capacity to act as an agent has not terminated.
If a natural person is designated as agent for service of process, the statement shall include the person’s complete business or residence street address. If a corporate agent is designated, no address for it shall be included.
Filing is deemed complete on acceptance by the Secretary of State of the statement and the filing fee.
At any time, an unincorporated association that has filed a statement under this section may file a new statement superseding the last previously filed statement. If the new statement does not designate an agent for service of process, the filing of the new statement shall be deemed to revoke the designation of an agent previously designated. A statement filed under this section expires five years from December 31 following the date it was filed in the office of the Secretary of State, unless previously superseded by the filing of a new statement.
Delivery by hand of a copy of any process against the unincorporated association (1) to any natural person designated by it as agent, or (2) if the association has designated a corporate agent, to any person named in the last certificate of the corporate agent filed pursuant to Section 1505 at the office of the corporate agent shall constitute valid service on the association.
For filing a statement as provided in this section, the Secretary of State shall charge and collect the fee provided in paragraph (1) of subdivision (b) of Section 12191 of the Government Code for filing a designation of agent.
Notwithstanding Section 18055, a statement filed by a partnership under former Section 24003 is subject to this chapter until the statement is revoked or expires.
The Secretary of State shall index each statement filed under Section 18200 according to the name of the unincorporated association as set out in the statement and shall enter in the index the file number and the address of the association as set out in the statement and, if an agent for service of process is designated in the statement, the name of the agent and, if a natural person is designated as the agent, the address of that person.
Upon request of any person, the Secretary of State shall issue a certificate showing whether, according to the Secretary of State’s records, there is on file on the date of the certificate, any presently effective statement filed under Section 18200 for an unincorporated association using a specific name designated by the person making the request. If a statement is on file, the certificate shall include the information required by subdivision (b) to be included in the index. The fee for the certificate is the fee provided in Section 12183 of the Government Code.
When a statement has expired under subdivision (d) of Section 18200, the Secretary of State shall enter that fact in the index together with the date of the expiration.
Four years after a statement has expired, the Secretary of State may destroy or otherwise dispose of the statement and delete information concerning that statement from the index.
An agent designated by an unincorporated association for the service of process may deliver to the Secretary of State, on a form prescribed by the Secretary of State for filing, a signed and acknowledged written statement of resignation as an agent for service of process containing the name of the unincorporated association and Secretary of State’s file number of the unincorporated association, the name of the resigning agent for service of process, and a statement that the agent is resigning. The resignation is effective when filed. The Secretary of State shall mail or otherwise provide written notice of the filing to the unincorporated association at its address set out in the statement filed by the association.
An unincorporated association may at any time file with the Secretary of State a revocation of a designation of an agent for service of process on a form prescribed by the Secretary of State containing the name of the unincorporated association and Secretary of State’s file number for the unincorporated association, the name of the agent whose designation to accept service of process is being revoked and a statement that the unincorporated association has revoked the designation to accept service of process. The revocation is effective when filed.
Notwithstanding subdivisions (a) and (b), service made on an agent designated by an unincorporated association for service of process in the manner provided in subdivision (e) of Section 18200 is effective if made within 30 days after the statement of resignation or the revocation is filed with the Secretary of State.
The resignation of an agent may be effective if, on a form prescribed by the Secretary of State containing the name of the unincorporated association and Secretary of State’s file number for the unincorporated association and the name of the agent for service of process, the agent disclaims having been properly appointed as the agent.
The Secretary of State may destroy or otherwise dispose of any resignation filed pursuant to this section after a new form is filed pursuant to Section 18200 replacing the agent for service of process that has resigned.
Between the first day of October and the first day of December immediately preceding the expiration date of a statement filed under Section 18200, the Secretary of State shall send by first-class mail a notice, indicating the date on which the statement will expire and the file number assigned to the statement, to the unincorporated association at its address as set out in the statement. Neither the failure of the Secretary of State to mail the notice as provided in this section nor the failure of the notice to reach the unincorporated association shall continue the statement in effect after the date of its expiration. Neither the state nor any officer or employee of the state is liable for damages for failure to mail the notice as required by this section.
If designation of an agent for the purpose of service of process has not been made as provided in Section 18200, or if the agent designated cannot with reasonable diligence be found at the address specified in the index referred to in Section 18205 for delivery by hand of the process, and it is shown by affidavit to the satisfaction of a court or judge that process against an unincorporated association cannot be served with reasonable diligence upon the designated agent by hand or the unincorporated association in the manner provided for in Section 415.10 or 415.30 of the Code of Civil Procedure or subdivision (a) of Section 415.20 of the Code of Civil Procedure, the court or judge may make an order that service be made upon the unincorporated association by delivery of a copy of the process to one or more of the association’s members designated in the order and by mailing a copy of the process to the association at its last known address. Service in this manner constitutes personal service upon the unincorporated association.
CHAPTER 5. Liability and Enforcement of Judgments [18250. - 18270.]
Except as otherwise provided by law, an unincorporated association is liable for its act or omission and for the act or omission of its director, officer, agent, or employee, acting within the scope of the office, agency, or employment, to the same extent as if the association were a natural person.
A money judgment against an unincorporated association, whether organized for profit or not, may be enforced only against the property of the association.
A judgment creditor of a member, director, officer, or agent of an unincorporated association may not levy execution against the assets of the member, director, officer, or agent to satisfy a judgment based on a claim against the unincorporated association unless a judgment based on the same claim has been obtained against the unincorporated association and any of the following conditions is satisfied:
A writ of execution on the judgment against the unincorporated association has been returned unsatisfied in whole or in part.
The unincorporated association is a debtor in bankruptcy.
The member, director, officer, or agent has agreed that the creditor need not exhaust the assets of the unincorporated association.
A court grants permission to the judgment creditor to levy execution against the assets of a member, director, officer, or agent based on a finding that the assets of the unincorporated association subject to execution are clearly insufficient to satisfy the judgment, that exhaustion of the assets of the unincorporated association is excessively burdensome, or that the grant of permission is an appropriate exercise of the court’s equitable powers.
Nothing in this section affects the right of a judgment creditor to levy execution against the assets of a member, director, officer, or agent of an unincorporated association if the claim against the member, director, officer, or agent is not based on a claim against the unincorporated association.
CHAPTER 6. Governance [18300. - 18420.]
ARTICLE 1. [Reserved] [18300. - 18300.]
It is the intent of the Legislature to enact legislation relating to the governance of unincorporated associations.
ARTICLE 2. Termination or Suspension of Membership [18310. - 18320.]
Unless otherwise provided by an unincorporated association’s governing principles, membership in the unincorporated association is terminated by any of the following events:
Resignation of the member.
Expiration of the fixed term of the membership, unless the membership is renewed before its expiration.
Expulsion of the member.
Death of the member.
Termination of the legal existence of a member that is not a natural person.
Termination of membership does not relieve a person from an obligation incurred as a member before termination.
Termination of membership does not affect the right of an unincorporated association to enforce an obligation against a person incurred as a member before termination, or to obtain damages for its breach.
This section only applies if membership in an unincorporated association includes a property right or if expulsion or suspension of a member would affect an important, substantial economic interest. This section does not apply to an unincorporated association that has a religious purpose.
Expulsion or suspension of a member shall be done in good faith and in a fair and reasonable manner. A procedure that satisfies the requirements of subdivision (c) is fair and reasonable, but a court may also determine that another procedure is fair and reasonable taking into account the full circumstances of the expulsion or suspension.
A procedure for expulsion or suspension of a member that satisfies the following requirements is fair and reasonable:
The procedure is included in the unincorporated association’s governing documents.
The member to be expelled or suspended is given notice, including a statement of the reasons for the expulsion or suspension. The notice shall be delivered at least 15 days before the effective date of the expulsion or suspension.
The member to be expelled or suspended is given an opportunity to be heard by the person or body deciding the matter, orally or in writing, not less than five days before the effective date of the expulsion or suspension.
A notice pursuant to this section may be delivered by any method reasonably calculated to provide actual notice. A notice delivered by mail shall be sent by first-class, certified, or registered mail to the last address of the member shown on the unincorporated association’s records.
A member may commence a proceeding to challenge the expulsion or suspension of the member, including a claim alleging defective notice, within one year after the effective date of the expulsion or suspension. The court may order any relief, including reinstatement, it determines is equitable under the circumstances. A vote of the members or of the board may not be set aside solely because a person was wrongfully excluded from voting by virtue of the challenged expulsion or suspension, unless the court determines that the wrongful expulsion or suspension was in bad faith and for the purpose, and with the effect, of wrongfully excluding the member from the vote or from the meeting at which the vote took place, so as to affect the outcome of the vote.
This section governs only the procedure for expulsion or suspension and not the substantive grounds for expulsion or suspension. An expulsion or suspension based on substantive grounds that violate contractual or other rights of the member or are otherwise unlawful is not made valid by compliance with this section.
ARTICLE 3. Member Voting [18330. - 18330.]
Except as otherwise provided by statute or by an unincorporated association’s governing principles, the following rules govern a member vote conducted pursuant to this chapter:
A vote may be conducted either at a member meeting at which a quorum is present or by a written ballot in which the number of votes cast equals or exceeds the number required for a quorum. Approval of a matter voted on requires an affirmative majority of the votes cast.
Written notice of the vote shall be delivered to all members entitled to vote on the date of delivery. The notice shall be delivered or mailed or sent electronically to the member addresses shown in the association’s records a reasonable time before the vote is to be conducted. The notice shall not be delivered electronically, unless the recipient has consented to electronic delivery of the notice. The notice shall state the matter to be decided and describe how and when the vote is to be conducted.
If the vote is to be conducted by written ballot, the notice of the vote shall serve as the ballot. It shall set forth the proposed action, provide an opportunity to specify approval or disapproval of any proposal, and provide a reasonable time within which to return the ballot to the unincorporated association.
One-third the voting power of the association constitutes a quorum.
The voting power of the association is the total number of votes that can be cast by members on a particular issue at the time the member vote is held.
ARTICLE 4. Amendment of Governing Documents [18340. - 18340.]
If an unincorporated association’s governing principles do not provide a procedure to amend the association’s governing documents, the governing documents may be amended by a vote of the members.
ARTICLE 5. Merger [18350. - 18400.]
The following definitions govern the construction of this article:
“Constituent entity” means an entity that is merged with one or more other entities and includes the surviving entity.
“Disappearing entity” means a constituent entity that is not the surviving entity.
“Surviving entity” means an entity into which one or more other entities are merged.
An unincorporated association may merge with a domestic or foreign corporation, domestic or foreign limited partnership, domestic or foreign general partnership, or domestic or foreign limited liability company. Notwithstanding this section, a merger may be effected only if each constituent entity is authorized to effect the merger by the laws under which it was organized.
A merger involving an unincorporated association is subject to the following requirements:
Each party to the merger shall approve an agreement of merger. The agreement shall include the following provisions:
The terms of the merger.
Any amendments the merger would make to the articles, bylaws, or other governing documents of the surviving entity.
The name, place of organization, and type of entity of each constituent entity.
The name of the constituent entity that will be the surviving entity.
If the name of the surviving entity will be changed in the merger, the new name of the surviving entity.
The disposition of the memberships or ownership interests of each constituent entity.
Other details or provisions, if any, including any details or provisions required by the law under which a constituent entity is organized.
The principal terms of the merger agreement shall be approved by the board, the members, and any person whose approval is required by the association’s governing documents. Unless otherwise provided in the governing documents, the members shall approve the agreement in the manner provided for amendment of the association’s governing documents. The members may approve the agreement before or after the board approves the agreement.
A merger agreement that would cause the members of an unincorporated association to become individually liable for an obligation of a constituent or surviving entity shall be approved by all of the members of the unincorporated association. Approval by all members is not required under this subdivision if the agreement of merger provides for purchase by the surviving entity of the membership interest of a member who votes against approval of the merger agreement.
A merger agreement may be amended by the board, unless the amendment would change a principal term of the agreement, in which case it shall be approved as provided in subdivision (b).
Subject to the contractual rights of third parties, the board may abandon a merger without the approval of the members.
A merger pursuant to this article has the following effect:
The separate existence of the disappearing entity ceases.
The surviving entity succeeds, without other transfer, to the rights and property of the disappearing entity.
The surviving entity is subject to all the debts and liabilities of the disappearing entity. A trust or other obligation governing property of the disappearing entity applies as if it were incurred by the surviving entity.
All rights of creditors and all liens on or arising from the property of each of the constituent entities are preserved unimpaired, provided that a lien on property of a disappearing entity is limited to the property subject to the lien immediately before the merger is effective.
An action or proceeding pending by or against a disappearing entity or other party to the merger may be prosecuted to judgment, which shall bind the surviving entity, or the surviving entity may be proceeded against or substituted in its place.
A merger does not affect an existing liability of a member, director, officer, or agent of a constituent unincorporated association for an obligation of the unincorporated association.
If, as a consequence of merger, a surviving entity succeeds to ownership of real property located in this state, the surviving entity’s record ownership of that property may be evidenced by recording in the county in which the property is located a copy of the agreement of merger that is signed by the president and secretary or other comparable officers of the constituent entities and is verified and acknowledged as provided in Sections 149 and 193.
A bequest, devise, gift, grant, or promise contained in a will or other instrument of donation, subscription, or conveyance that is made to a disappearing entity and that takes effect or remains payable after the merger inures to the benefit of the surviving entity. A trust obligation that would govern property if transferred to the disappearing entity applies to property that is instead transferred to the surviving entity under this section.
ARTICLE 6. Dissolution [18410. - 18420.]
An unincorporated association may be dissolved by any of the following methods:
If the association’s governing documents provide a method for dissolution, by that method.
If the association’s governing documents do not provide a method for dissolution, by the affirmative vote of a majority of the voting power of the association.
If the association’s operations have been discontinued for at least three years, by the board or, if the association has no incumbent board, by the members of its last preceding incumbent board.
If the association’s operations have been discontinued, by court order.
Promptly after commencement of dissolution of an unincorporated association, the board or, if none, the members shall promptly wind up the affairs of the association, pay or provide for its known debts or liabilities, collect any amounts due to it, take any other action as is necessary or appropriate for winding up, settling, and liquidating its affairs, and dispose of its assets as provided in Section 18130.
PART 2. NONPROFIT ASSOCIATIONS [18605. - 21401.]
CHAPTER 1. Liability [18605. - 18640.]
A member, director, or agent of a nonprofit association is not liable for a debt, obligation, or liability of the association solely by reason of being a member, director, officer, or agent.
A member of a nonprofit association is not liable for a contractual obligation of the association unless one of the following conditions is satisfied:
The member expressly assumes personal responsibility for the obligation in a signed writing that specifically identifies the obligation assumed.
The member expressly authorizes or ratifies the specific contract, as evidenced by a writing. This subdivision does not apply if the member authorizes or ratifies a contract solely in the member’s capacity as a director, officer, or agent of the association.
With notice of the contract, the member receives a benefit under the contract. Liability under this subdivision is limited to the value of the benefit received.
The member executes the contract without disclosing that the member is acting on behalf of the association.
The member executes the contract without authority to execute the contract.
A director, officer, or agent of a nonprofit association is not liable for a contractual obligation of the association unless one of the following conditions is satisfied:
The director, officer, or agent expressly assumes responsibility for the obligation in a signed writing that specifically identifies the obligation assumed.
The director, officer, or agent executes the contract without disclosing that the director, officer, or agent is acting on behalf of the association.
The director, officer, or agent executes the contract without authority to execute the contract.
A member, director, officer, or agent of a nonprofit association shall be liable for injury, damage, or harm caused by an act or omission of the association or an act or omission of a director, officer, or agent of the association, if any of the following conditions is satisfied:
The member, director, officer, or agent expressly assumes liability for injury, damage, or harm caused by particular conduct and that conduct causes the injury, damage, or harm.
The member, director, officer, or agent engages in tortious conduct that causes the injury, damage, or harm.
The member, director, officer, or agent is otherwise liable under any other statute.
This section provides a nonexclusive list of existing grounds for liability, and does not foreclose any common law grounds for liability.
Notwithstanding any other provision of this chapter, a member or person in control of a nonprofit association may be subject to liability for a debt, obligation, or liability of the association under common law principles governing alter ego liability of shareholders of a corporation, taking into account the differences between a nonprofit association and a corporation.
Nothing in this chapter limits application of the Uniform Voidable Transactions Act (Chapter 1 (commencing with Section 3439) of Title 2 of Part 2 of Division 4 of the Civil Code).
CHAPTER 3. Medical Associations [21200. - 21200.]
Any unincorporated association that is an organized medical society limiting its membership to licensed physicians and surgeons and that has as members at least 25 percent of the eligible physicians and surgeons residing in the area in which it functions (which must be at least one county) may, without incorporation, purchase, receive, own, hold, lease, mortgage, pledge, or encumber by deed of trust or otherwise, manage and sell all the real estate and other property as may be convenient for the purposes and objects of the association. However, if the association has less than 100 members, it shall have as members at least a majority of the eligible persons or licensees in the geographic area served by the particular association. The members of that unincorporated association are not individually or personally liable for debts or liabilities contracted or incurred by the association in the acquisition of lands or leases or the purchase, leasing, construction, repairing or furnishing of buildings or other structures to be used for the purposes of the association or for debts or liabilities contracted or incurred by the association in the carrying out or performance of any of its purposes; provided, that the purposes are within the purposes stated in Section 18020.
CHAPTER 4. Insignia [21300. - 21310.]
As used in this chapter, the following terms have the meanings set forth in this section, unless the context otherwise requires:
“Association” includes any lodge, order, beneficial association, fraternal or beneficial society or association, historical, military, or veterans organization, labor union, foundation, or federation, or any other society, organization, or association, or degree, branch, subordinate lodge, or auxiliary thereof.
“Insignia” includes badge, motto, button, decoration, charm, emblem, or rosette.
Any association, the principles and activities of which are not repugnant to the Constitution or laws of the United States or of this State, may register in the office of the Secretary of State a facsimile or description of its name or insignia and may by reregistration alter or cancel it.
An association shall not be permitted to register any name or insignia similar to or so nearly resembling another name or insignia already registered as may be likely to deceive.
Application for registration, alteration, or cancellation shall be made by the chief officer or officers of the association, upon a form prescribed to be provided by the Secretary of State. The registration shall be for the use and benefit and on behalf of the association, the individual members, and those hereafter to become members thereof.
The Secretary of State shall charge and collect a fee as set forth in paragraph (2) of subdivision (b) of Section 12191 of the Government Code for each registration made under this chapter.
Upon the registration, the Secretary of State shall issue his certificate setting forth the fact of the registration.
The Secretary of State shall keep a properly indexed record of the registrations provided for by this chapter, which record shall also show any altered or canceled registration.
Any person who willfully wears, exhibits, or uses for any purpose a name or insignia registered under this chapter, unless he is entitled to use, wear, or exhibit the name or insignia under the constitution, bylaws, or rules of the association which registered it, is guilty of a misdemeanor punishable by fine of not to exceed two hundred dollars ($200) or by imprisonment in the county jail for a period not to exceed 60 days.
Any court of competent jurisdiction may restrain by injunction:
1. The wearing or use of the insignia of any association, unless the person wearing or using the insignia is entitled to wear or use the insignia under the constitution, by-laws or rules of the association.
2. The use of the name of any association in a commercial venture, trade or business or in the solicitation of subscriptions for or advertising in any newspaper or other publication or in the solicitation of donations by any person representing directly or indirectly that such commercial venture, trade or business, newspaper or other publication or donation or solicitation for donation, is sponsored, endorsed or being offered by any association, unless the person so using the name is entitled to use the name under the constitution, by-laws or rules of the association or by the written consent of such association to such use.
In any action under Section 21308 it is not necessary to allege or prove actual damages or the threat thereof, or actual injury or the threat thereof to the plaintiff, but in addition to injunctive relief any plaintiff in any such action is entitled to recover the amount of the actual damages, if any, sustained by such plaintiff.
The use of the name or insignia of any association by any person not entitled to use the same under the constitution, by-laws, rules or regulations of the association or by the written consent of such association, is presumptive evidence of the unlawful use of or traffic in such name or insignia.
CHAPTER 5. Death Benefit Payments by Fraternal Societies [21400. - 21401.]
Whenever any fraternal society or lodge, other than a society subject to supervision by the Insurance Commissioner, pays benefits contingent on the death of a member, beneficiaries other than the following relatives by blood, marriage, or adoption shall be paid only the excess of the amount of the benefits over the expense of burial of the member: Spouse, relative by blood to the fourth degree, father-in-law, mother-in-law, son-in-law, daughter-in-law, stepfather, stepmother, stepchildren, children by legal adoption, and parents by legal adoption.
Any fraternal society or lodge which makes any payment in violation of this chapter is liable for the expense of burial of the member to the extent of the amount paid in violation thereof.
PART 3. JOINT STOCK ASSOCIATIONS [22000. - 22003.]
Every person who, without being authorized so to do, subscribes the name of another to or inserts the name of another in any prospectus, circular, or other advertisement, or announcement of any joint stock association, existing or intended to be formed, with intent to permit the document to be published, and thereby to lead persons to believe that the person whose name is so subscribed is an officer, agent, member, or promoter of such association, is guilty of a misdemeanor.
Every director, officer, or agent of any joint stock association is guilty of a felony who knowingly concurs in making, publishing, or posting either generally or privately to the stockholders or other persons, any written report, exhibit, or statement of its affairs or pecuniary condition, or book or notice containing any material statement which is false, or any untrue or wilfully or fraudulently exaggerated report, prospectus, account, statement of operations, values, business, profits, expenditures, or prospects, or any other paper or document intended to produce or give, or having a tendency to produce or give, the shares of stock in such association a greater value or a less apparent or market value than they really possess.
Every director, officer, or agent of any joint stock association, who knowingly receives or possesses himself of any property of the association, otherwise than in payment of a just demand, and, with intent to defraud, omits to make, or to cause or direct to be made, a full and true entry thereof in the books or accounts of the association, is guilty of a public offense.
Every director, officer, agent, or member of any joint stock association who, with intent to defraud, destroys, alters, mutilates, or falsifies any of the books, papers, writings, or securities belonging to the association, or makes or concurs in making any false entries, or omits or concurs in omitting to make any material entry in any book of accounts or other record or document kept by the association, is guilty of a public offense.
Each public offense specified in this section is punishable by imprisonment pursuant to subdivision (h) of Section 1170 of the Penal Code, or by imprisonment in a county jail not exceeding one year, or a fine not exceeding one thousand dollars ($1,000), or by both that fine and imprisonment.
For the purposes of this part every director of a joint stock association is deemed to possess such knowledge of the affairs of his association as to enable him to determine whether any act, proceeding, or omission of its directors is a violation of this part.
PART 4. REAL ESTATE INVESTMENT TRUSTS [23000. - 23006.]
“Real estate investment trust” as used in this part means any unincorporated association or trust formed to engage in business and managed by, or under the direction of, one or more trustees for the benefit of the holders or owners (hereinafter in this part “shareowners”) of transferable shares of beneficial interest in the trust estate (hereinafter in this part “shares”) and that meets one of the following two tests:
It received, before the effective date of this part, an order, permit, or qualification from the Commissioner of Corporations pursuant to the provisions of the Corporate Securities Law of 1968 or any predecessor statute finding that it was a real estate investment trust, notwithstanding the subsequent amendment, suspension or revocation of any such finding, order, permit, or qualification, and it has for one or more of its three fiscal years immediately prior to the effective date of this part complied with, or in good faith filed a federal income tax return on the basis that it has complied with the requirements for real estate investment trusts set forth in Section 856 of the Federal Internal Revenue Code; or
It is formed for the purpose of engaging in business as a real estate investment trust under Part II of Subchapter M of Chapter 1 of Subtitle A of the Internal Revenue Code of 1986, as amended from time to time; the sale of its shares has been qualified at any time by the Commissioner of Financial Protection and Innovation pursuant to the Corporate Securities Law of 1968; and in good faith it has commenced business as a real estate investment trust.
An unincorporated association or trust that otherwise meets the requirements of this section shall not be affected in its status as a real estate investment trust, regardless of whether it is in fact taxable for any year or years under Part II of Subchapter M of Chapter 1 of Subtitle A of the Internal Revenue Code of 1986, as amended from time to time.
No shareowner of a real estate investment trust shall be personally liable as such for any liabilities, debts or obligations of, or claims against, the real estate investment trust, whether arising before or after such shareowner became the owner or holder of the shares thereof.
Section 23001 shall apply to any real estate investment trust organized under the laws of this state with respect to liabilities, debts, obligations and claims wherever arising, and to any real estate investment trust organized under the laws of a foreign jurisdiction with respect to liabilities, debts, obligations and claims arising in this state.
A real estate investment trust shall not issue any security redeemable at the option of the holder of the security.
Section 23001 shall apply with respect to all liabilities, debts, obligations of, and claims against, a real estate investment trust arising after the effective date of this part, and prior law shall continue to govern with respect to liabilities, debts, obligations and claims existing on the effective date of this part. No implication shall be created by the adoption of this part that the holders or owners of shares of beneficial interest in business trusts which do not meet the definition of real estate investment trust in Section 23000 are, or are not, as such, personally liable for the liabilities, debts or obligations of, or claims against, any such trust.
The provisions of Sections 1400 and 1402 governing bankruptcy reorganizations for corporations also apply to real estate investment trusts. For that purpose where the term “corporation” is used in such sections it shall also include the term “real estate investment trust,” the terms “director” or “board of directors” shall include “trustee” or “board of trustees,” the term “articles” shall include “declaration of trust” and the term “capital stock” shall include “shares of beneficial interest.”
The following entities may be merged pursuant to this article:
Any two or more real estate investment trusts into one real estate investment trust, provided that the merger is specifically permitted by the declarations of trust, and that procedure is detailed in those declarations.
One or more real estate investment trusts with one or more limited partnerships into one limited partnership, provided that the merger is specifically permitted by the declarations of trust, and that procedure is detailed in those declarations.
One or more real estate investment trusts with one or more limited partnerships into one real estate investment trust, provided that the merger is specifically permitted by the declarations of trust, and that procedure is detailed in those declarations.
Any merger under this section shall only be effective upon the approval of the holders of a majority of the shares of beneficial interest of the real estate investment trust.
PART 5. LIABILITY OF DIRECTOR OR OFFICER OF NONPROFIT MEDICAL ASSOCIATION [24001.5. - 24001.5.]
The Legislature finds and declares that the services of directors or officers of nonprofit medical associations, as defined in Section 21200, who serve without compensation are critical to the efficient conduct and management of the public service and charitable affairs of the people of California. The willingness of volunteers to offer their services has been deterred by a perception that their personal assets are at risk for these activities. The unavailability and unaffordability of appropriate liability insurance makes it difficult for these associations to protect the personal assets of their volunteer decisionmakers with adequate insurance. It is the public policy of this state to provide incentive and protection to the individuals who perform these important functions.
Except as provided in this section, no cause of action for monetary damages shall arise against any person serving without compensation as a director or officer of a nonprofit medical association, as defined in Section 21200, on account of any negligent act or omission occurring (1) within the scope of that person’s duties as a director acting as a board member, or within the scope of that person’s duties as an officer acting in an official capacity; (2) in good faith; (3) in a manner that the person believes to be in the best interest of the association; and (4) is in the exercise of his or her policymaking judgment.
This section shall not limit the liability of a director or officer for any of the following:
Conflicts of interest, as described in Section 7233.
In the case of a charitable trust, an action or proceeding against a trustee brought by a beneficiary of that trust.
Any action or proceeding brought by the Attorney General.
Intentional, wanton, or reckless acts, gross negligence, or an action based on fraud, oppression, or malice.
Any action brought under Chapter 2 (commencing with Section 16700) of Part 2 of Division 7 of the Business and Professions Code.
This section only applies to nonprofit organizations organized to provide charitable, educational, scientific, social, or other forms of public service that are exempt from federal income taxation under Section 501(c)(3) or 501(c)(6) of the Internal Revenue Code.
This section applies only if the nonprofit association maintains a liability insurance policy with an amount of coverage of at least the following amounts:
If the association’s annual budget is less than fifty thousand dollars ($50,000), the minimum required amount is five hundred thousand dollars ($500,000).
If the association’s annual budget equals or exceeds fifty thousand dollars ($50,000), the minimum required amount is one million dollars ($1,000,000).
This section applies only if the liability insurance policy is applicable to the claim.
For the purposes of this section, the payment of actual expenses incurred in attending meetings or otherwise in the execution of the duties of a director or officer shall not constitute compensation.
Nothing in this section shall be construed to limit the liability of a nonprofit association for any negligent act or omission of a director, officer, employee, agent, or servant occurring within the scope of his or her duties.
This section does not apply to any association that unlawfully restricts membership, services, or benefits conferred on the basis of political affiliation, age, or any characteristic listed or defined in subdivision (b) or (e) of Section 51 of the Civil Code.
This section does not apply to any volunteer director or officer who receives compensation from the association in any other capacity, including, but not limited to, as an employee.
TITLE 4. SECURITIES [25000. - 31528.]
DIVISION 1. CORPORATE SECURITIES LAW OF 1968 [25000. - 25707.]
PART 1. DEFINITIONS [25000. - 25023.]
This division may be known as the “Corporate Securities Law of 1968.”
References herein to “this law” refer to the applicable provisions of this division.
Unless the context otherwise requires, the definitions in this part apply throughout this division.
“Advertisement” means any written or printed communication or any communication by means of recorded telephone messages or spoken on radio, television, or similar communications media, published in connection with the offer or sale of a security.
“Agent” means any individual, other than a broker-dealer or a partner of a licensed broker-dealer, who represents a broker-dealer or who for compensation represents an issuer in effecting or attempting to effect purchases or sales of securities in this state.
“Agent” does not include an individual who only represents an issuer in effecting transactions in securities exempted by subdivision (a), (b), (e), (f), (g), (j), (k), or (l) of Section 25100 or in effecting transactions exempted by Section 25102, and does not include an individual who has no place of business in this state if he or she effects transactions in this state exclusively with broker-dealers.
“Agent” does not include an associated person of a broker or dealer effecting transactions described in Section 15(i)(4) of the Securities Exchange Act of 1934, subject to the provisions of Section 15(i)(3) of that act.
An officer or director of a broker-dealer or issuer, or an individual occupying a similar status or performing similar functions, is an agent only if he or she otherwise comes within this definition and receives compensation specifically related to purchases or sales of securities.
“Business days” are all days other than every Saturday, every Sunday, and such other days as are specified or provided for as holidays in the Government Code of the State of California.
“Broker-dealer” means any person engaged in the business of effecting transactions in securities in this state for the account of others or for that person’s own account. “Broker-dealer” also includes a person engaged in the regular business of issuing or guaranteeing options with regard to securities not of that person’s own issue. “Broker-dealer” does not include any of the following:
Any other issuer.
An agent, when an employee of a broker-dealer or issuer.
A bank, trust company, or savings and loan association.
Any person insofar as that person buys or sells securities for that person’s own account, either individually or in some fiduciary capacity, but not as part of a regular business.
A person who has no place of business in this state if that person effects transactions in this state exclusively with (A) the issuers of the securities involved in the transactions or (B) other broker-dealers.
A broker licensed by the Real Estate Commissioner of this state when engaged in transactions in securities exempted by subdivision (f) or (p) of Section 25100 or in securities the issuance of which is subject to authorization by the Real Estate Commissioner of this state or in transactions exempted by subdivision (e) of Section 25102.
An exchange certified by the Commissioner of Financial Protection and Innovation pursuant to this section when it is issuing or guaranteeing options. The commissioner may by order certify an exchange under this section upon those conditions as the commissioner by rule or order deems appropriate, and upon notice and opportunity to be heard the commissioner may suspend or revoke that certification, if the commissioner finds that certification, suspension, or revocation to be in the public interest and necessary and appropriate for the protection of investors.
For purposes of this section, an agent is an employee of a broker-dealer under paragraph (2) of subdivision (a) when the agent is employed by or associated with the broker-dealer under all of the following conditions:
The agent is subject to the supervision and control of the broker-dealer.
The agent performs under the name, authority, and marketing policies of the broker-dealer.
The agent discloses to investors the identity of the broker-dealer.
The agent is reported pursuant to subdivision (c) of Section 25210 and the rules adopted thereunder.
“Commissioner” means the Commissioner of Financial Protection and Innovation.
“Entity conversion transaction” means a conversion pursuant to Section 1151, 1157, 15911.02, 15911.08, 16902, 16908, 17710.02, or 17710.08 or a conversion that occurs entirely out of state, unless the interests in the entity resulting from the conversion to be held by the equity holders of the entity being converted as a result of the conversion are not securities. For purposes of Sections 25103 and 25120 an entity conversion transaction is not a change in the rights, preferences, privileges, or restrictions of or on outstanding securities or an exchange of securities by the issuer with its existing security holders exclusively.
“Fraud,” “deceit,” and “defraud” are not limited to common law fraud or deceit.
“Guaranteed” means guaranteed as to payment of principal, interest, dividends, or call premium.
An offer or sale of a security is made in this state when an offer to sell is made in this state, or an offer to buy is accepted in this state, or (if both the seller and the purchaser are domiciled in this state) the security is delivered to the purchaser in this state. An offer to buy or a purchase of a security is made in this state when an offer to buy is made in this state, or an offer to sell is accepted in this state, or (if both the seller and the purchaser are domiciled in this state) the security is delivered to the purchaser in this state.
An offer to sell or to buy is made in this state when the offer either originates from this state or is directed by the offeror to this state and received at the place to which it is directed. An offer to buy or to sell is accepted in this state when acceptance is communicated to the offeror in this state; and acceptance is communicated to the offeror in this state when the offeree directs it to the offeror in this state reasonably believing the offeror to be in this state and it is received at the place to which it is directed. A security is delivered to the purchaser in this state when the certificate or other evidence of the security is directed to the purchaser in this state and received at the place to which it is directed.
An offer to sell or to buy is not made in this state merely because (1) the publisher circulates or there is circulated on his behalf in this state any bona fide newspaper or other publication of general, regular and paid circulation which has had more than two-thirds of its circulation outside this state during the past 12 months, or (2) a radio or television program originating outside this state is received in this state.
“Investment adviser” means any person who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing or selling securities, or who, for compensation and as a part of a regular business, publishes analyses or reports concerning securities. “Investment adviser” does not include (1) a bank, trust company or savings and loan association; (2) an attorney at law, accountant, engineer or teacher whose performance of these services is solely incidental to the practice of his or her profession; (3) an associated person of an investment adviser; (4) a broker-dealer or agent of a broker-dealer whose performance of these services is solely incidental to the conduct of the business of a broker-dealer and who receives no special compensation for them; or (5) a publisher of any bona fide newspaper, news magazine or business or financial publication of general, regular and paid circulation and the agents and servants thereof, but this paragraph (5) does not exclude any such person who engages in any other activity which would constitute that person an investment adviser within the meaning of this section.
“Investment adviser” also includes any person who uses the title “financial planner” and who, for compensation, engages in the business, whether principally or as part of another business, of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing or selling securities, or who, for compensation and as part of a regular business, publishes analyses or reports concerning securities. This subdivision does not apply to: (1) a bank, trust company, or savings and loan association; (2) an attorney at law, accountant, engineer, or teacher whose performance of these services is solely incidental to the practice of his or her profession, so long as these individuals do not use the title “financial planner;” (3) an associated person of an investment adviser where the investment adviser is licensed or exempt from licensure under this law; (4) an agent of a broker-dealer where the broker-dealer is licensed or exempt from licensure under this law, so long as (A) the performance of these services by the agent is solely incidental to the conduct of the business of the broker-dealer, and (B) the agent receives no special compensation for the performance of these services; or (5) a publisher set forth in paragraph (5) of subdivision (a), so long as the publisher or the agents and servants of the publisher are not engaged in any other activity which would constitute that person an investment adviser within the meaning of this section.
“Investment adviser” does not include persons excepted from the definition of “investment adviser” by Section 202(a)(11) of the Investment Advisers Act of 1940 (15 U.S.C. 80a-1 et seq., as amended), except that with regard to those persons the commissioner may investigate and bring enforcement actions with respect to fraud and deceit, including and without limitation fraud and deceit under Section 25235, and any rules of the commissioner adopted thereunder.
“Investment adviser representative” or “associated person of an investment adviser” means any partner, officer, director of (or a person occupying a similar status or performing similar functions) or other individual, except clerical or ministerial personnel, who is employed by or associated with, or subject to the supervision and control of, an investment adviser that has obtained a certificate or that is required to obtain a certificate under this law, and who does any of the following:
Makes any recommendations or otherwise renders advice regarding securities.
Manages accounts or portfolios of clients.
Determines which recommendation or advice regarding securities should be given.
Solicits, offers, or negotiates for the sale or sells investment advisory services.
Supervises employees who perform any of the foregoing.
“Investment adviser representative” means, with respect to an investment adviser subject to Section 25230.1, a person defined as an investment adviser representative by Rule 203A-3 of the Securities and Exchange Commission (17 C.F.R. 275.203A-3) and who has a place of business in this state.
“Issuer” means any person who issues or proposes to issue any security, except that:
With respect to certificates of deposit, voting trust certificates or collateral-trust certificates, or with respect to certificates of interest or shares in an unincorporated investment trust not having a board of directors or persons performing similar functions or of the fixed, restricted management or unit type, “issuer” means the person or persons performing the acts and assuming the duties of depositor or manager pursuant to the provisions of the trust or other agreement or instrument under which the security is issued. However, with respect to equipment-trust certificates or like securities, “issuer” means the person by whom the equipment or property is or is to be used.
With respect to certificates of interest or participation in oil, gas or mining titles or leases or in payments out of production under those titles or leases, “issuer” means the person or persons in active control of the exploration or development of the property who sell those interests or participations or payments or any person or persons who subdivide and sell those interests or participations or payments. The determination of the person or persons in active control of the exploration or development of the property shall be made on the basis of the actual relationship of the parties and not on the basis of the legal designation of a person’s interest.
With respect to a fractional or pooled interest in a viatical or life settlement contract, “issuer” means the person who creates, for the purposes of sale, the fractional or pooled interest. In the case of a viatical or life settlement contract that is not fractionalized or pooled, “issuer” means the person effecting the transactions with the investors in those contracts.
In the case of an unincorporated association which provides by its articles for limited liability of any or all of its members, or in the case of a trust, committee, or other legal entity, the trustees or members thereof shall not be individually liable as issuers of any security issued by the association, trust, committee, or other legal entity.
“Nonissuer transaction” means any transaction not directly or indirectly for the benefit of the issuer. A transaction is indirectly for the benefit of the issuer if any portion of the purchase price of any securities involved in the transaction will be received indirectly by the issuer. An offering which involves both an issuer transaction and a nonissuer transaction shall be treated for the purposes of Chapters 2 (commencing with Section 25110) and 4 (commencing with Section 25130) of Part 2 of this division as an issuer transaction, but for the purposes of Chapter 1 (commencing with Section 25100) of Part 2 of this division they shall be treated as separate transactions.
“Owners’ association” means a nonprofit corporation or association created to own or lease the commonly owned lots, parcels or areas referred to in clause (a) of Section 25015, or to provide management, maintenance, preservation or control of either such lots, parcels or areas or of the separately owned lots, parcels or areas, or both, or any portion of or interest in them, or interest subject to subdivision (g) of Section 11004.5 of the Business and Professions Code, if the shares or certificates of membership therein are transferable only by transfer of the interests in the lots, parcels or areas. Such shares of stock or memberships shall be considered interests in a real estate development or in subdivided lands or a subdivision.
“Person” means an individual, a corporation, a partnership, a limited liability company, a joint venture, an association, a joint stock company, a trust, an unincorporated organization, a government, or a political subdivision of a government.
“Publish” means publicly to issue or circulate by newspaper, mail, radio or television, or otherwise to disseminate to the public.
“Rollup participant” means a finite-life limited partnership.
Except as provided in subdivision (b) of Section 25014.6, a limited partnership has “finite-life” if both of the following apply:
It operates as a conduit vehicle for investors to participate in the ownership of assets for a limited period of time.
It has a policy or purpose of distributing to investors substantially all proceeds from the sale, financing, or refinancing of assets, whether for the term of the partnership or after an initial period of time following commencement of operations, rather than reinvesting those proceeds in the business.
Rollup participant does not include any partnership registered under the Investment Company Act of 1940 or any business development company as defined in Section 80a-2(48) of Title 15 of the United States Code.
“Rollup transaction” means any transaction or series of transactions that directly or indirectly through acquisition or otherwise involves the combination or reorganization of one or more rollup participants and is one of the following:
The offer or sale of securities by a successor entity, whether newly formed or previously existing, to one or more investors of the rollup participants to be combined or reorganized.
The acquisition of the successor entity’s securities by the rollup participants being combined or reorganized; provided however, that a rollup transaction shall not include any transaction that:
The Securities and Exchange Commission exempts from the definition of a rollup transaction pursuant to subparagraph (c) (ii) of Item 901 of Regulation S-K adopted by the Securities and Exchange Commission.
Is determined to be exempt from this definition by the Commissioner of Financial Protection and Innovation upon the commissioner’s determination that this action is in the public interest and consistent with the protection of investors.
Involves one or more limited partnerships all of the securities of which are, prior to the transaction, securities for which transactions are reported under a transaction reporting plan declared effective before January 1, 1991, by the Securities and Exchange Commission under Section 11A of the Securities Exchange Act of 1934, as amended.
Involves only those issuers not required to register or report under Section 12 of the Securities Exchange Act of 1934, as amended, if the resulting issuer is also not required to register or report under Section 12.
Involves the reorganization to corporate, trust, or association form or restructuring of a single limited partnership if, as a consequence of the proposed transaction there will be no significant, adverse change in any of the following: voting rights, the term of existence of the entity, management compensation, or investment objectives.
Involves the reorganization to corporate, trust, or association form or restructuring of a single limited partnership if each investor is provided an option to retain a security under substantially the same terms and conditions as the original issue.
Involves the reorganization to corporate, trust, or association form or restructuring of a single limited partnership if transactions in the security issued as a result of the reorganization or restructuring are not reported under a transaction reporting plan declared effective before January 1, 1991, by the Securities and Exchange Commission under Section 11A of the Securities Exchange Act of 1934, as amended.
“Eligible rollup transaction” means a rollup transaction in which the new securities issued are listed or approved for listing on a national securities exchange which has been certified by the commissioner under subdivision (o) of Section 25100, if the exchange requires as a condition to listing or designation that the rollup transaction be conducted in accordance with procedures to protect the rights of limited partners.
The rights of limited partners will be presumed to be protected if the rollup transaction provides for the right of dissenting limited partners:
To receive compensation for their limited partnership units based on an appraisal of the limited partnership assets performed by an independent appraiser unaffiliated with the sponsor or general partner of the limited partnership and which value the assets as if sold in an orderly manner in a reasonable period of time, plus or minus other balance sheet items, and less the cost of sale or refinancing. Compensation to dissenting limited partners of rollup transactions may be cash, secured debt instruments, unsecured debt instruments, or freely tradeable securities; provided, however, that:
Rollups which utilize debt instruments as compensation provide for a trustee and an indenture to protect the rights of the debt holders and provide a rate of interest based upon, but not less than, the then applicable federal rate as determined in accordance with Section 1274 of the Internal Revenue Code of 1986.
Rollups which utilize unsecured debt instruments as compensation, in addition to the requirements of subparagraph (A), limit total leverage to 70 percent of the appraised value of the assets.
All debt securities have a term no greater than seven years and provide for prepayment with 80 percent of the net proceeds of any sale or refinancing of the assets previously owned by the entity or any part thereof.
Freely tradeable securities utilized as compensation to dissenting limited partners must be issued by an issuer whose securities are listed on a national securities exchange that has been certified for at least one year prior to the transaction, and the number of securities to be received in return for limited partnership interests must be determined by an appraisal of limited partnership assets, conducted in a manner consistent with this paragraph, in relation to the average last sale price of the freely tradeable securities in the 20-day period following the transaction. If the issuer of the freely tradeable securities is affiliated with the sponsor or general partner, newly issued securities to be utilized as compensation to dissenting limited partners shall not represent more than 20 percent of the issued and outstanding shares of that class of securities after giving effect to the issuance. For the purposes of the preceding sentence, a sponsor or general partner is “affiliated” with the issuer of the freely tradeable securities if the sponsor or general partner receives any material compensation from the issuer or its affiliates in conjunction with the rollup transaction or the purchase of the general partner’s interest; provided, however, that nothing herein shall restrict the ability of a sponsor or general partner to receive any payment for its equity interests and compensation as otherwise provided by this section.
To receive or retain a security with substantially the same terms and conditions as the security originally held, provided that the receipt or retention of that security is not a step in a series of subsequent transactions that directly or indirectly through acquisition or otherwise involves future combinations or reorganizations of one or more rollup participants. Securities received or retained will be considered to have the same terms and conditions as the security originally held if:
There is no material adverse change to dissenting limited partners’ rights, including, but not limited to, rights with respect to voting, the business plan, or the investment, distribution, management compensation and liquidation policies of the limited partnership or resulting entity.
The dissenting limited partners receive the same preferences, privileges, and priorities as they had pursuant to the security originally held.
The rights set forth in paragraphs (1) and (2) are the only rights of dissenting limited partners to which the presumption under this subdivision applies. A general partner or sponsor shall file an application for qualification pursuant to Section 25110 or Section 25120 with respect to any other rights proposed to be offered to dissenting limited partners.
At the time a registration statement is filed with the Securities and Exchange Commission with respect to an eligible rollup transaction, a general partner or sponsor shall notify, to the maximum extent permitted by the federal securities laws, each limited partner who has an address in this state by certified mail of the following: That a registration statement has been filed with the Securities and Exchange Commission with respect to a rollup transaction; that the general partner or sponsor claims an exemption from the review process under the law by virtue of Section 25014.7, which defines “eligible rollup transaction”; that the general partner or sponsor has the burden of proof under the law that the transaction meets the definition of eligible rollup transaction; and that the commissioner does not recommend or endorse the transaction.
The rights of limited partners shall be presumed not to be protected if the general partner:
Utilizes a future value of their equity interest rather than the current value of their equity interest, as determined by an appraisal conducted in a manner consistent with paragraph (1) of subdivision (b), when determining their interest in the new entity.
The rights of limited partners shall be presumed not to be protected as to voting rights, if:
Remove management and elect new management.
Approve or disapprove the sale of substantially all of the assets of the entity.
The general partner or sponsor does not utilize an independent third party to receive and tabulate all votes and dissents, and require that the third party make the tabulation available to the general partner and any limited partner upon request at any time during and after voting occurs.
The rights of limited partners shall be presumed not to be protected as to transaction costs if:
Limited partners bear an unfair portion of the transaction costs of a proposed rollup transaction that is rejected. For purposes of this provision, transaction costs are defined as the costs of printing and mailing the proxy, prospectus, or other documents; legal fees not related to the solicitation of votes or tenders; financial advisory fees; investment banking fees; appraisal fees; accounting fees; independent committee expenses; travel expenses; and all other fees related to the preparatory work of the transaction, but not including costs that would have otherwise been incurred by the subject limited partnerships in the ordinary course of business, or solicitation expenses.
Transaction costs of a rejected rollup transaction are not apportioned between general and limited partners of the subject limited partnerships according to the final vote on the proposed transaction as follows:
The general partner or sponsor bears all rollup transaction costs in proportion to the number of votes to reject the rollup transaction.
Limited partners bear transaction costs in proportion to the number of votes to approve the rollup transaction.
The dissenting limited partnership is required to pay any of the costs of the rollup transaction and the general partner or sponsor is not required to pay the rollup transaction costs on behalf of the dissenting limited partnerships in a rollup in which one or more limited partnerships determines not to approve the transaction, but where the rollup transaction is consummated with respect to one or more approving limited partnerships.
The rights of limited partners shall be presumed not to be protected as to fees of general partners and sponsors, if:
General partners and sponsors are not prevented from receiving both unearned management fees discounted to a present value, if those fees were not previously provided for in the limited partnership agreement and disclosed to limited partners, and new asset-based fees.
Property management fees and other management fees are not appropriate, not reasonable and greater than what would be paid to third parties for performing similar services.
Changes in fees which are substantial and adverse to limited partners are not approved by an independent committee according to the facts and circumstances of each transaction.
A general partner or sponsor proposing a rollup transaction shall pay all solicitation expenses related to the transaction, including all preparatory work related thereto, in the event the rollup transaction is not approved. For purposes of this section, “solicitation expenses” include direct marketing expenses such as telephone calls, broker-dealer factsheets, legal and other fees related to the solicitation, as well as direct solicitation compensation to brokers and dealers.
A broker or dealer may not receive compensation for soliciting votes or tenders from limited partners in connection with a rollup transaction unless that compensation:
Is payable and equal in amount regardless of whether the limited partner votes affirmatively or negatively in the proposed rollup.
In the aggregate, does not exceed 2 percent of the exchange value of the newly created securities.
Is paid regardless of whether the limited partners reject the proposed rollup transaction.
As used in this section, the following terms have the following meanings:
“Real estate development” means a development (a) which consists or will consist of separately owned lots, parcels or areas with either or both of the following features: (1) one or more additional continguous or noncontiguous lots, parcels, or areas owned in common by the owners of the separately owned lots, parcels, or areas, or (2) mutual, common, or reciprocal interests in or restrictions upon all or portions of such separately owned lots, parcels, or areas; and (b) in which the several owners of the separately owned lots, parcels, or areas have rights, directly or indirectly, to the beneficial use and enjoyment of the lots, parcels, or areas owned in common, or any one or more of them or portions thereof or interests therein, or of the interests or restrictions referred to in clause (a) above, or both. The estate in a separately or commonly owned lot, parcel, or area may be an estate of inheritance or perpetual estate, an estate for life, or an estate for years. The common ownership of the lots, parcels, or areas or the enjoyment of the interests or restrictions referred to in clause (a) above or both may be through ownership of shares of stock or memberships in an owners’ association or otherwise.
“Rule” means any published regulation or standard of general application issued by the commissioner. “Order” means a consent, authorization, approval, permit, or requirement applicable to a specific case issued by the commissioner.
“Sale” or “sell” includes every contract of sale of, contract to sell, or disposition of, a security or interest in a security for value. “Sale” or “sell” includes any exchange of securities and any change in the rights, preferences, privileges, or restrictions of or on outstanding securities.
“Offer” or “offer to sell” includes every attempt or offer to dispose of, or solicitation of an offer to buy, a security or interest in a security for value.
Any security given or delivered with, or as a bonus on account of, any purchase of securities or any other thing constitutes a part of the subject of the purchase and is considered to have been offered and sold for value.
A purported gift of assessable stock involves an offer and sale.
Every sale or offer of a warrant or right to purchase or subscribe to another security of the same or another issuer, as well as every sale or offer of a security which gives the holder a present or future right or privilege to convert the security into another security of the same or another issuer, includes an offer and sale of the other security only at the time of the offer or sale of the warrant or right or convertible security; but neither the exercise of the right to purchase or subscribe or to convert nor the issuance of securities pursuant thereto is an offer or sale.
The terms defined in this section do not include: (1) any bona fide secured transaction in or loan of outstanding securities; (2) any stock dividend payable with respect to common stock of a corporation solely (except for any cash or scrip paid for fractional shares) in shares of such common stock, if the corporation has no other class of voting stock outstanding; provided, that shares issued in any such dividend shall be subject to any conditions previously imposed by the commissioner applicable to the shares with respect to which they are issued; or (3) any act incident to a transaction or reorganization approved by a state or federal court in which securities are issued and exchanged for one or more outstanding securities, claims, or property interests, or partly in that exchange and partly for cash, and nothing in this division shall be construed to prohibit a court from applying the protections described in Section 25014.7 or 25140 and the regulations adopted thereunder when approving any transaction involving a rollup participant.
“Securities Act of 1933,” “Securities Exchange Act of 1934,” “Investment Advisers Act of 1940,” and “Investment Company Act of 1940” mean the federal statutes of those names as amended before or after the effective date of this law.
“Security” means any note; stock; treasury stock; membership in an incorporated or unincorporated association; bond; debenture; evidence of indebtedness; certificate of interest or participation in any profit-sharing agreement; collateral trust certificate; preorganization certificate or subscription; transferable share; investment contract; viatical settlement contract or a fractionalized or pooled interest therein; life settlement contract or a fractionalized or pooled interest therein; voting trust certificate; certificate of deposit for a security; interest in a limited liability company and any class or series of those interests (including any fractional or other interest in that interest), except a membership interest in a limited liability company in which the person claiming this exception can prove that all of the members are actively engaged in the management of the limited liability company; provided that evidence that members vote or have the right to vote, or the right to information concerning the business and affairs of the limited liability company, or the right to participate in management, shall not establish, without more, that all members are actively engaged in the management of the limited liability company; certificate of interest or participation in an oil, gas or mining title or lease or in payments out of production under that title or lease; put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof); or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency; any beneficial interest or other security issued in connection with a funded employees’ pension, profit sharing, stock bonus, or similar benefit plan; or, in general, any interest or instrument commonly known as a “security”; or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing. All of the foregoing are securities whether or not evidenced by a written document. “Security” does not include: (1) any beneficial interest in any voluntary inter vivos trust which is not created for the purpose of carrying on any business or solely for the purpose of voting, or (2) any beneficial interest in any testamentary trust, or (3) any insurance or endowment policy or annuity contract under which an insurance company admitted in this state promises to pay a sum of money (whether or not based upon the investment performance of a segregated fund) either in a lump sum or periodically for life or some other specified period, or (4) any franchise subject to registration under the Franchise Investment Law (Division 5 (commencing with Section 31000)), or exempted from registration by Section 31100 or 31101.
“State” means any state, territory, or possession of the United States, the District of Columbia and Puerto Rico.
“Underwriter” means a person who has agreed with an issuer or other person on whose behalf a distribution is to be made (a) to purchase securities for distribution or (b) to distribute securities for or on behalf of such issuer or other person or (c) to manage or supervise a distribution of securities for or on behalf of such issuer or other person.
Except as provided in subdivision (b), “viatical settlement contract” means an agreement entered into between a person owning a life insurance policy upon the life of a person with a catastrophic or life-threatening illness or condition and another person by which the policy owner receives compensation or anything of value less than the death benefits of the insurance policy in return for an assignment, transfer, sale, devise, or bequest of the death benefits or ownership of the insurance policy, and “life settlement contract” means an agreement, other than a viatical settlement contract, for the purchase, sale, assignment, transfer, devise, or bequest of any portion of the death benefit or ownership of a life insurance policy or certificate for consideration that is less than the expected death benefit of the life insurance policy or certificate.
“Viatical settlement contract” and “life settlement contract” do not include any of the following:
The assignment, transfer, sale, devise, or bequest of a death benefit, life insurance policy, or certificate of insurance by the insured or the original owner to any person if the assignment, transfer, sale, devise, or bequest (A) is not accompanied by the publication of any advertisement and (B) is not effected by or through a broker-dealer (Section 25004).
The assignment of a life insurance policy to a bank, savings bank, savings association, credit union, or other lender (either licensed or not required to be licensed) as collateral for a loan, or to a stop-loss insurer or reinsurer.
The exercise of accelerated benefits pursuant to the terms of a life insurance policy issued in accordance with the insurance laws of this state.
The assignment, transfer, sale, devise, or bequest of any undivided death benefit, life insurance policy, or certificate of insurance by an entity licensed pursuant to Section 10113.2 of the Insurance Code, or a viatical or life settlement provider licensed from another state, to one individual or entity, provided that the individual or entity represents that the individual or entity is purchasing for its own account (or trust account, if the entity is a trustee) and not with a view to or for sale in connection with a distribution of the individual death benefit, life insurance policy, or certificate of insurance.
PART 2. QUALIFICATION OF AND FILING REQUIREMENTS FOR THE SALE OF SECURITIES [25100. - 25166.]
CHAPTER 1. Exemptions and Certain Securities and Transactions Not Subject to Qualification [25100. - 25105.]
Any security (including a revenue obligation) issued or guaranteed by the United States, any state, any city, county, city and county, public district, public authority, public corporation, public entity, or political subdivision of a state or any agency or corporate or other instrumentality of any one or more of the foregoing; or any certificate of deposit for any of the foregoing.
Any security issued or guaranteed by Canada, any Canadian province, any political subdivision or municipality of that province, or by any other foreign government with which the United States currently maintains diplomatic relations, if the security is recognized as a valid obligation by the issuer or guarantor; or any certificate of deposit for any of the foregoing.
Any security issued or guaranteed by and representing an interest in or a direct obligation of a national bank or a bank or trust company incorporated under the laws of this state, and any security issued by a bank to one or more other banks and representing an interest in an asset of the issuing bank.
Any security issued or guaranteed by a federal savings association or federal savings bank or federal land bank or joint land bank or national farm loan association or by any savings association, as defined in subdivision (a) of Section 5102 of the Financial Code, which is subject to the supervision and regulation of the Commissioner of Financial Protection and Innovation of this state.
Any security (other than an interest in all or portions of a parcel or parcels of real property which are subdivided land or a subdivision or in a real estate development), the issuance of which is subject to authorization by the Insurance Commissioner, the Public Utilities Commission, or the Real Estate Commissioner of this state.
Any security consisting of any interest in all or portions of a parcel or parcels of real property that are subdivided lands or a subdivision or in a real estate development; provided that the exemption in this subdivision shall not be applicable to: (1) any investment contract sold or offered for sale with, or as part of, that interest, or (2) any person engaged in the business of selling, distributing, or supplying water for irrigation purposes or domestic use that is not a public utility except that the exemption is applicable to any security of a mutual water company (other than an investment contract as described in paragraph (1)) offered or sold in connection with subdivided lands pursuant to Chapter 2 (commencing with Section 14310) of Part 7 of Division 3 of Title 1.
Any mutual capital certificates or savings accounts, as defined in the Savings Association Law, issued by a savings association, as defined by subdivision (a) of Section 5102 of the Financial Code, and holding a license or certificate of authority then in force from the Commissioner of Financial Protection and Innovation of this state.
Any security issued or guaranteed by any federal credit union, or by any credit union organized and supervised, or regulated, under the Credit Union Law.
Any security issued or guaranteed by any railroad, other common carrier, public utility, or public utility holding company which is regulated in respect of the issuance or guarantee of the security by a governmental authority of the United States, of any state, of Canada or of any Canadian province; and the security is subject to registration with or authorization of issuance by that authority.
Any security (except evidences of indebtedness, whether interest bearing or not) of an issuer (1) organized exclusively for educational, benevolent, fraternal, religious, charitable, social, or reformatory purposes and not for pecuniary profit, if no part of the net earnings of the issuer inures to the benefit of any private shareholder or individual, or (2) organized as a chamber of commerce or trade or professional association. The fact that amounts received from memberships or dues or both will or may be used to construct or otherwise acquire facilities for use by members of the nonprofit organization does not disqualify the organization for this exemption. This exemption does not apply to the securities of any nonprofit organization if any promoter thereof expects or intends to make a profit directly or indirectly from any business or activity associated with the organization or operation of that nonprofit organization or from remuneration received from that nonprofit organization.
Any agreement, commonly known as a “life income contract,” of an issuer (1) organized exclusively for educational, benevolent, fraternal, religious, charitable, social, or reformatory purposes and not for pecuniary profit and (2) which the commissioner designates by rule or order, with a donor in consideration of a donation of property to that issuer and providing for the payment to the donor or persons designated by the donor of income or specified periodic payments from the donated property or other property for the life of the donor or those other persons.
Any note, draft, bill of exchange, or banker’s acceptance which is freely transferable and of prime quality, arises out of a current transaction or the proceeds of which have been or are to be used for current transactions, and which evidences an obligation to pay cash within nine months of the date of issuance, exclusive of days of grace, or any renewal of that paper which is likewise limited, or any guarantee of that paper or of that renewal, provided that the paper is not offered to the public in amounts of less than twenty-five thousand dollars ($25,000) in the aggregate to any one purchaser. In addition, the commissioner may, by rule or order, exempt any issuer of any notes, drafts, bills of exchange, or banker’s acceptances from qualification of those securities when the commissioner finds that the qualification is not necessary or appropriate in the public interest or for the protection of investors.
Any security issued by any corporation organized and existing under the provisions of Chapter 1 (commencing with Section 54001) of Division 20 of the Food and Agricultural Code.
Any beneficial interest in an employees’ pension, profit-sharing, stock bonus, or similar benefit plan which meets the requirements for qualification under Section 401 of the federal Internal Revenue Code or any statute amendatory thereof or supplementary thereto. A determination letter from the Internal Revenue Service stating that an employees’ pension, profit-sharing, stock bonus, or similar benefit plan meets those requirements shall be conclusive evidence that the plan is an employees’ pension, profit-sharing, stock bonus, or similar benefit plan within the meaning of the first sentence of this subdivision until the date the determination letter is revoked in writing by the Internal Revenue Service, regardless of whether or not the revocation is retroactive.
Any security listed or approved for listing upon notice of issuance on a national securities exchange, if the exchange has been certified by rule or order of the commissioner and any warrant or right to purchase or subscribe to the security. The exemption afforded by this subdivision does not apply to securities listed or approved for listing upon notice of issuance on a national securities exchange, in a rollup transaction unless the rollup transaction is an eligible rollup transaction as defined in Section 25014.7.
That certification of any exchange shall be made by the commissioner upon the written request of the exchange if the commissioner finds that the exchange, in acting on applications for listing of common stock, substantially applies the minimum standards set forth in either subparagraph (A) or (B) of paragraph (1), and, in considering suspension or removal from listing, substantially applies each of the criteria set forth in paragraph (2).
Listing standards:
Shareholders’ equity of at least four million dollars ($4,000,000).
Pretax income of at least seven hundred fifty thousand dollars ($750,000) in the issuer’s last fiscal year or in two of its last three fiscal years.
Minimum public distribution of 500,000 shares (exclusive of the holdings of officers, directors, controlling shareholders, and other concentrated or family holdings), together with a minimum of 800 public holders or minimum public distribution of 1,000,000 shares together with a minimum of 400 public holders. The exchange may also consider the listing of a company’s securities if the company has a minimum of 500,000 shares publicly held, a minimum of 400 shareholders and daily trading volume in the issue has been approximately 2,000 shares or more for the six months preceding the date of application. In evaluating the suitability of an issue for listing under this trading provision, the exchange shall review the nature and frequency of that activity and any other factors as it may determine to be relevant in ascertaining whether the issue is suitable for trading. A security that trades infrequently shall not be considered for listing under this paragraph even though average daily volume amounts to 2,000 shares per day or more.
Companies whose securities are concentrated in a limited geographical area, or whose securities are largely held in block by institutional investors, normally may not be considered eligible for listing unless the public distribution appreciably exceeds 500,000 shares.
Minimum price of three dollars ($3) per share for a reasonable period of time prior to the filing of a listing application; provided, however, in certain instances an exchange may favorably consider listing an issue selling for less than three dollars ($3) per share after considering all pertinent factors, including market conditions in general, whether historically the issue has sold above three dollars ($3) per share, the applicant’s capitalization, and the number of outstanding and publicly held shares of the issue.
An aggregate market value for publicly held shares of at least three million dollars ($3,000,000).
Shareholders’ equity of at least four million dollars ($4,000,000).
Minimum public distribution set forth in clause (iii) of subparagraph (A) of paragraph (1).
Operating history of at least three years.
An aggregate market value for publicly held shares of at least fifteen million dollars ($15,000,000).
Criteria for consideration of suspension or removal from listing:
If a company that (i) has shareholders’ equity of less than one million dollars ($1,000,000) has sustained net losses in each of its two most recent fiscal years, or (ii) has net tangible assets of less than three million dollars ($3,000,000) and has sustained net losses in three of its four most recent fiscal years.
If the number of shares publicly held (excluding the holdings of officers, directors, controlling shareholders, and other concentrated or family holdings) is less than 150,000.
If the total number of shareholders is less than 400 or if the number of shareholders of lots of 100 shares or more is less than 300.
If the aggregate market value of shares publicly held is less than seven hundred fifty thousand dollars ($750,000).
If shares of common stock sell at a price of less than three dollars ($3) per share for a substantial period of time and the issuer shall fail to effectuate a reverse stock split of the shares within a reasonable period of time after being requested by the exchange to take that action.
A national securities exchange, certified by rule or order of the commissioner under this subdivision, shall file annual reports when requested to do so by the commissioner. The annual reports shall contain, by issuer: the variances granted to an exchange’s listing standards, including variances from corporate governance and voting rights’ standards, for any security of that issuer; the reasons for the variances; a discussion of the review procedure instituted by the exchange to determine the effect of the variances on investors and whether the variances should be continued; and any other information that the commissioner deems relevant. The purpose of these reports is to assist the commissioner in determining whether the quantitative and qualitative requirements of this subdivision are substantially being met by the exchange in general or with regard to any particular security.
The commissioner after appropriate notice and opportunity for hearing in accordance with the provisions of the Administrative Procedure Act (Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code) may, in the commissioner’s discretion, by rule or order, decertify any exchange previously certified that ceases substantially to apply the minimum standards or criteria as set forth in paragraphs (1) and (2).
A rule or order of certification shall conclusively establish that any security listed or approved for listing upon notice of issuance on any exchange named in a rule or order of certification, and any warrant or right to purchase or subscribe to that security, is exempt under this subdivision until the adoption by the commissioner of any rule or order decertifying the exchange.
A promissory note secured by a lien on real property, which is neither one of a series of notes of equal priority secured by interests in the same real property nor a note in which beneficial interests are sold to more than one person or entity.
Any unincorporated interindemnity or reciprocal or interinsurance contract, that qualifies under the provisions of Section 1280.7 of the Insurance Code, between members of a cooperative corporation, organized and operating under Part 2 (commencing with Section 12200) of Division 3 of Title 1, and whose members consist only of physicians and surgeons licensed in California, which contracts indemnify solely in respect to medical malpractice claims against the members, and which do not collect in advance of loss any moneys other than contributions by each member to a collective reserve trust fund or for necessary expenses of administration.
Whenever it appears to the commissioner that any person has engaged or is about to engage in any act or practice constituting a violation of any provision of Section 1280.7 of the Insurance Code, the commissioner may, in the commissioner’s discretion, bring an action in the name of the people of the State of California in the superior court to enjoin the acts or practices or to enforce compliance with Section 1280.7 of the Insurance Code. Upon a proper showing a permanent or preliminary injunction, a restraining order, or a writ of mandate shall be granted and a receiver or conservator may be appointed for the defendant or the defendant’s assets.
The commissioner may, in the commissioner’s discretion, (A) make public or private investigations within or outside of this state as the commissioner deems necessary to determine whether any person has violated or is about to violate any provision of Section 1280.7 of the Insurance Code or to aid in the enforcement of Section 1280.7, and (B) publish information concerning the violation of Section 1280.7.
For the purpose of any investigation or proceeding under this section, the commissioner or any officer designated by the commissioner may administer oaths and affirmations, subpoena witnesses, compel their attendance, take evidence, and require the production of any books, papers, correspondence, memoranda, agreements, or other documents or records which the commissioner deems relevant or material to the inquiry.
In case of contumacy by, or refusal to obey a subpoena issued to, any person, the superior court, upon application by the commissioner, may issue to the person an order requiring the person to appear before the commissioner, or the officer designated by the commissioner, to produce documentary evidence, if so ordered, or to give evidence touching the matter under investigation or in question. Failure to obey the order of the court may be punished by the court as contempt.
No person is excused from attending or testifying or from producing any document or record before the commissioner or in obedience to the subpoena of the commissioner or any officer designated by the commissioner, or in any proceeding instituted by the commissioner, on the ground that the testimony or evidence (documentary or otherwise), required of the person may tend to incriminate the person or subject the person to a penalty or forfeiture, but no individual may be prosecuted or subjected to any penalty or forfeiture for or on account of any transaction, matter, or thing concerning which the person is compelled, after validly claiming the privilege against self-incrimination, to testify or produce evidence (documentary or otherwise), except that the individual testifying is not exempt from prosecution and punishment for perjury or contempt committed in testifying.
The cost of any review, examination, audit, or investigation made by the commissioner under Section 1280.7 of the Insurance Code shall be paid to the commissioner by the person subject to the review, examination, audit, or investigation, and the commissioner may maintain an action for the recovery of these costs in any court of competent jurisdiction. In determining the cost, the commissioner may use the actual amount of the salary or other compensation paid to the persons making the review, examination, audit, or investigation plus the actual amount of expenses including overhead reasonably incurred in the performance of the work.
The recoverable cost of each review, examination, audit, or investigation made by the commissioner under Section 1280.7 of the Insurance Code shall not exceed twenty-five thousand dollars ($25,000), except that costs exceeding twenty-five thousand dollars ($25,000) shall be recoverable if the costs are necessary to prevent a violation of any provision of Section 1280.7 of the Insurance Code.
Any shares, memberships, or credits to a member’s capital issued to a shareholder or member by any corporation organized and existing pursuant to the provisions of Part 2 (commencing with Section 12200) of Division 3 of Title 1, provided the aggregate investment in the corporation of that shareholder or member in shares, memberships, or credits to that member’s capital sold pursuant to this subdivision does not exceed one thousand dollars ($1,000).
The one-thousand-dollar ($1,000) limitation in paragraph (1) does not apply to any shares, memberships, or credits to that member’s capital as all, or part of, any patronage distributions, as defined in Section 12244.
The exemption in paragraph (1) does not apply to any of the following:
The shares, memberships, or capital credits of that corporation if any promoter thereof expects or intends to make a profit directly or indirectly from any business or activity associated with the corporation or the operation of the corporation or from remuneration, other than reasonable salary, received from the corporation.
The nonvoting shares, memberships, or capital credits of that corporation issued to any person who does not possess, and who will not acquire in connection with the issuance of nonvoting shares, memberships, or capital credits, “voting power” in the corporation as defined in Section 12253.
Shares, memberships, or capital credits issued by a nonprofit cooperative corporation organized to facilitate the creation of an unincorporated interindemnity arrangement that provides indemnification for medical malpractice to its physician and surgeon members, as set forth in subdivision (q).
Any security consisting of or representing an interest in a pool of mortgage loans that meets each of the following requirements:
The pool consists of whole mortgage loans or participation interests in those loans, which loans were originated or acquired in the ordinary course of business by a national bank or federal savings association or federal savings bank having its principal office in this state, by a bank incorporated under the laws of this state, or by a savings association as defined in subdivision (a) of Section 5102 of the Financial Code and which is subject to the supervision and regulation of the Commissioner of Financial Protection and Innovation, and each of which at the time of transfer to the pool is an authorized investment for the originating or acquiring institution.
The pool of mortgage loans is held in trust by a trustee which is a financial institution specified in paragraph (1) as trustee or otherwise.
The loans are serviced by a financial institution specified in paragraph (1).
The security is not offered in amounts of less than twenty-five thousand dollars ($25,000) in the aggregate to any one purchaser.
The security is offered pursuant to a registration under the Securities Act of 1933 (Public Law 112-106), as amended, or pursuant to an exemption under Regulation A under that act, or in the opinion of counsel for the issuer, is offered pursuant to an exemption under Section 4(a)(2) of that act.
Any security issued or guaranteed by and representing an interest in or a direct obligation of an industrial bank incorporated under the laws of the state and authorized by the Commissioner of Financial Protection and Innovation to engage in industrial banking business.
Any investment certificate in or issued by any industrial bank that is organized under the laws of a state of the United States other than this state, that is insured by the Federal Deposit Insurance Corporation, and that maintains a branch office in this state.
A security defined as a “covered security” pursuant to Section 18(b)(1) of the Securities Act of 1933 (15 U.S.C. Sec. 77r).
A security issued by an investment company that is registered or that has filed a registration statement under the Investment Company Act of 1940 (15 U.S.C. Sec. 80a-1) and that is defined as a “covered security” pursuant to Section 18(b)(2) of the Securities Act of 1933, and all the following requirements are met:
Prior to any offer or sale in this state, there is filed with or paid to the commissioner each of the following:
A notice consisting of all documents that are part of a federal registration statement filed with the Securities and Exchange Commission pursuant to the Securities Act of 1933 or, in lieu thereof, a form prescribed by the commissioner, and that a consent to service of process is either on file with the commissioner or is attached to the notice.
As necessary to compute fees, a report of the value of securities covered under this subdivision that are offered or sold in this state.
The notice filing fee provided for in subdivision (a) of Section 25608.1.
If any offer or sale is to be made pursuant to Section 18(b)(2) of the Securities Act of 1933 and this subdivision more than 12 months after the date the notice was filed under this subdivision, the issuer shall file another notice and pay the fee specified in subparagraph (C) of paragraph (1).
The following securities are exempt from the provisions of Section 25130:
Any security issued by a person that is the issuer of any security listed on a national securities exchange, if the exchange is certified by rule or order of the commissioner.
The exemption provided by subdivision (a) does not apply to securities offered pursuant to a registration under the Securities Act of 1933 or pursuant to the exemption afforded by Regulation A under that act if the aggregate offering price of the securities offered pursuant to that exemption exceeds fifty thousand dollars ($50,000).
A security that is offered or sold in a transaction that is exempt from registration under Section 4(a)(1) or 4(a)(3) of the Securities Act of 1933 (15 U.S.C. 77r et seq.) pursuant to Section 18(b)(4)(A) of that act, if the issuer, other than a foreign (other country) issuer described in subdivision (b), of the security files the required reports with the Securities and Exchange Commission pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.).
A security of a foreign (other country) issuer that avails itself of the exemption from registration under Section 12(g)(3) of the Securities Exchange Act of 1934 is subject to the qualification requirements of Sections 25110, 25120, and 25130, unless the issuer is a reporting company under the Securities Exchange Act of 1934 and files the required reports under Section 13 or 15(d) of that act.
The following transactions are exempted from the provisions of Section 25110:
Any offer (but not a sale) not involving any public offering and the execution and delivery of any agreement for the sale of securities pursuant to the offer if (1) the agreement contains substantially the following provision: “The sale of the securities that are the subject of this agreement has not been qualified with the Commissioner of Financial Protection and Innovation and the issuance of the securities or the payment or receipt of any part of the consideration therefor prior to the qualification is unlawful, unless the sale of securities is exempt from the qualification by Section 25100, 25102, or 25105 of the California Corporations Code. The rights of all parties to this agreement are expressly conditioned upon the qualification being obtained, unless the sale is so exempt;” and (2) no part of the purchase price is paid or received and none of the securities are issued until the sale of the securities is qualified under this law unless the sale of securities is exempt from the qualification by this section or Section 25100 or 25105.
Any offer (but not a sale) of a security for which a registration statement has been filed under the Securities Act of 1933, as amended, but has not yet become effective, or for which an offering statement under Regulation A has been filed but has not yet been qualified, if no stop order or refusal order is in effect and no public proceeding or examination looking towards an order is pending under Section 8 of the act and no order under Section 25140 or subdivision (a) of Section 25143 is in effect under this law.
Any offer (but not a sale) and the execution and delivery of any agreement for the sale of securities pursuant to the offer as may be permitted by the commissioner upon application. Any negotiating permit under this subdivision shall be conditioned to the effect that none of the securities may be issued and none of the consideration therefor may be received or accepted until the sale of the securities is qualified under this law.
Any transaction or agreement between the issuer and an underwriter or among underwriters if the sale of the securities is qualified, or exempt from qualification, at the time of distribution thereof in this state, if any.
Any offer or sale of any evidence of indebtedness, whether secured or unsecured, and any guarantee thereof, in a transaction not involving any public offering.
Any offer or sale of any security in a transaction (other than an offer or sale to a pension or profit-sharing trust of the issuer) that meets each of the following criteria:
Sales of the security are not made to more than 35 persons, including persons not in this state.
All purchasers either have a preexisting personal or business relationship with the offeror or any of its partners, officers, directors or controlling persons, or managers (as appointed or elected by the members) if the offeror is a limited liability company, or by reason of their business or financial experience or the business or financial experience of their professional advisers who are unaffiliated with and who are not compensated by the issuer or any affiliate or selling agent of the issuer, directly or indirectly, could be reasonably assumed to have the capacity to protect their own interests in connection with the transaction.
Each purchaser represents that the purchaser is purchasing for the purchaser’s own account (or a trust account if the purchaser is a trustee) and not with a view to or for sale in connection with any distribution of the security.
The offer and sale of the security is not accomplished by the publication of any advertisement. The number of purchasers referred to above is exclusive of any described in subdivision (i), any officer, director, or affiliate of the issuer, or manager (as appointed or elected by the members) if the issuer is a limited liability company, and any other purchaser who the commissioner designates by rule. For purposes of this section, spouses (together with any custodian or trustee acting for the account of their minor children) are counted as one person and a partnership, corporation, or other organization that was not specifically formed for the purpose of purchasing the security offered in reliance upon this exemption, is counted as one person. The commissioner shall by rule require the issuer to file a notice of transactions under this subdivision.
The failure to file the notice or the failure to file the notice within the time specified by the rule of the commissioner shall not affect the availability of the exemption. Any issuer that fails to file the notice as provided by rule of the commissioner shall, within 15 business days after discovery of the failure to file the notice or after demand by the commissioner, whichever occurs first, file the notice and pay to the commissioner a fee equal to the fee payable had the transaction been qualified under Section 25110. Neither the filing of the notice nor the failure by the commissioner to comment thereon precludes the commissioner from taking any action that the commissioner deems necessary or appropriate under this division with respect to the offer and sale of the securities.
Any offer or sale of conditional sale agreements, equipment trust certificates, or certificates of interest or participation therein or partial assignments thereof, covering the purchase of railroad rolling stock or equipment or the purchase of motor vehicles, aircraft, or parts thereof, in a transaction not involving any public offering.
Any offer or sale of voting common stock by a corporation incorporated in any state if, immediately after the proposed sale and issuance, there will be only one class of stock of the corporation outstanding that is owned beneficially by no more than 35 persons, provided all of the following requirements have been met:
The offer and sale of the stock is not accompanied by the publication of any advertisement, and no selling expenses have been given, paid, or incurred in connection therewith.
The consideration to be received by the issuer for the stock to be issued consists of any of the following:
Only assets (which may include cash) of an existing business enterprise transferred to the issuer upon its initial organization, of which all of the persons who are to receive the stock to be issued pursuant to this exemption were owners during, and the enterprise was operated for, a period of not less than one year immediately preceding the proposed issuance, and the ownership of the enterprise immediately prior to the proposed issuance was in the same proportions as the shares of stock are to be issued.
Only cash or cancellation of indebtedness for money borrowed, or both, upon the initial organization of the issuer, provided all of the stock is issued for the same price per share.
Only cash, provided the sale is approved in writing by each of the existing shareholders and the purchaser or purchasers are existing shareholders.
In a case where after the proposed issuance there will be only one owner of the stock of the issuer, only any legal consideration.
No promotional consideration has been given, paid, or incurred in connection with the issuance. Promotional consideration means any consideration paid directly or indirectly to a person who, acting alone or in conjunction with one or more other persons, takes the initiative in founding and organizing the business or enterprise of an issuer for services rendered in connection with the founding or organizing.
A notice in a form prescribed by rule of the commissioner, signed by an active member of the State Bar of California, is filed with or mailed for filing to the commissioner not later than 10 business days after receipt of consideration for the securities by the issuer. That notice shall contain an opinion of the member of the State Bar of California that the exemption provided by this subdivision is available for the offer and sale of the securities. The failure to file the notice as required by this subdivision and the rules of the commissioner shall not affect the availability of this exemption. An issuer who fails to file the notice within the time specified by this subdivision shall, within 15 business days after discovery of the failure to file the notice or after demand by the commissioner, whichever occurs first, file the notice and pay to the commissioner a fee equal to the fee payable had the transaction been qualified under Section 25110. The notice, except when filed on behalf of a California corporation, shall be accompanied by an irrevocable consent, in the form that the commissioner by rule prescribes, appointing the commissioner or the commissioner’s successor in office to be the issuer’s attorney to receive service of any lawful process in any noncriminal suit, action, or proceeding against it or its successor that arises under this law or any rule or order hereunder after the consent has been filed, with the same force and validity as if served personally on the issuer. An issuer on whose behalf a consent has been filed in connection with a previous qualification or exemption from qualification under this law (or application for a permit under any prior law if the application or notice under this law states that the consent is still effective) need not file another. Service may be made by leaving a copy of the process in the office of the commissioner, but it is not effective unless (A) the plaintiff, who may be the commissioner in a suit, action, or proceeding instituted by the commissioner, forthwith sends notice of the service and a copy of the process by registered or certified mail to the defendant or respondent at its last address on file with the commissioner, and (B) the plaintiff’s affidavit of compliance with this section is filed in the case on or before the return day of the process, if any, or within the further time as the court allows.
Each purchaser represents that the purchaser is purchasing for the purchaser’s own account, or a trust account if the purchaser is a trustee, and not with a view to or for sale in connection with any distribution of the stock.
For the purposes of this subdivision, all securities held by spouses, whether or not jointly, shall be considered to be owned by one person, and all securities held by a corporation that has issued stock pursuant to this exemption shall be considered to be held by the shareholders to whom it has issued the stock.
All stock issued by a corporation pursuant to this subdivision as it existed prior to the effective date of the amendments to this section made during the 1996 portion of the 1995–96 Regular Session that required the issuer to have stamped or printed prominently on the face of the stock certificate a legend in a form prescribed by rule of the commissioner restricting transfer of the stock in a manner provided for by that rule shall not be subject to the transfer restriction legend requirement and, by operation of law, the corporation is authorized to remove that transfer restriction legend from the certificates of those shares of stock issued by the corporation pursuant to this subdivision as it existed prior to the effective date of the amendments to this section made during the 1996 portion of the 1995–96 Regular Session.
Any offer or sale (1) to a bank, savings and loan association, trust company, insurance company, investment company registered under the federal Investment Company Act of 1940, pension or profit-sharing trust (other than a pension or profit-sharing trust of the issuer, a self-employed individual retirement plan, or individual retirement account), or other institutional investor or governmental agency or instrumentality that the commissioner may designate by rule, whether the purchaser is acting for itself or as trustee, or (2) to any corporation with outstanding securities registered under Section 12 of the Securities Exchange Act of 1934 or any wholly owned subsidiary of the corporation that after the offer and sale will own directly or indirectly 100 percent of the outstanding capital stock of the issuer, provided the purchaser represents that it is purchasing for its own account (or for the trust account) for investment and not with a view to or for sale in connection with any distribution of the security.
Any offer or sale of any certificate of interest or participation in an oil or gas title or lease (including subsurface gas storage and payments out of production) if either of the following apply:
All of the purchasers meet one of the following requirements:
Are and have been during the preceding two years engaged primarily in the business of drilling for, producing, or refining oil or gas (or whose corporate predecessor, in the case of a corporation, has been so engaged).
Are persons described in paragraph (1) of subdivision (i).
Have been found by the commissioner upon written application to be substantially engaged in the business of drilling for, producing, or refining oil or gas so as not to require the protection provided by this law (which finding shall be effective until rescinded).
The security is concurrently hypothecated to a bank in the ordinary course of business to secure a loan made by the bank, provided that each purchaser represents that it is purchasing for its own account for investment and not with a view to or for sale in connection with any distribution of the security.
Any offer or sale of any security under, or pursuant to, a plan of reorganization under Chapter 11 of the federal bankruptcy law that has been confirmed or is subject to confirmation by the decree or order of a court of competent jurisdiction.
Any offer or sale of an option, warrant, put, call, or straddle, and any guarantee of any of these securities, by a person who is not the issuer of the security subject to the right, if the transaction, had it involved an offer or sale of the security subject to the right by the person, would not have violated Section 25110 or 25130.
Any offer or sale of a stock to a pension, profit-sharing, stock bonus, or employee stock ownership plan, provided that (1) the plan meets the requirements for qualification under Section 401 of the Internal Revenue Code, and (2) the employees are not required or permitted individually to make any contributions to the plan. The exemption provided by this subdivision shall not be affected by whether the stock is contributed to the plan, purchased from the issuer with contributions by the issuer or an affiliate of the issuer, or purchased from the issuer with funds borrowed from the issuer, an affiliate of the issuer, or any other lender.
Any offer or sale of any security in a transaction, other than an offer or sale of a security in a rollup transaction, that meets all of the following criteria:
The issuer is (A) a California corporation or foreign corporation that, at the time of the filing of the notice required under this subdivision, is subject to Section 2115, or (B) any other form of business entity, including without limitation a partnership or trust organized under the laws of this state. The exemption provided by this subdivision is not available to a “blind pool” issuer, as that term is defined by the commissioner, or to an investment company subject to the federal Investment Company Act of 1940.
Sales of securities are made only to qualified purchasers or other persons the issuer reasonably believes, after reasonable inquiry, to be qualified purchasers. A corporation, partnership, or other organization specifically formed for the purpose of acquiring the securities offered by the issuer in reliance upon this exemption may be a qualified purchaser if each of the equity owners of the corporation, partnership, or other organization is a qualified purchaser. Qualified purchasers include the following:
A person designated in Section 260.102.13 of Title 10 of the California Code of Regulations.
A person designated in subdivision (i) or any rule of the commissioner adopted thereunder.
A pension or profit-sharing trust of the issuer, a self-employed individual retirement plan, or an individual retirement account, if the investment decisions made on behalf of the trust, plan, or account are made solely by persons who are qualified purchasers.
An organization described in Section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, each with total assets in excess of five million dollars ($5,000,000) according to its most recent audited financial statements.
With respect to the offer and sale of one class of voting common stock of an issuer or of preferred stock of an issuer entitling the holder thereof to at least the same voting rights as the issuer’s one class of voting common stock, provided that the issuer has only one-class voting common stock outstanding upon consummation of the offer and sale, a natural person who, either individually or jointly with the person’s spouse, (i) has a minimum net worth of two hundred fifty thousand dollars ($250,000) and had, during the immediately preceding tax year, gross income in excess of one hundred thousand dollars ($100,000) and reasonably expects gross income in excess of one hundred thousand dollars ($100,000) during the current tax year or (ii) has a minimum net worth of five hundred thousand dollars ($500,000). “Net worth” shall be determined exclusive of home, home furnishings, and automobiles. Other assets included in the computation of net worth may be valued at fair market value.
Each natural person specified above, by reason of that person’s business or financial experience, or the business or financial experience of that person’s professional adviser, who is unaffiliated with and who is not compensated, directly or indirectly, by the issuer or any affiliate or selling agent of the issuer, can be reasonably assumed to have the capacity to protect that person’s interests in connection with the transaction. The amount of the investment of each natural person shall not exceed 10 percent of the net worth, as determined by this subparagraph, of that natural person.
Any other purchaser designated as qualified by rule of the commissioner.
Each purchaser represents that the purchaser is purchasing for the purchaser’s own account (or trust account, if the purchaser is a trustee) and not with a view to or for sale in connection with a distribution of the security.
Each natural person purchaser, including a corporation, partnership, or other organization specifically formed by natural persons for the purpose of acquiring the securities offered by the issuer, receives, at least five business days before securities are sold to, or a commitment to purchase is accepted from, the purchaser, a written offering disclosure statement that shall meet the disclosure requirements of Regulation D (17 C.F.R. 230.501 et seq.), and any other information as may be prescribed by rule of the commissioner, provided that the issuer shall not be obligated pursuant to this paragraph to provide this disclosure statement to a natural person qualified under Section 260.102.13 of Title 10 of the California Code of Regulations. The offer or sale of securities pursuant to a disclosure statement required by this paragraph that is in violation of Section 25401, or that fails to meet the disclosure requirements of Regulation D (17 C.F.R. 230.501 et seq.), shall not render unavailable to the issuer the claim of an exemption from Section 25110 afforded by this subdivision. This paragraph does not impose, directly or indirectly, any additional disclosure obligation with respect to any other exemption from qualification available under any other provision of this section.
A general announcement of proposed offering may be published by written document only, provided that the general announcement of proposed offering sets forth the following required information:
The name of the issuer of the securities.
The full title of the security to be issued.
The anticipated suitability standards for prospective purchasers.
A statement that (I) no money or other consideration is being solicited or will be accepted, (II) an indication of interest made by a prospective purchaser involves no obligation or commitment of any kind, and, if the issuer is required by paragraph (4) to deliver a disclosure statement to prospective purchasers, (III) no sales will be made or commitment to purchase accepted until five business days after delivery of a disclosure statement and subscription information to the prospective purchaser in accordance with the requirements of this subdivision.
Any other information required by rule of the commissioner.
The following legend: “For more complete information about (Name of Issuer) and (Full Title of Security), send for additional information from (Name and Address) by sending this coupon or calling (Telephone Number).”
The general announcement of proposed offering referred to in subparagraph (A) may also set forth the following information:
A brief description of the business of the issuer.
The geographic location of the issuer and its business.
The price of the security to be issued, or, if the price is not known, the method of its determination or the probable price range as specified by the issuer, and the aggregate offering price.
The general announcement of proposed offering shall contain only the information that is set forth in this paragraph.
Dissemination of the general announcement of proposed offering to persons who are not qualified purchasers, without more, shall not disqualify the issuer from claiming the exemption under this subdivision.
No telephone solicitation shall be permitted until the issuer has determined that the prospective purchaser to be solicited is a qualified purchaser.
The issuer files a notice of transaction under this subdivision both (A) concurrent with the publication of a general announcement of proposed offering or at the time of the initial offer of the securities, whichever occurs first, accompanied by a filing fee, and (B) within 10 business days following the close or abandonment of the offering, but in no case more than 210 days from the date of filing the first notice. The first notice of transaction under subparagraph (A) shall contain an undertaking, in a form acceptable to the commissioner, to deliver any disclosure statement required by paragraph (4) to be delivered to prospective purchasers, and any supplement thereto, to the commissioner within 10 days of the commissioner’s request for the information. The exemption from qualification afforded by this subdivision is unavailable if an issuer fails to file the first notice required under subparagraph (A) or to pay the filing fee. The commissioner has the authority to assess an administrative penalty of up to one thousand dollars ($1,000) against an issuer that fails to deliver the disclosure statement required to be delivered to the commissioner upon the commissioner’s request within the time period set forth above. Neither the filing of the disclosure statement nor the failure by the commissioner to comment thereon precludes the commissioner from taking any action deemed necessary or appropriate under this division with respect to the offer and sale of the securities.
An offer or sale of any security issued by a corporation or limited liability company pursuant to a purchase plan or agreement, or issued pursuant to an option plan or agreement, where the security at the time of issuance or grant is exempt from registration under the Securities Act of 1933, as amended, pursuant to Rule 701 adopted pursuant to that act (17 C.F.R. 230.701), the provisions of which are hereby incorporated by reference into this section, provided that (1) the terms of any purchase plan or agreement shall comply with Sections 260.140.42, 260.140.45, and 260.140.46 of Title 10 of the California Code of Regulations, (2) the terms of any option plan or agreement shall comply with Sections 260.140.41, 260.140.45, and 260.140.46 of Title 10 of the California Code of Regulations, and (3) the issuer files a notice of transaction in accordance with rules adopted by the commissioner no later than 30 days after the initial issuance of any security under that plan, accompanied by a filing fee as prescribed by subdivision (y) of Section 25608. The failure to file the notice of transaction within the time specified in this subdivision shall not affect the availability of this exemption. An issuer that fails to file the notice shall, within 15 business days after discovery of the failure to file the notice or after demand by the commissioner, whichever occurs first, file the notice and pay the commissioner a fee equal to the maximum aggregate fee payable had the transaction been qualified under Section 25110.
Offers and sales exempt pursuant to this subdivision shall be deemed to be part of a single, discrete offering and are not subject to integration with any other offering or sale, whether qualified under Chapter 2 (commencing with Section 25110), or otherwise exempt, or not subject to qualification.
An offer or sale of nonredeemable securities to accredited investors (Section 28031) by a person licensed under the Capital Access Company Law (Division 3 (commencing with Section 28000) of Title 4), provided that all purchasers either (1) have a preexisting personal or business relationship with the offeror or any of its partners, officers, directors, controlling persons, or managers (as appointed or elected by the members), or (2) by reason of their business or financial experience or the business or financial experience of their professional advisers who are unaffiliated with and who are not compensated by the issuer or any affiliate or selling agent of the issuer, directly or indirectly, could be reasonably assumed to have the capacity to protect their own interests in connection with the transaction. All nonredeemable securities shall be evidenced by certificates that shall have stamped or printed prominently on their face a legend in a form to be prescribed by rule or order of the commissioner restricting transfer of the securities in the manner as the rule or order provides. The exemption under this subdivision shall not be available for any offering that is exempt or asserted to be exempt pursuant to Section 3(a)(11) of the Securities Act of 1933 (15 U.S.C. Sec. 77c(a)(11)) or Rule 147 (17 C.F.R. 230.147) thereunder or otherwise is conducted by means of any form of general solicitation or general advertising.
Any offer or sale of any viatical or life settlement contract or fractionalized or pooled interest therein in a transaction that meets all of the following criteria:
Sales of securities described in this subdivision are made only to qualified purchasers or other persons the issuer reasonably believes, after reasonable inquiry, to be qualified purchasers. A corporation, partnership, or other organization specifically formed for the purpose of acquiring the securities offered by the issuer in reliance upon this exemption may be a qualified purchaser only if each of the equity owners of the corporation, partnership, or other organization is a qualified purchaser. Qualified purchasers include the following:
A person designated in Section 260.102.13 of Title 10 of the California Code of Regulations.
A person designated in subdivision (i) or any rule of the commissioner adopted thereunder.
A pension or profit-sharing trust of the issuer, a self-employed individual retirement plan, or an individual retirement account, if the investment decisions made on behalf of the trust, plan, or account are made solely by persons who are qualified purchasers.
An organization described in Section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, each with total assets in excess of five million dollars ($5,000,000) according to its most recent audited financial statements.
A natural person who, either individually or jointly with the person’s spouse, (i) has a minimum net worth of one hundred fifty thousand dollars ($150,000) and had, during the immediately preceding tax year, gross income in excess of one hundred thousand dollars ($100,000) and reasonably expects gross income in excess of one hundred thousand dollars ($100,000) during the current tax year or (ii) has a minimum net worth of two hundred fifty thousand dollars ($250,000). “Net worth” shall be determined exclusive of home, home furnishings, and automobiles. Other assets included in the computation of net worth may be valued at fair market value.
Each natural person specified above, by reason of that person’s business or financial experience, or the business or financial experience of that person’s professional adviser, who is unaffiliated with and who is not compensated, directly or indirectly, by the issuer or any affiliate or selling agent of the issuer, can be reasonably assumed to have the capacity to protect that person’s interests in connection with the transaction.
The amount of the investment of each natural person shall not exceed 10 percent of the net worth, as determined by this subdivision, of that natural person.
Any other purchaser designated as qualified by rule of the commissioner.
Each purchaser represents that the purchaser is purchasing for the purchaser’s own account (or trust account, if the purchaser is a trustee) and not with a view to or for sale in connection with a distribution of the security.
Each natural person purchaser, including a corporation, partnership, or other organization specifically formed by natural persons for the purpose of acquiring the securities offered by the issuer, receives, at least five business days before securities described in this subdivision are sold to, or a commitment to purchase is accepted from, the purchaser, the following information in writing:
The name, principal business and mailing address, and telephone number of the issuer.
The suitability standards for prospective purchasers as set forth in paragraph (1) of this subdivision.
A description of the issuer’s type of business organization and the state in which the issuer is organized or incorporated.
A brief description of the business of the issuer.
If the issuer retains ownership or becomes the beneficiary of the insurance policy, an audit report of an independent certified public accountant together with a balance sheet and related statements of income, retained earnings, and cashflows that reflect the issuer’s financial position, the results of the issuer’s operations, and the issuer’s cashflows as of a date within 15 months before the date of the initial issuance of the securities described in this subdivision. The financial statements listed in this subparagraph shall be prepared in conformity with generally accepted accounting principles. If the date of the audit report is more than 120 days before the date of the initial issuance of the securities described in this subdivision, the issuer shall provide unaudited interim financial statements.
The names of all directors, officers, partners, members, or trustees of the issuer.
A description of any order, judgment, or decree that is final as to the issuing entity of any state, federal, or foreign country governmental agency or administrator, or of any state, federal, or foreign country court of competent jurisdiction (i) revoking, suspending, denying, or censuring for cause any license, permit, or other authority of the issuer or of any director, officer, partner, member, trustee, or person owning or controlling, directly or indirectly, 10 percent or more of the outstanding interest or equity securities of the issuer, to engage in the securities, commodities, franchise, insurance, real estate, or lending business or in the offer or sale of securities, commodities, franchises, insurance, real estate, or loans, (ii) permanently restraining, enjoining, barring, suspending, or censuring any such person from engaging in or continuing any conduct, practice, or employment in connection with the offer or sale of securities, commodities, franchises, insurance, real estate, or loans, (iii) convicting any such person of, or pleading nolo contendere by any such person to, any felony or misdemeanor involving a security, commodity, franchise, insurance, real estate, or loan, or any aspect of the securities, commodities, franchise, insurance, real estate, or lending business, or involving dishonesty, fraud, deceit, embezzlement, fraudulent conversion, or misappropriation of property, or (iv) holding any such person liable in a civil action involving breach of a fiduciary duty, fraud, deceit, embezzlement, fraudulent conversion, or misappropriation of property. This subparagraph does not apply to any order, judgment, or decree that has been vacated, overturned, or is more than 10 years old.
Notice of the purchaser’s right to rescind or cancel the investment and receive a refund pursuant to Section 25508.5.
The name, address, and telephone number of the issuing insurance company, and the name, address, and telephone number of the state or foreign country regulator of the insurance company.
The total face value of the insurance policy and the percentage of the insurance policy the purchaser will own.
The insurance policy number, issue date, and type.
If a group insurance policy, the name, address, and telephone number of the group, and, if applicable, the material terms and conditions of converting the policy to an individual policy, including the amount of increased premiums.
If a term insurance policy, the term and the name, address, and telephone number of the person who will be responsible for renewing the policy if necessary.
That the insurance policy is beyond the state statute for contestability and the reason therefor.
The insurance policy premiums and terms of premium payments.
The amount of the purchaser’s moneys that will be set aside to pay premiums.
The name, address, and telephone number of the person who will be the insurance policy owner and the person who will be responsible for paying premiums.
The date on which the purchaser will be required to pay premiums and the amount of the premium, if known.
A statement to the effect that any projected rate of return to the purchaser from the purchase of a viatical or life settlement contract or a fractionalized or pooled interest therein is based on an estimated life expectancy for the person insured under the life insurance policy; that the return on the purchase may vary substantially from the expected rate of return based upon the actual life expectancy of the insured that may be less than, equal to, or may greatly exceed the estimated life expectancy; and that the rate of return would be higher if the actual life expectancy were less than, and lower if the actual life expectancy were greater than the estimated life expectancy of the insured at the time the viatical or life settlement contract was closed.
A statement that the purchaser should consult with the purchaser’s tax adviser regarding the tax consequences of the purchase of the viatical or life settlement contract or fractionalized or pooled interest therein and, if the purchaser is using retirement funds or accounts for that purchase, whether or not any adverse tax consequences might result from the use of those funds for the purchase of that investment.
Any other information as may be prescribed by rule of the commissioner.
Any offer or sale of any security that meets each of the following criteria:
The issuer meets all of the following criteria:
Is a California corporation or a foreign corporation, which at the time of filing an application under this subdivision is subject to Section 2115, and neither corporation is a “blind pool” company, as that term is defined by the commissioner.
Is not issuing fractional undivided interests in oil or gas rights, or a similar interest in other mineral rights.
Is not an investment company subject to the Investment Company Act of 1940.
Is not subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934.
The offering is conducted in accordance with the requirements of Section 3(a)(11) of the Securities Act of 1933 and Rule 147 (17 C.F.R. 230.147) or Rule 147A (17 C.F.R. 230.147A) under that act.
The offering is conducted in accordance with the requirements of Subpart B of Regulation CF (17 C.F.R. 227.100 to 227.206, inclusive), except as follows:
The aggregate amount of securities sold to all investors by the issuer in reliance on this subdivision during the 12-month period preceding the date of such offer or sale, including the securities offered in such transaction, shall not exceed three hundred thousand dollars ($300,000).
The issuer may comply with the requirements of paragraph (t)(1), instead of paragraph (t)(2), of Section 227.201 of Title 17 of the Code of Federal Regulations.
Such issuer shall prominently provide a statement that financial information certified by the principal executive officer of the issuer has been provided instead of financial statements reviewed by a public accountant that is independent of the issuer. The aggregate offering price for all securities sold (within the 12 months before the start, and during the offering, of the securities) under Rule 147 or Rule 147A under the Securities Act of 1933 or in violation of subdivision (a) of Section 5 of that act shall be included in the aggregate offering price for purposes of this paragraph.
Integration of offers and sales made in reliance on this section shall be governed by Section 230.152 of Title 17 of the Code of Federal Regulations.
The issuer has taken reasonable steps to ensure that each purchaser who is a natural person who is not an accredited investor as defined in Rule 501 (17 C.F.R. 230.501) under the Securities Act of 1933, either alone or with their purchaser representative or representatives, has knowledge and experience in financial and business matters and that they are capable of evaluating the merits and risks of the prospective investment.
The purchaser shall have a three-day right to rescind any investment made in any security offered under this subdivision. The three-day period shall end at 11:59 p.m. Pacific standard time on the third business day after the date on which the issuer’s confirmation of its acceptance of the purchaser’s investment is communicated in writing and received by the purchaser.
The issuer shall set aside in a separate third-party escrow account all funds raised as part of the offering, to be held in escrow until the time that the minimum offering amount, if any, is reached. If the minimum offering amount is not reached within one year of the effective date of the offering, the issuer shall return all funds to purchasers.
The issuer shall not, itself or through any third party not licensed as a broker-dealer, conduct any direct solicitation of the securities offered by this subdivision.
The issuer shall not require or impose an obligation on any purchaser or potential purchaser to do any of the following:
Waive the right to a jury trial in a court action.
Be bound by or subject to any law other than California law.
File or resolve any claim or dispute in any forum other than California.
The issuer shall file, on a form prescribed by the commissioner, a notice of transactions under this subdivision at least 15 days prior to the publication of an initial offer of the securities. The failure to file the notice or the failure to file the notice within the time specified shall not affect the availability of the exemption so long as the issuer, within 15 business days after discovery of the failure to file the notice or after demand by the commissioner, whichever occurs first, files the notice and pays to the commissioner a fee equal to the fee payable had the transaction been qualified under Section 25110. Neither the filing of the notice nor the failure by the commissioner to comment thereon precludes the commissioner from taking any action that the commissioner deems necessary or appropriate under this division with respect to the offer and sale of the securities.
The issuer submits all state, federal, or other filings related to the offer or sale of securities under this subdivision to the Commissioner of the Department of Financial Protection and Innovation. The filings shall be submitted electronically and in compliance with the Americans for Disability Act of 1990 (42 U.S.C. 12101 et seq.) and the Web Content Accessibility Guidelines 2.0, or its subsequent versions.
The issuer pays any fees required by subdivision (c) of Section 25608.
Any other requirement set forth by rule adopted by the commissioner.
To the extent allowable, any inconsistency between federal and state law shall be interpreted to the benefit of investors or potential investors.
Any offer or sale of a security to a “qualified purchaser” as that term is defined by rule of the Securities and Exchange Commission pursuant to Section 18(b)(3) of the Securities Act of 1933 (15 U.S.C. 77r), if all of the following requirements are met:
A notice is filed with the commissioner prior to an offer in this state, along with any documents filed with the Securities and Exchange Commission in annual or periodic reports that the commissioner by rule or order deems appropriate.
A consent to service of process under Section 25165 is filed with the notice required by paragraph (1).
Payment of a notice filing fee provided for in subdivision (b) of Section 25608.1.
Any offer and sale of a security with respect to a transaction that is exempt from registration under Section 4(4) of the Securities Act of 1933 pursuant to Section 18(b)(4)(B) of that act.
Any offer or sale of a security with respect to a transaction that is exempt from registration under the Securities Act of 1933 pursuant to Section 18(b)(4)(C) of that act.
Any offer or sale of a security with respect to a transaction that is exempt from registration under the Securities Act of 1933 pursuant to Section 18 (b)(4)(F) of that act, if all of the following requirements are met:
A notice in the form of a copy of the completed Form D (17 C.F.R. 239.500) filed with the Securities and Exchange Commission is filed with the commissioner within 15 days of the first sale in this state, along with documents filed with the Securities and Exchange Commission in annual or periodic reports that the commissioner by rule or order deems appropriate. The commissioner may allow for a notice in the form of the electronic transmission of the information in Form D.
A consent to service of process under Section 25165 is filed with the notice as required by paragraph (1).
Payment of the notice filing fee provided for in subdivision (c) of Section 25608.1 is made.
The commissioner shall require any issuer that is engaged in the business of purchasing, selling, financing, or brokering real estate, and that relies upon an exemption authorized by subdivision (e), (f), (h), or (n) of Section 25102, for an offering which involves the offer or sale of securities to any person who is not an accredited investor, as defined in Regulation D of the Securities and Exchange Commission (17 C.F.R. 230.501 et seq.), in a transaction that is not registered pursuant to the Securities Act of 1933, to provide additional information regarding the nature of the proposed offering on a form prescribed by the commissioner. This information shall include the names of the issuer’s officers and directors in the case of a corporation, managers in the case of a manager-managed limited liability company, members in the case of a member-managed limited liability company, general partner in the case of a limited partnership, or persons performing similar functions in the case of other types of issuers, the offering disclosure documents provided to prospective purchasers, a list of all state and federal licenses required to further the purposes of the investment, and the names of all licensed persons that will undertake those activities.
There shall be exempted from Section 25110 a transaction that is the sale of a series of notes secured directly by an interest in the same real property, or the sale of undivided interests in a note secured directly by real property equivalent to a series transaction, that complies with all of the provisions of Article 6 (commencing with Section 10237) of Chapter 3 of Part 1 of Division 4 of the Business and Professions Code. For purposes of this section, a real estate broker licensed by the Real Estate Commissioner of this state who engages in the offer and sale of notes secured directly by real property of various makers, which are a series of notes or notes in which undivided interests are offered and sold, shall be deemed to be the issuer of these notes and undivided interests if the notes of the various makers are offered and sold pursuant to a plan or arrangement that is common to the various makers with respect to documentation and loan standards and that include provisions for servicing these notes on behalf of purchasers.
Any negotiations or agreements prior to general solicitation of approval by the holders of equity securities, and subject to that approval, of (1) a change in the rights, preferences, privileges, or restrictions of or on outstanding securities, (2) a merger, consolidation, or sale of assets in consideration of the issuance of securities, or (3) an entity conversion transaction.
Any change in the rights, preferences, privileges, or restrictions of or on outstanding securities or any entity conversion transaction, unless the holders of at least 25 percent of the outstanding shares or units of any class of securities that will be directly or indirectly affected substantially and adversely by that change or transaction have addresses in this state according to the records of the issuer.
Any exchange incident to a merger, consolidation, or sale of assets in consideration of the issuance of securities of another issuer, unless at least 25 percent of the outstanding securities of any class, any holders of which are to receive securities in the exchange, are held by persons who have addresses in this state according to the records of the issuer of which they are holders. This exemption is not available for a rollup transaction as defined by Section 25014.6. The exemption is also not available for a transaction excluded from the definition of rollup transaction by virtue of paragraph (5) or (6) of subdivision (b) of Section 25014.6 if the transaction is one of a series of transactions that directly or indirectly through acquisition or otherwise involves the combination or reorganization of one or more rollup participants.
For the purposes of subdivision (b) and subdivision (c) of this section, (1) any securities held to the knowledge of the issuer in the names of broker-dealers or nominees of broker-dealers and (2) any securities controlled by any one person who controls directly or indirectly 50 percent or more of the outstanding securities of that class shall not be considered outstanding. The determination of whether 25 percent of the outstanding securities are held by persons having addresses in this state, for the purposes of subdivision (b) and subdivision (c) of this section, shall be made as of the record date for the determination of the security holders entitled to vote on or consent to the action, if approval of those holders is required, or, if not, as of the date of directors’ approval of that action.
Any change (other than a stock split or reverse stock split) in the rights, preferences, privileges, or restrictions of or on outstanding equity securities, except the following if they materially and adversely affect any class of equity securities: (1) to add, change, or delete assessment provisions; (2) to change the rights to dividends thereon; (3) to change the redemption provisions; (4) to make them redeemable; (5) to change the amount payable on liquidation; (6) to change, add, or delete conversion rights; (7) to change, add, or delete voting rights; (8) to change, add, or delete preemptive rights; (9) to change, add, or delete sinking fund provisions; (10) to rearrange the relative priorities of outstanding equity securities; (11) to impose, change, or delete restrictions upon the transfer of equity securities in the organizational documents for the entity; (12) to change the right of holders of equity securities with respect to the calling of special meetings of holders of equity securities; and (13) to change, add, or delete any rights, preferences, privileges, or restrictions of, or on, the outstanding shares or memberships of a mutual water company or other corporation or entity organized primarily to provide services or facilities to its shareholders or members. Changes in the rights, preferences, privileges, or restrictions of or on outstanding equity securities do not materially and adversely affect any class of holders of equity securities within the meaning of this subdivision if they arise from (i) the addition to articles of incorporation of the provisions described or referred to in subdivision (a) of Section 158 upon the conversion of an existing corporation to a close corporation pursuant to subdivision (b) of Section 158, (ii) the deletion from the articles of incorporation of the provisions described or referred to in subdivision (a) of Section 158 upon the voluntary termination of close corporation status pursuant to subdivisions (c) and (e) of Section 158, (iii) the involuntary cessation of close corporation status pursuant to subdivision (e) of Section 158, or (iv) the termination of a shareholders’ agreement pursuant to subdivision (b) of Section 300.
Any stock split or reverse stock split, except the following: (1) any stock split or reverse stock split if the corporation has more than one class of shares outstanding and the split would have a material effect on the proportionate interests of the respective classes as to voting, dividends, or distributions; (2) any stock split of a stock that is traded in the market and its market price as of the date of directors’ approval of the stock split adjusted to give effect to the split was less than two dollars ($2) per share; and (3) any reverse stock split if the corporation has the option of paying cash for any fractional shares created by the reverse split and as a result of that action the proportionate interests of the shareholders would be substantially altered. Any shares issued upon a stock split or reverse stock split exempted by this subdivision shall be subject to any conditions previously imposed by the commissioner applicable to the shares with respect to which they are issued.
Any change in the rights of outstanding debt securities, except the following if they substantially and adversely affect any class of securities: (1) to change the rights to interest thereon; (2) to change their redemption provisions; (3) to make them redeemable; (4) to extend the maturity thereof or to change the amount payable thereon at maturity; (5) to change their voting rights; (6) to change their conversion rights; (7) to change sinking fund provisions; and (8) to make them subordinate to other indebtedness.
Any exchange incident to a merger, consolidation, or sale of assets, other than a rollup transaction (as defined in Section 25014.6), in consideration of the issuance of equity securities of another entity or any entity conversion transaction that meets the following conditions:
The exchange incident to a merger, consolidation, or sale of assets or the entity conversion transaction, had the exchange transaction involved the issuance of a security in a transaction subject to the provisions of Section 25110, would have been exempt from qualification by subdivision (f) of Section 25102, without giving effect to paragraph (3) thereof, and either of the following is applicable:
Not less than 75 percent of the outstanding equity securities of each constituent or converting entity entitled to vote on the proposed transaction voted in favor of the transaction, (ii) not more than 10 percent of the outstanding equity securities of each constituent or converting entity entitled to vote on the proposed transaction voted against the transaction, and (iii) each constituent or converting entity whose security holders are entitled to vote on the proposed transaction is subject to a state statute that has provisions for dissenters’ rights for holders of equity securities entitled to vote on the proposed transaction that do not vote in favor of or voted against the transaction.
The transaction is solely for the purposes of changing the issuer’s state of incorporation or organization, or form of organization, (ii) all the securities of the same class or series, unless all the security holders of the class or series consent, are treated equally, and (iii) the holders of nonredeemable voting equity securities receive nonredeemable voting equity securities.
The commissioner may, by rule, require the acquiring or surviving entity to file a notice of transaction under this section. However, the failure to file the notice or the failure to file the notice within the time specified by the rule of the commissioner shall not affect the availability of this exemption. An acquiring or surviving entity that fails to file the notice as provided by rule of the commissioner shall, within 15 business days after demand by the commissioner, file the notice and pay to the commissioner a fee equal to the fee payable had the transaction been qualified under Section 25110 or 25120.
Any exchange of securities in connection with any merger or consolidation or sale of corporate assets in consideration wholly or in part of the issuance of securities or any entity conversion transaction under, or pursuant to, a plan of reorganization that pursuant to the provisions of the United States Bankruptcy Code (Title 11 of the United States Code) has been confirmed or is subject to confirmation by the decree or order of a court of competent jurisdiction.
The following transactions are exempted from the provisions of Section 25130:
Any offer or sale of a security by the bona fide owner thereof for his or her own account if the sale (1) is not accompanied by the publication of any advertisement and (2) is not effected by or through a broker-dealer in a public offering.
Any offer or sale effected by or through a licensed broker-dealer pursuant to an unsolicited order or offer to buy. For the purpose of this subdivision, an inquiry regarding a written bid for a security or a written solicitation of an offer to sell a security made by another broker-dealer within the previous 60 days shall not be considered the solicitation of an order or offer to buy.
Any offer or sale to a bank, savings and loan association, trust company, insurance company, investment company registered under the Investment Company Act of 1940, pension or profit-sharing trust (other than a pension or profit-sharing trust of the issuer, a self-employed individual retirement plan, or individual retirement account), or such other institutional investor or governmental agency or instrumentality as the commissioner may designate by rule, whether the purchaser is acting for itself or as trustee; provided the purchaser represents that it is purchasing for its own account (or for the trust account) for investment and not with a view to or for sale in connection with any distribution of the security.
Any transaction or agreement between a person on whose behalf an offering is made and an underwriter or among underwriters, if the sale of the securities is exempt from qualification at the time of or qualified prior to distribution in this state, if any.
Any offer or sale of any security by or for the account of a bona fide secured party selling the security in the ordinary course of business to liquidate a bona fide debt.
Any transaction by an executor, administrator, sheriff, marshal, receiver, trustee in bankruptcy, guardian, or conservator.
Any offer (but not a sale) of a security for which a registration statement has been filed under the Securities Act of 1933 but has not yet become effective, or for which an offering statement under Regulation A has been filed but has not yet been qualified, if no stop order or refusal order is in effect and no public proceeding or examination looking toward such an order is pending under Section 8 of that act and no order under Section 25140 or subdivision (a) of Section 25143 is in effect under this division.
Any offer or sale of a security if a qualification under Chapter 2 (commencing with Section 25110) of this part for any securities of the same class has become effective within 18 months, or longer period as the commissioner may order provided that each consecutive order shall be for no more than six months, prior to the offer or sale or if a qualification under Chapter 3 (commencing with Section 25120) or Chapter 4 (commencing with Section 25130) of this part for any securities of the same class has become effective within 12 months prior to that offer or sale, provided no order under Section 25140 or subdivision (a) of Section 25143 is in effect under this division with respect to the qualification, and, provided further, that this exemption does not apply to securities offered pursuant to a registration under the Securities Act of 1933 or pursuant to an exemption under Regulation A under that act if the aggregate offering price of the securities offered under such exemption exceeds fifty thousand dollars ($50,000). The commissioner may, by rule or order, withhold this exemption with respect to securities qualified only pursuant to a limited offering qualification.
There shall be exempted from the provisions of Section 25110, 25120 or 25130 any other transaction which the commissioner by rule exempts as not being comprehended within the purposes of this law and the qualification of which he finds is not necessary or appropriate in the public interest or for the protection of investors.
CHAPTER 2. Issuer Transactions [25110. - 25118.]
It is unlawful for any person to offer or sell in this state any security in an issuer transaction (other than in a transaction subject to Section 25120), whether or not by or through underwriters, unless such sale has been qualified under Section 25111, 25112 or 25113 (and no order under Section 25140 or subdivision (a) of Section 25143 is in effect with respect to such qualification) or unless such security or transaction is exempted or not subject to qualification under Chapter 1 (commencing with Section 25100) of this part. The offer or sale of such a security in a manner that varies or differs from, exceeds the scope of, or fails to conform with either a material term or material condition of qualification of the offering as set forth in the permit or qualification order, or a material representation as to the manner of offering which is set forth in the application for qualification, shall be an unqualified offer or sale.
Any security for which a registration statement has been filed under the Securities Act of 1933 in connection with the same offering may be qualified by coordination under this section either in an issuer or nonissuer transaction. The term “registration statement” as used in this section includes an offering statement as defined by Rule 252(a) under Regulation A (17 C.F.R. 230.252(a)) under the Securities Act of 1933, as amended. The term “effective,” as used in this section in connection with an offering statement, means an offering statement that has been qualified under Regulation A of the Securities Act of 1933.
Except as provided in subdivision (d), an application for qualification under this section shall contain the following information and be accompanied by the following documents, in addition to the information specified in Section 25160 and the consent to service of process required by Section 25165: (1) a copy of the registration statement under the Securities Act of 1933, together with all exhibits (other than exhibits incorporated by reference and those specified by rule of the commissioner, unless requested by the commissioner); (2) an undertaking to forward to the commissioner all future amendments to the registration statement under the Securities Act of 1933, other than an amendment that merely delays the effective date of the registration statement, promptly and in any event not later than the first business day after the day they are forwarded to or filed with the Securities and Exchange Commission, whichever first occurs; and (3) other information required to evidence compliance with any rules of the commissioner. The application must be filed with the commissioner not later than the fifth business day following filing of the registration statement with the Securities and Exchange Commission, unless that time is extended by rule or order of the commissioner.
Except as provided in subdivision (d), qualification of the sale of securities under this section automatically becomes effective (and the securities may be offered and sold in accordance with the terms of the application as amended) at the moment the federal registration statement becomes effective if all the following conditions are satisfied: (1) no stop order or order under subdivision (a) of Section 25143 is in effect under this law; (2) the application has been on file with the commissioner for at least 10 days; and (3) a statement of the maximum and minimum proposed offering prices and the maximum underwriting discounts and commissions has been on file for two business days or such shorter period as the commissioner permits by rule or order and the offering is made within those limitations. The applicant shall promptly notify the commissioner by telephone or telegram of the date and time when the federal registration statement became effective and the content of the price amendment, if any, and shall promptly file a posteffective amendment to the application containing the information and documents in the price amendment. “Price amendment” means the final federal amendment that includes a statement of the offering price, underwriting and selling discounts or commissions, amount of proceeds, interest, dividend or conversion rates, call prices and other matters related to the offering price. Upon failure to receive the required notification and posteffective amendment with respect to the price amendment, the commissioner may enter a stop order, without notice or hearing, retroactively denying effectiveness to the application for qualification or suspending its effectiveness until compliance with this subdivision, if he or she promptly notifies the applicant by telephone or telegram (and promptly confirms by letter or telegram when he or she notifies by telephone) of the issuance of the order. If the applicant proves compliance with the requirements of this subdivision as to notice and posteffective amendment, the stop order is void as of the time of its entry. The commissioner may by rule or order waive either or both of the conditions specified in clauses (2) and (3) of this subdivision. If the federal registration statement becomes effective before all the conditions in this subdivision are satisfied and they are not waived, the application for qualification automatically becomes effective as soon as all the conditions are satisfied. If the applicant advises the commissioner of the date when the federal registration statement is expected to become effective, the commissioner shall promptly advise the applicant by telephone or telegram, at the applicant’s expense, whether all the conditions are satisfied and whether he or she then contemplates the institution of a proceeding under Section 25140 or 25143; but this advice by the commissioner does not preclude the institution of such a proceeding at any time.
An open-end investment company or a unit investment trust that has previously qualified the sale of its securities pursuant to this section shall, in lieu of filing the application specified in subdivision (b), file pursuant to this subdivision if it has made no material change in its offering and if it is in compliance with all terms of its prior qualification. An application filed pursuant to this subdivision shall contain the following information and be accompanied by the following documents, in addition to the information specified in Section 25160 and the consent to service of process required by Section 25165: (A) a statement that the applicant has made no material change in its offering and that it is in compliance with the terms of its qualification; and (B) a copy of its current registration statement under the Securities Act of 1933.
If no stop order or orders under subdivision (a) of Section 25143 are in effect under this law, qualification of the sale of securities under this subdivision automatically becomes effective (and the securities may be offered and sold in accordance with the terms of the application) upon the day following the expiration of its prior qualification pursuant to this section or, if that qualification has expired, upon the first business day following the filing of the application pursuant to this subdivision. Nothing contained in this subdivision shall restrict the authority of the commissioner pursuant to Section 25140 or 25143.
A unit investment trust that has not previously applied to qualify the sale of its securities pursuant to this section but that is substantially the same as one or more unit investment trusts previously qualified under this section by the same sponsor, shall file pursuant to this subdivision if it can make the statements specified below. An application filed pursuant to this subdivision shall contain the following information and be accompanied by the following documents, in addition to the information specified in Section 25160 and the consent to service of process required by Section 25165: (A) a statement that the applicant, in its organization, its plan of business, its securities and its offering, is substantially the same as a unit investment trust previously qualified under this section by the same sponsor; (B) a statement that those previously qualified unit investment trusts are in compliance with the terms of their qualifications and (C) a copy of its current registration statement under the Securities Act of 1933. If no stop order or orders under subdivision (a) of Section 25143 are in effect under this law, qualification of the sale of securities under this subdivision automatically becomes effective (and the security may be offered and sold in accordance with the terms of the application) at the moment the federal registration becomes effective or, if the registration is effective when the application is filed, upon the first business day following the filing of the application pursuant to this subdivision.
Any security issued by a person which is the issuer of any security registered under Section 12 of the Securities Exchange Act of 1934 or issued, by an investment company registered under the Investment Company Act of 1940, and which is not eligible for qualification under Section 25111, may be qualified by notification under this section.
An application for qualification under this section shall contain such information and be accompanied by such documents as shall be required by rule of the commissioner, in addition to the information specified in Section 25160 and the consent to service of process required by Section 25165. For this purpose, the commissioner may classify issuers and types of securities.
If no stop order or order under subdivision (a) of Section 25143 is in effect under this law, qualification of the sale of the securities under this section automatically becomes effective (and the securities may be offered and sold in accordance with the terms of the application as amended) at 12 o’clock noon California time of the 10th business day after the filing of the application or the last amendment thereto or at such earlier time as the commissioner determines.
An application for a permit under this section shall contain any information and be accompanied by any documents as shall be required by rule of the commissioner, in addition to the information specified in Section 25160 and the consent to service of process required by Section 25165. For this purpose, the commissioner may classify issuers and types of securities.
An applicant may file a small company application for permit under this section if it meets all of the following conditions:
The applicant is: (i) a California corporation or a foreign corporation, which at the time of filing an application under this subdivision is subject to Section 2115, and neither corporation is a “blind pool” company, as that term is defined by the commissioner; (ii) not engaged in oil and gas exploration or production, or mining or other extractive industries; (iii) not an investment company subject to the Investment Company Act of 1940; and (iv) not subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934.
The total offering of voting common stock and preferred stock by the applicant to be sold in a 12-month period, within or outside this state, is limited to one million dollars ($1,000,000), less the aggregate offering price for all securities sold (within the 12 months before the start, and during the offering, of the voting common stock or preferred stock) under Rule 504 of the Securities and Exchange Commission, in reliance on any exemption under subdivision (b) of Section 3 of the Securities Act of 1933, or in violation of subdivision (a) of Section 5 of that act, and immediately after the proposed sale and issuance there will be only one class of voting common stock.
The minimum offering price of the voting common stock and preferred stock (and the conversion price if the preferred stock is convertible into the voting common stock) to be sold is two dollars ($2) per share and the applicant files an undertaking with the commissioner that there will be no stock splits, stock dividends, spinoffs, or mergers for a period of two years from the close of the offering. The undertaking notwithstanding, the commissioner may approve a spinoff or merger pursuant to an application for qualification filed by an applicant.
The net proceeds from the offering are to be expended in the operations of the business.
The offering is made pursuant to a Small Corporate Offering Registration disclosure document based on the Form U-7 as adopted by the North American Securities Administrators Association and any additional requirements as the commissioner shall prescribe, that may include, but not be limited to, investor suitability and due diligence investigation requirements.
The application and disclosure document is reviewed and signed by a majority of the members of the board of directors of the applicant.
Qualification of securities under this section becomes effective upon the commissioner issuing a permit authorizing the issuance of those securities.
The commissioner shall annually prepare a report, and make that report publicly available by posting the report on the department’s Internet Web site, summarizing data collected from persons to which it issues permits pursuant to this section. The report shall include, but not be limited to, a summary of the general categories of investments for which permits are approved; the minimum, maximum, and average net worth required of those persons to whom permits are issued for each category of activity; the least stringent and most stringent suitability standards imposed on persons issued permits for each category of activity; the experience requirements imposed on persons issued permits for each category of activity; the total dollar amount of money sought to be raised per category of activity; the number and nature of enforcement actions taken against permitholders; and any other information the commissioner deems relevant to inform the Legislature about the activities of permitholders and the protections for those who invest with permitholders. The commissioner shall take steps to ensure that the publication of data collected from permitholders does not result in the release of proprietary information about individuals or businesses.
The commissioner may examine those persons to whom permits are issued pursuant to this section to review compliance with the conditions of the permit and other applicable state law. The commissioner may disqualify an offering permitted pursuant to this section if he or she finds that the issuer has materially violated the provisions of its permit.
Every application for qualification of an issuer transaction under this chapter shall be signed and verified by the issuer; every application for qualification of a nonissuer transaction under Section 25111 shall be signed and verified by the person on whose behalf the offering is being made or by the issuer on behalf of such person.
An evidence of indebtedness issued pursuant to a qualification under this chapter or Chapter 3 (commencing with Section 25120), and the purchasers or holders thereof, shall be exempt from the usury provisions of the Constitution, subject to compliance by the issuer and purchaser with the terms and requirements that may be imposed by the commissioner as a condition of the qualification. This section creates and authorizes a class of transactions and persons pursuant to Section 1 of Article XV of the Constitution.
Any evidence of indebtedness issued in compliance with this section shall be entitled to the benefits of the usury exemption contained in this section regardless of whether subsequent to its issuance the evidence of indebtedness is determined by a court of competent jurisdiction to be a “security.”
An evidence of indebtedness, and the purchasers or holders thereof, shall be exempt from the usury provisions of Section 1 of Article XV of the California Constitution if (1) the evidence of indebtedness is rated or provisionally rated by Standard & Poor’s Corporation as AAA, AA, A, BBB, or investment grade commercial paper, or by Moody’s Investors Service, Inc. as Aaa, Aa, A, Baa, or investment grade commercial paper, including any such ratings with “+” or “—” designation or other variations that occur within these ratings, or has a rating or a provisional rating by another nationally recognized rating agency or system, which rating and agency or system have been certified by rule or order of the commissioner, or (2) the issuer thereof either (A) has any security listed or approved for listing upon notice of issuance on a national securities exchange, if the exchange has been certified by the commissioner, pursuant to subdivision (o) of Section 25100, or (B) meets each of the following requirements:
The issuer is a corporation which is subject to Section 13 of the Securities Exchange Act of 1934.
The issuer had total shareholders’ equity of at least one million dollars ($1,000,000) at the end of its most recent fiscal year, and had consolidated net income, after all charges, including taxes and extraordinary losses, and excluding extraordinary gains, of at least five hundred thousand dollars ($500,000) for three of its last four fiscal years, including its most recent fiscal year. The determination of total shareholders’ equity and net income shall be determined in conformity with generally accepted accounting principles applicable to that fiscal year or years, on a consolidated basis, or (3) the evidence of indebtedness is issued by any corporation all of the outstanding shares of which are owned by an issuer which meets the requirements of subparagraph (A) or (B) of paragraph (2).
This section creates and authorizes a class of transactions and persons pursuant to Section 1 of Article XV of the California Constitution.
Any evidence of indebtedness issued in compliance with this section shall be entitled to the benefits of the usury exemption contained in this section regardless of whether subsequent to its issuance the evidence of indebtedness is determined by a court of competent jurisdiction to be a “security.”
An evidence of indebtedness issued by an entity or guaranteed by an entity that is an affiliate (as defined in Section 150) of the borrower that, on the day the evidence of indebtedness issued or guaranty is first issued or entered into, has total assets of at least two million dollars ($2,000,000) according to its then most recent financial statements, and the purchasers or holders thereof, shall be exempt from the usury provisions of the California Constitution. The financial statements referred to in the preceding sentence shall meet both of the following requirements:
Be as of a date not more than 90 days before the date the evidence of indebtedness or guaranty is first issued or entered into.
Be prepared in accordance with either of the following:
In accordance with generally accepted accounting principles and, if the entity has consolidated subsidiaries, on a consolidated basis.
In accordance with the rules and requirements of the Securities and Exchange Commission, whether or not required by law to be prepared in accordance with those rules and requirements.
Any one or more evidences of indebtedness, and the purchasers or holders thereof, shall be exempt from the usury provisions of the California Constitution if either of the following applies:
The evidences of indebtedness aggregate at the time of issuance at least three hundred thousand dollars ($300,000) in original face amount, or, if the evidences of indebtedness are purchased with original issue discount, they are purchased for an aggregate purchase price at the time of issuance of at least three hundred thousand dollars ($300,000).
The evidences of indebtedness are issued pursuant to a bona fide written commitment for the lending to the issuer of at least three hundred thousand dollars ($300,000), or the provision of a line of credit to the issuer in a principal amount of at least three hundred thousand dollars ($300,000). The exemption provided by this paragraph shall not be affected by a subsequent event of default or other event not in the lender’s control that has relieved or may relieve the lender from its commitment.
Any evidence of indebtedness described in subdivision (a) or (b), and the purchasers or holders thereof, shall be entitled to the benefits of the usury exemption contained in this section regardless of whether, at any time after the evidence of indebtedness or guaranty upon which the exemption is based is first issued or entered into, the evidence of indebtedness or guaranty is determined by a court of competent jurisdiction not to be a “security.”
This section creates and authorizes a class of transactions and persons pursuant to Section 1 of Article XV of the California Constitution.
This section does not apply to:
Any evidence of indebtedness issued or guaranteed (if the guaranty is part of the consideration for the indebtedness) by an individual, a revocable trust having one or more individuals as trustors, or a partnership in which, at the time of issuance, one or more individuals are general partners.
Any transaction subject to the limitation on permissible rates of interest set forth in paragraph (1) of the first sentence of Section 1 of Article XV of the California Constitution.
The exemptions created by this section shall only be available in a transaction that meets either of the following criteria:
The lender and either the issuer of the indebtedness or the guarantor, as the case may be, or any of their respective officers, directors, or controlling persons, or, if any party is a limited liability company, the managers as appointed or elected by the members, have a preexisting personal or business relationship.
The lender and the issuer, or the lender and the guarantor, by reason of their own business and financial experience or that of their professional advisers, could reasonably be assumed to have the capacity to protect their own interests in connection with the transaction.
For purposes of this section, “preexisting personal or business relationship” and “capacity to protect their own interests in connection with the transaction” as used in subdivision (f) shall have the same meaning as, and be determined according to the same standards as, specified in paragraph (2) of subdivision (f) of Section 25102 and its implementing regulations provided that, solely with respect to this section, a lender or purchaser who is represented by counsel may designate that person as its professional adviser whether or not that person is compensated by the issuer or guarantor, as long as that person has a bona fide attorney-client relationship with the lender or purchaser.
This section shall not exempt any person from the application of the California Financing Law (Division 9 (commencing with Section 22000) of the Financial Code).
CHAPTER 3. Recapitalizations and Reorganizations [25120. - 25122.]
Except as provided in subdivision (b), it is unlawful for any person to offer or sell in this state any security in any of the following manners:
In an issuer transaction in connection with any change in the rights, preferences, privileges, or restrictions of or on outstanding securities.
In any exchange of securities by the issuer with its existing security holders exclusively.
In any exchange in connection with any merger or consolidation or purchase of assets in consideration wholly or in part of the issuance of securities.
In an entity conversion transaction.
Subdivision (a) shall not apply to a security if the security is qualified for sale under this chapter (and no order under Section 25140 or subdivision (a) of Section 25143 is in effect with respect to the qualification) or if the security or transaction is exempted or not subject to qualification under Chapter 1 (commencing with Section 25100) of this part.
The securities qualified for sale under this chapter shall be qualified by permit under this section. The application for the permit shall be signed and verified by the issuer and shall contain such information and be accompanied by such documents as shall be required by rule of the commissioner, in addition to the information specified in Section 25160 and the consent to service of process required by Section 25165. For this purpose, the commissioner may classify issuers and types of securities and transactions.
Qualification of securities under this chapter becomes effective upon the commissioner issuing a permit authorizing the issuance of such securities.
CHAPTER 4. Nonissuer Transactions [25130. - 25134.]
It is unlawful for any person to offer or sell any security in this state in any nonissuer transaction unless it is qualified for such sale under this chapter or under Section 25111 or 25113 of Chapter 2 (commencing with Section 25110) of this part (and no order under Section 25140 or subdivision (a) of Section 25143 is in effect with respect to such qualification) or unless such security or transaction is exempted or not subject to qualification under Chapter 1 (commencing with Section 25100) of this part.
The securities to be offered or sold in a nonissuer transaction, which are not eligible for qualification under Section 25111, shall be qualified by notification under this section; provided however that securities offered in a nonissuer transaction pursuant to an exemption under Regulation A under the Securities Act of 1933 shall be qualified under Section 25113.
The application for qualification by notification under this section shall be signed and verified by the person on whose behalf the offering is being made or by the issuer or by any broker-dealer and shall contain such information and be accompanied by such documents as shall be required by rule of the commissioner, in addition to the information specified in Section 25160 and the consent to service of process required by Section 25165. For this purpose, the commissioner may classify issuers and types of securities.
If no stop order or order under subdivision (a) of Section 25143 is in effect under this law, a qualification under this section automatically becomes effective (and the securities may be offered and sold in accordance with the terms of the application as amended) at 12 o’clock noon California time on the 10th business day after the filing of the application or the last amendment thereto or at such earlier time as the commissioner determines.
Information may not be required under this section unless it is known to the person filing the application or to the persons on whose behalf the distribution is to be made, or can be furnished by them without unreasonable effort or expense.
Every qualification under this chapter and every qualification of a nonissuer transaction under Section 25111 is effective for 12 months from its effective date, except during the time a stop order under Section 25140 or an order under subdivision (a) of Section 25143 is in effect. A qualification under this chapter may be withdrawn only in the discretion of the commissioner. The commissioner may by rule or order extend the effective period of any qualification under this chapter.
It is unlawful for any person without the written consent of the commissioner to consummate the sale or transfer of any securities heretofore or hereafter placed in escrow pursuant to a condition ordered by the commissioner and that have not been released from escrow, or that are subject to a currently effective legend condition requiring such consent (except as permitted therein), or concerning which the commissioner has issued a written notice to the holders thereof pursuant to Section 25534 ordering the certificates evidencing the securities to be stamped or printed with a legend as provided in the section.
Every applicant seeking qualification for the sale of securities shall, upon request of the commissioner, furnish to the commissioner an authorization for examination of the applicant’s financial records of the sale of such securities pursuant to Section 7473 of the Government Code.
CHAPTER 5. Authority of the Commissioner [25140. - 25151.]
The commissioner may issue a stop order denying effectiveness to, or suspending or revoking the effectiveness of, any qualification of an underwritten offering of securities under Section 25111, 25112 or 25131 or may suspend or revoke any permit issued under Section 25113 or 25122 if he or she finds (A) that the order is in the public interest and (B) that the proposed plan of business of the issuer or the proposed issuance or sale of securities is not fair, just, or equitable, or that the issuer does not intend to transact its business fairly and honestly, or that the securities proposed to be issued or the method to be used in issuing them will tend to work a fraud upon the purchaser thereof.
In the case of an application for or qualification of securities under Section 25111, 25112, or 25131 that is not an underwritten offering of securities, the commissioner may issue a stop order denying effectiveness to, or suspending or revoking the effectiveness of the qualification unless he or she finds (A) that the stop order is not in the public interest and (B) that the proposed plan of business of the applicant or the proposed issuance of securities is fair, just, and equitable, that the issuer intends to transact its business fairly and honestly, and that the securities that the issuer proposes to issue or the method to be used in issuing them are not such as will work a fraud upon the purchaser thereof.
The commissioner may refuse to issue a permit under Section 25113 unless he or she finds that the proposed plan of business of the applicant and the proposed issuance of securities are fair, just, and equitable, that the applicant intends to transact its business fairly and honestly, and that the securities which it proposes to issue and the methods to be used by it in issuing them are not such as, in his or her opinion, will work a fraud upon the purchaser thereof.
The commissioner may refuse to issue a permit under Section 25122 unless he or she finds that the proposed plan of recapitalization or reorganization and the proposed issuance of securities are fair, just, and equitable to all security holders affected.
Notwithstanding the provisions of subdivisions (a) and (b) of this section, the commissioner shall not have authority to issue any stop order or to refuse to issue or to suspend or revoke any permit on the basis that the price at which the security is to be offered is unfair, unjust or inequitable in any case where the security is being publicly offered for cash pursuant to a registration statement under the Securities Act of 1933 and the offering is the subject of a firm commitment underwriting by an underwriter or syndicate of underwriters all of whom are registered under the Securities Exchange Act of 1934. For the purposes of this subdivision a firm commitment underwriting means an underwriting pursuant to which the underwriter or syndicate of underwriters is committed to take up and pay for the securities subject only to the usual or customary conditions, but not including any “market out” or similar condition operative after the time of commencement of the offering. (A condition relating to the suspension of all trading on a national securities exchange, a banking holiday, war, civil insurrection, or the like is not a “market out” or similar condition within the meaning of this subdivision.) Nothing contained in this subdivision shall deny authority to the commissioner to issue a stop order or to refuse to issue or to suspend or revoke a permit because of unreasonable discounts, commissions or other compensation to underwriters, sellers or others, unreasonable promoters’ profits or participations or unreasonable amounts or kinds of options.
The commissioner may impose as a condition of qualification under Chapter 2 (commencing with Section 25110) or Chapter 3 (commencing with Section 25120) of this part conditions requiring the deposit in escrow of securities, imposing a legend condition restricting the transferability thereof, impounding the proceeds from the sale thereof, limiting the expense in connection with the sale thereof, requiring the waiver of assets, dividends or voting rights by the holders of promotional securities, or any other condition if the commissioner finds that without such condition the offering will be unfair, unjust or inequitable. The commissioner may in his or her discretion modify or remove any such conditions when in his or her opinion they are no longer necessary or appropriate.
When application is made for a permit to issue securities or to deliver other consideration (whether or not the security or transaction is exempt from qualification or not required to be qualified) in exchange for one or more bona fide outstanding securities, claims, or property interests, or partly in such exchange and partly for cash, the commissioner is expressly authorized to approve the terms and conditions of such issuance and exchange or such delivery and exchange and the fairness of such terms and conditions, and is expressly authorized to hold a hearing upon the fairness of such terms and conditions, at which all persons to whom it is proposed to issue securities or to deliver such other consideration in such exchange have the right to appear. The application for a permit to deliver consideration other than securities shall be in such form, contain such information and be accompanied by such documents as shall be required by rule of the commissioner or, in the absence thereof, in substantially the form of an application filed pursuant to Section 25121.
The commissioner may by order summarily postpone or suspend the effectiveness of any qualification pending final determination of any proceeding under this chapter. Upon the entry of the order, the commissioner shall promptly notify each person specified in subdivision (b) of this section that it has been entered and of the reasons therefor and that upon the receipt of a written request the matter will be set down for hearing to commence within 15 business days after such receipt unless the applicant consents to a later date. If no hearing is requested and none is ordered by the commissioner, the order will remain in effect until it is modified or vacated by the commissioner. If a hearing is requested or ordered, the commissioner, after notice and hearing in accordance with subdivision (b) of this section, may modify or vacate the order or extend it until final determination.
No stop order may be entered under this chapter except under subdivision (a) of this section without appropriate prior notice to the applicant, the issuer, and the person on whose behalf the securities are to be or have been offered and hearing in accordance with the provisions of the Administrative Procedure Act, Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, in connection with which the commissioner shall have all of the powers granted thereunder. In the case of qualification by permit, such hearing shall be held upon such notice within 20 business days after a written request therefor by the applicant unless the permit is issued prior to the expiration of such period or the applicant consents to a later date.
The commissioner may vacate or modify a stop order if he finds that the conditions which caused its entry have changed or that it is otherwise in the public interest to do so.
Every issuer qualifying securities for sale in this state shall at all times keep and maintain a complete set of books, records, and accounts of such sales and the disposition of the proceeds thereof, and shall thereafter, at such times as are required by the commissioner, make and file in the office of the commissioner a report, setting forth the securities sold by it under such qualification, the proceeds derived therefrom and the disposition thereof.
For a period of 18 months after the qualification is effective, the commissioner may by rule or order require an issuer who has filed an application to file reports not more often than semiannually for the purpose of keeping reasonably current the information contained in the application; provided, that the commissioner may not require the filing of any such report after completion of the offering if a nonissuer transaction in the security would be entitled to exemption under Section 25101.
The commissioner may by rule or order require as a condition of qualification that any security qualified under Section 25113 be sold only on a specified form of subscription or sale contract, and that a signed or conformed copy of each contract be preserved for any period up to three years specified in the rule or order.
Except in cases where the delivery of a prospectus or proxy statement is required under the Securities Act of 1933 or the Securities Exchange Act of 1934, the commissioner may by rule or order require as a condition of qualification under Section 25112, 25113, 25122 or 25131 that a prospectus or proxy statement containing any designated part of the information required in the application be given to each person to whom an offer is made before the sale of the security to be issued under the permit or order.
The commissioner may act as escrow holder for securities required to be deposited in escrow by his order.
The commissioner may accept and act upon the opinions, appraisements and reports of any engineers, appraisers, or other experts which may be presented by an applicant on any question of fact concerning or affecting the securities proposed to be offered and sold. In lieu of, or in addition to, such opinions, appraisements, and reports, the commissioner may have any or all matters concerning or affecting such securities investigated, appraised, passed upon and certified to him by engineers, appraisers, or other experts selected by him.
Upon the filing of a written request for the consent to transfer securities referred to in Section 25133, accompanied by such information and documents as the commissioner may by rule require, the commissioner shall issue such consent if the commissioner finds that the transfer requested will be fair, just, and equitable to the proposed transferees, and otherwise the commissioner shall deny such consent.
CHAPTER 6. General Provisions [25160. - 25166.]
Every application for qualification shall state (1) the maximum amount of securities proposed to be offered in this state; and (2) any adverse order, judgment, or decree entered in connection with the offering by the regulatory authority in any state or by any court or by the Securities and Exchange Commission. Verification of an application shall be in the manner provided in the Code of Civil Procedure for the verification of pleadings. All information required to be included in an application shall be true and complete as of the time the qualification of the sale of securities becomes effective; and an applicant shall promptly supply by amendment prior to the effectiveness of such qualification any information based on facts occurring after the original date of filing which is necessary to supplement or correct the information contained in the original application so as to make such information not materially misleading as of the effective date of such qualification.
Any document filed under this law or a predecessor statute may be incorporated by reference in a subsequent application or notice filing if it was filed within four years prior to the filing of the application or notice filing, or is otherwise available in the files of the commissioner, to the extent that the document is currently accurate.
An amendment to an application filed after the effective date of the qualification of the sale of securities, if such amendment is approved by the commissioner, shall become effective on such date as the commissioner may determine, having due regard to the public interest and the protection of investors.
In any proceeding under this law, the burden of proving an exemption or an exception from a definition is upon the person claiming it.
Neither (1) the fact that an application for qualification under this law has been filed nor (2) the fact that such qualification has become effective constitutes a finding by the commissioner that any document filed under this law is true, complete, or not misleading. Neither any such fact nor the fact that a notice is filed or an exemption is available for a security or a transaction means that the commissioner has passed in any way upon the merits or qualifications of, or recommended or given approval to, any person, security or transaction (except as provided in Section 25142).
It is unlawful to make or cause to be made to any prospective purchaser any representation inconsistent with subdivision (a) of this section.
Every permit issued by the commissioner shall recite in bold type that the issuance thereof is permissive only and does not constitute a recommendation or endorsement of the securities permitted to be issued.
Every applicant for qualification of the sale of securities under this law or every person filing an application or a notice under Sections 25100.1, 25101.1, 25102.1, and 25230.1 or a request for or notice of an exemption from qualification (other than a California corporation, California limited partnership, California limited liability company, or a person licensed as a broker-dealer in this state) shall file with the commissioner, in such form as prescribed by rule, an irrevocable consent appointing the commissioner or his or her successor in office to be the applicant’s or person’s attorney to receive service of any lawful process in any noncriminal suit, action or proceeding against the applicant or person or the successor, executor or administrator thereof, which arises under this law or any rule or order hereunder after the consent has been filed, with the same force and validity as if served personally on the person filing the consent. A person who has filed such a consent in connection with a previous qualification under this law (or application for a permit under any prior law if the application under this law states that such consent is still effective), or in connection with a notice filing under Section 25100.1, 25101.1, 25102.1, and 25230.1, need not file another. Service may be made by leaving a copy of the process in the office of the commissioner but it is not effective unless (1) the plaintiff, who may be the commissioner in a suit, action or proceeding instituted by him or her, forthwith sends notice of the service and a copy of the process by registered or certified mail to the defendant or respondent at the last address on file with the commissioner, and (2) the plaintiff’s affidavit of compliance with this section is filed in the case on or before the return day of the process, if any, or within such further time as the court allows.
It is unlawful for any person willfully to make any untrue statement of a material fact in any application, notice, or report filed with the commissioner under this part or pursuant to subdivision (b) of Section 25507, or willfully to omit to state in any such application, notice, or report any material fact which is required to be stated therein.
PART 3. REGULATION AND NOTICE FILING REQUIREMENTS OF AGENTS, BROKER-DEALERS, INVESTMENT ADVISER REPRESENTATIVES, AND INVESTMENT ADVISERS [25200. - 25256.]
CHAPTER 1. Exemptions [25200. - 25209.]
A broker-dealer registered under the Securities Exchange Act of 1934, who has not previously had any certificate denied or revoked under this law or any predecessor statute, shall be exempted from the provisions of Section 25210 if he has no place of business in this state and he does not direct offers to sell or buy into this state in any manner to persons other than broker-dealers, banks, savings and loan associations, trust companies, insurance companies, investment companies registered under the Investment Company Act of 1940, pension or profit-sharing trusts (other than self-employed individual retirement plans), or other institutional investors or governmental agencies or instrumentalities designated by rule of the commissioner, or to more than 15 other customers (whether or not self-employed individual retirement plans) having an existing account with such broker-dealer prior to any offer made to them in this state, during any period of 12 consecutive months, whether or not the offeror or any of the offerees is then present in this state.
An investment adviser shall not be subject to Section 25230 if (1) the investment adviser does not have a place of business in this state and (2) during the preceding 12-month period has had fewer than six clients who are residents of this state.
For the purpose of this section only, “client” has the same meaning as the term “client” is defined by the Securities and Exchange Commission under the rule adopted pursuant to Section 222(d) of the Investment Advisers Act of 1940, as amended. Also, for the purpose of this section only, “client” does not mean other investment advisers, broker-dealers, banks, savings and loan associations, trust companies, insurance companies, investment companies registered under the Investment Company Act of 1940, pension and profit-sharing trusts (other than self-employed individual retirement plans), or other institutional investors or governmental agencies or instrumentalities designated by rule or order of the commissioner.
A person whose only clients are insurance companies shall be exempted from the provisions of Section 25230.
The commissioner may by such rules as he deems necessary or appropriate in the public interest or for the protection of investors, either unconditionally or upon specified terms and conditions or for specified periods, exempt from the provisions of Section 25210 or Section 25230 any class of persons specified in such rules.
A broker licensed by the Real Estate Commissioner is exempt from the provisions of Section 25210 when engaged in transactions in any interest in any general or limited partnership, joint venture, unincorporated association, or similar organization (but not a corporation) owned beneficially by no more than 100 persons and formed for the sole purpose of, and engaged solely in, investment in or gain from an interest in real property, including, but not limited to, a sale, exchange, trade, or development. An interest held by spouses shall be considered held by one person for the purposes of this section.
For purposes of this section, a “finder” is a natural person who, for direct or indirect compensation, introduces or refers one or more accredited investors, as that term is defined in Rule 501(a) of Regulation D under the Securities Act of 1933 (17 C.F.R. 230.501(a)), to an issuer or an issuer to one or more accredited investors, solely for the purpose of a potential offer or sale of securities of the issuer in an issuer transaction in this state, and who does not do any of the following:
Provide services to an issuer for a transaction or a series of related transactions for the offer or sale of securities of the issuer that exceeds a securities purchase price of fifteen million dollars ($15,000,000) in the aggregate.
Participate in negotiating any of the terms of the offer or sale of the securities.
Advise any party to the transaction regarding the value of the securities or the advisability of investing in, purchasing, or selling the securities.
Conduct any due diligence on the part of any party to the transaction.
Sell or offer for sale in connection with the issuer transaction any securities of the issuer that are owned, directly or indirectly, by the finder.
Receive, directly or indirectly, possession or custody of any funds in connection with the issuer transaction.
Knowingly receive compensation in connection with any offer or sale of securities unless the sale is qualified under this division or unless the security or the transaction is exempt or not otherwise subject to qualification.
Make any disclosure to a potential purchaser other than the following:
The name, address, and contact information of the issuer.
The name, type, price, and aggregate amount of any securities being offered in the issuer transaction.
The issuer’s industry, location, and years in business.
A finder who satisfies all of the conditions set forth in subdivisions (c) to (f), inclusive, shall be exempt from the provisions of Section 25210.
The finder shall file with the commissioner before engaging in any activities described in subdivision (a), on a form prescribed by the commissioner, an initial statement of information that shall include both of the following:
The name and complete business or residential address of the finder.
The mailing address of the finder, if different from the business or residential address.
A filing fee of three hundred dollars ($300) shall be submitted to the Department of Financial Protection and Innovation along with the initial statement of information required by this subdivision.
The finder has complied and will continue to comply with the conditions of subdivision (a).
The finder has not performed any acts or satisfied any circumstances prohibited by Section 25212 or by Rule 506(d) of Regulation D under the Securities Act of 1933 (17 C.F.R. 230.506(d)), and the finder has not been sanctioned by the commissioner pursuant to Section 25212.
The finder has obtained the written agreement described in subdivision (e) with respect to each transaction in which the finder has participated in the prior 12 months.
Concurrently with each introduction, the finder shall obtain the informed, written consent of each person introduced or referred by the finder to an issuer, in a written agreement signed by the finder, the issuer, and the person introduced or referred, disclosing the following:
The type and amount of compensation that has been or will be paid to the finder in connection with the introduction or referral and the conditions for payment of that compensation.
That the finder is not providing advice to the issuer or any person introduced or referred by the finder to an issuer as to the value of the securities or as to the advisability of investing in, purchasing, or selling the securities.
Whether the finder is also an owner, directly or indirectly, of the securities being offered or sold.
Any actual and potential conflict of interest in connection with the finder’s activities related to the issuer transaction.
That the parties to the agreement shall have the right to pursue any available remedies at law or otherwise for any breach of the agreement.
To satisfy the requirements of this subdivision, the agreement shall also include a representation by the person introduced or referred by the finder to the issuer that the person is an accredited investor, as that term is defined in Rule 501(a) of Regulation D under the Securities Exchange Act of 1933 (17 C.F.R. 230.501(a)), and that the person knowingly consents to the payment of the compensation described therein.
The finder shall maintain and preserve, for a period of five years from the date of filing of the notice prescribed in subdivision (d), a copy of the notice, the written agreement required in subdivision (e), and all other records relating to any offer or sale of securities in connection with which the finder receives compensation, as the commissioner may by rule require. The finder, upon written request of the commissioner, shall furnish to the commissioner any records required to be maintained and preserved under this subdivision.
A natural person who is engaged in the business of effecting transactions in securities and is not otherwise exempt from Section 25210 shall be subject to the requirements of Section 25210, if the individual fails to meet the definition of “finder” set forth in subdivision (a), or does not satisfy all the conditions set forth in subdivisions (c) to (f), inclusive.
In the event a natural person does not meet the definition of “finder” set forth in subdivision (a) or does not satisfy all the conditions set forth in subdivisions (c) to (f), inclusive, any person introduced or referred by that natural person to an issuer, who purchases securities of that issuer in an issuer transaction following that introduction or referral, shall have the right to pursue any applicable remedy afforded under state law, including, without limitation, any applicable remedies pursuant to Section 25501.5.
The commissioner may from time to time make, amend, and rescind such rules, forms, and orders as are necessary to carry out the provisions of this section, including rules and forms governing applications and reports, and defining any terms, whether or not used in this law, insofar as the definitions are not inconsistent with the provisions of this law. For the purpose of rules and forms, the commissioner may classify securities, persons, and matters within their jurisdiction, and may prescribe different requirements for different classes.
A financial institution that undertakes activities with respect to an investment company pursuant to the provisions of Section 1514, 6524, 14652.5, or 18022.5 of the Financial Code shall not be subject to Section 25210 or 25230 in connection with such activities but shall be subject to Sections 25218, 25234, 25235, and 25237 and to subdivisions (a), (b), and (d) of Section 25216, and such rules thereunder as the commissioner may specify by rule. Nothing in this section shall affect the status of such a financial institution as a broker-dealer or investment adviser, or the employees of such persons, when engaged in the activities authorized by the provisions of the Financial Code specified above.
A person licensed as a capital access company under Division 3 (commencing with Section 28000) of Title 4 is exempt from the provisions of Section 25210 when engaged in the transaction of business pursuant to the requirements of the Capital Access Company Law and the regulations promulgated thereunder.
CHAPTER 2. Licensing of Agents and Broker-Dealers [25210. - 25221.]
Unless exempted under the provisions of Chapter 1 (commencing with Section 25200) of this part, no broker-dealer shall effect any transaction in, or induce or attempt to induce the purchase or sale of, any security in this state unless the broker-dealer has first applied for and secured from the commissioner a certificate, then in effect, authorizing that person to act in that capacity.
No person shall, on behalf of a broker-dealer licensed pursuant to Section 25211, or on behalf of an issuer, effect any transaction in, or induce or attempt to induce the purchase or sale of, any security in this state unless that broker-dealer and agent have complied with any rules as the commissioner may adopt for the qualification and employment of those agents.
The commissioner shall, consistent with Section 25213, review the disciplinary histories of agents upon the filing of notice of (1) the employment or transfer of an agent for a broker-dealer, (2) an amendment to the information filed by the agent at the time of employment or transfer, and (3) the termination of employment of the agent from the broker-dealer.
The application for a certificate as a broker-dealer shall be accompanied by the consent to service of process specified in Section 25240 and, unless filed pursuant to subdivision (b), shall contain such information in such detail relating to the applicant and any persons associated with the applicant as the commissioner may by rule require.
A broker-dealer registered under the Securities Exchange Act of 1934 who is a member of the New York Stock Exchange, the NYSE American, the NYSE Arca, or the Financial Industry Regulatory Authority, and who has not had any certificate as a broker-dealer, investment adviser or agent denied or revoked under this law or any predecessor statute, may be licensed by notification pursuant to this subdivision by filing with the commissioner an application setting forth the following information in such form and detail as the commissioner may by rule require:
Such information as is necessary to identify the broker-dealer and its offices in this state, and the location of its records and principal office.
Such information as is necessary to establish that the broker-dealer meets the requirements for licensure by notification under this subdivision.
The consent to service of process specified in Section 25240.
Such information as the commissioner may require as to the jurisdictions in which the broker-dealer is licensed or registered and as to the nature of the business conducted by the broker-dealer.
Unless a proceeding has been instituted under Section 25212, a certificate under subdivision (b) shall become effective on the third business day after the application is filed with the commissioner or upon the day the certificate is issued, whichever first occurs. However, the commissioner may by order delay effectiveness for a period not exceeding 15 business days (or for an additional period with the consent of the applicant) if the commissioner believes that the delay is necessary in the public interest to determine if a proceeding should be instituted under Section 25212. The commissioner may by rule or order waive that provision of subdivision (b) which precludes application thereunder by a person who has had a certificate denied or revoked under this law or any predecessor statute if the commissioner finds the waiver to be in the public interest. The commissioner, after appropriate notice and opportunity for hearing in accordance with the provisions of the Administrative Procedure Act (Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code), may by rule or order disqualify a self-regulatory organization specified in subdivision (b) from the provisions thereof. The commissioner may by rule establish standards or criteria pursuant to which disqualification may be made and the commissioner may disqualify upon a finding that the self-regulatory organization fails substantially to comply with those standards or criteria. Disqualification by the commissioner shall not affect a certificate which has become effective pursuant to this subdivision before the effective date of that rule or order of disqualification but each person licensed pursuant to subdivision (b) upon the basis of membership in that organization shall, within 90 days after the effective date of that rule or order, or such additional time as the commissioner may allow, file with the commissioner a complete and current application in the form required pursuant to subdivision (a). If a broker-dealer licensed pursuant to subdivision (b) ceases to meet the qualifications for licensing pursuant to that subdivision, they shall, within 10 days after that event, file with the commissioner a complete and current application in the form required pursuant to subdivision (a).
An application for a certificate as a broker-dealer, with respect to a broker-dealer to be formed or organized, may be made by a licensed broker-dealer to which the broker-dealer to be formed or organized is to be the successor. The application shall contain such information in such detail relating to the applicant and to the successor and any person associated with the applicant or the successor as the commissioner may by rule require. The application shall become effective and the successor may transact business as a broker-dealer 30 days after the receipt of the application by the commissioner or within such shorter period of time as the commissioner may determine, unless an order has been entered under Section 25212 denying a certificate to the successor or a proceeding looking toward an order has been instituted under that section. The certificate shall terminate on the 45th day after the effective date thereof, unless prior thereto the successor shall, in accordance with such rules as the commissioner may prescribe, adopt the application as its own and file the consent to service of process specified in Section 25240.
A broker-dealer acting pursuant to a certificate which is then in effect and which is issued pursuant to Section 25211, shall be exempt from the usury provisions of the State Constitution. This section creates and authorizes a class of persons pursuant to Section 1 of Article XV of the Constitution.
The commissioner may, after appropriate notice and opportunity for hearing, by order censure, deny a certificate to, suspend for a period not exceeding 12 months or revoke the certificate of, any broker-dealer if the commissioner finds that the censure, denial, suspension, or revocation is in the public interest and that the broker-dealer, whether prior or subsequent to becoming a broker-dealer, or any partner, officer, director, or branch manager of the broker-dealer, whether prior or subsequent to becoming associated with the broker-dealer, or any person directly or indirectly controlling the broker-dealer, whether prior or subsequent to becoming such, or any agent employed by the broker-dealer while so employed has done any of the following:
Has willfully made or caused to be made in any application for a certificate or in any report required to be filed with the commissioner under this law, or in any proceeding before the commissioner, any statement which was at the time and in the light of the circumstances under which it was made false or misleading with respect to any material fact, or has willfully omitted to state in the application or report any material fact which is required to be stated therein.
Has been either (1) convicted of or has pled nolo contendere to a felony or misdemeanor, or (2) held liable in a civil action by final judgment of a court based upon conduct showing moral turpitude, and the commissioner finds that the felony, misdemeanor, or civil action (A) involved the purchase or sale of any security, (B) arose out of the conduct of the business of a broker-dealer or investment adviser, (C) involved theft, or (D) involved the violation of Section 1341, 1342, or 1343 of Title 18 of the United States Code.
Is permanently or temporarily enjoined by order, judgment, or decree of any court of competent jurisdiction from acting as an investment adviser, underwriter, or broker-dealer, or as an affiliated person or employee of any investment company, bank, or insurance company, or from engaging in or continuing any conduct or practice in connection with that activity or in connection with the purchase or sale of any security.
Is or has been subject to (1) any order of the Securities and Exchange Commission or the securities administrator of any other state denying registration to, or revoking or suspending the registration of, the person as a broker, dealer, agent, or investment adviser, (2) any order of any national securities association or national securities exchange (registered under the Securities Exchange Act of 1934) suspending or expelling that person from membership in the association or exchange or from association with any member thereof, or (3) any other order of the commission or any administrator, association, or exchange referred to in this subdivision which is or has been necessary for the protection of any investor.
Has willfully violated any provision of the Securities Act of 1933, the Securities Exchange Act of 1934, the Investment Advisers Act of 1940, the Investment Company Act of 1940, the Commodity Exchange Act, or Title 4 (commencing with Section 25000), including the Franchise Investment Law, Division 5 (commencing with Section 31000), or the California Commodity Law of 1990, Division 4.5 (commencing with Section 29500), or of any rule or regulation under any of those statutes, or any order of the commissioner which is or has been necessary for the protection of any investor.
Is or has been subject to (1) any order of the Commodity Futures Trading Commission denying registration to, or revoking or suspending the registration of, that person under the Commodity Exchange Act, (2) any order of any board of trade or commodity exchange, including, but not limited to, the New York Mercantile Exchange, the Chicago Mercantile Exchange, the Chicago Board of Trade, or the Chicago Board Options Exchange, suspending or expelling that person from membership in the board of trade or commodity exchange or from association with any member thereof, or (3) any other order of the commission or any board or exchange referred to in this subdivision which is or has been necessary for the protection of any investor.
Has willfully aided, abetted, counseled, commanded, induced, or procured the violation by any other person of any of the statutes or rules or regulations referred to in subdivision (e) above, or has failed reasonably to supervise, with a view to preventing violations of those statutes, rules and regulations, another person who commits a violation, if the other person is subject to his or her supervision; for the purposes of this subdivision, no person shall be deemed to have failed reasonably to supervise any person if (1) there have been established procedures, and a system for applying those procedures, which would reasonably be expected to prevent and detect, insofar as practicable, any violation by the other person, and (2) that person has reasonably discharged the duties and obligations incumbent upon him or her by reason of those procedures and system without reasonable cause to believe that those procedures and system were not being complied with.
Is subject to any currently effective order of the commissioner entered pursuant to Section 25213 revoking or suspending the certificate of the person as an agent.
Has violated any provision of this division or the rules thereunder or, in the case of an applicant only, any similar regulatory scheme of the State of California or a foreign jurisdiction.
The commissioner may immediately revoke by order the certificate of any broker-dealer if the broker-dealer fails to comply with any currently effective order of the commissioner which is necessary for the protection of any investor, unless the broker-dealer secures a court order restraining the enforcement of the commissioner’s revocation order within 10 days of the date the order is issued.
The commissioner may, after appropriate notice and opportunity for hearing, by order censure, or suspend for a period not exceeding 12 months, or deny or bar from any position of employment, management or control of any broker-dealer or investment adviser, any officer, director, partner, agent, employee of, or person performing similar functions for, a broker-dealer, or any other person, if the commissioner finds that the censure, suspension, denial, or bar is in the public interest and that the person has committed any act or omission enumerated in subdivision (a), (e), (f), or (g) of Section 25212 or has been convicted of, or pled nolo contendere to, any offense or been held liable in any civil action specified in subdivision (b) of Section 25212, or is enjoined from any act, conduct or practice specified in subdivision (c) of Section 25212 or is subject to any order specified in subdivision (d) of Section 25212.
The commissioner shall, after appropriate notices and opportunity for hearing, by order suspend, for a period not exceeding 12 months, or bar from any position of employment, management or control of any broker-dealer, any officer, director, partner, agent, employee of, or person performing similar functions for, a broker-dealer, or any other person, if the person has been convicted of, or has pleaded nolo contendere to, a felony or misdemeanor in violation of Section 25541 that was committed on or after January 1, 1989.
It is unlawful for any person, as to whom an order suspending or barring employment or control is in effect pursuant to Section 25213 or 25213.3, willfully to become or to be employed by any broker-dealer or investment adviser, contrary to the terms of that order, without the consent of the commissioner; and it is unlawful for any broker-dealer to permit a person as to whom an order is in effect pursuant to Section 25213, 25213.3, or 25232.1 to become or to remain a person employed by the broker-dealer, contrary to the terms of that order, without the consent of the commissioner, if the broker-dealer knew, or in the exercise of reasonable care should have known, of the order.
Any person as to whom an order suspending or barring employment or control is issued pursuant to Section 25213 or 25213.3 may petition the commissioner for reinstatement or reduction of penalty, or for modification of the order, as provided in and subject to the provisions of Section 11522 of the Government Code. The commissioner may, at any time and with the consent of that person without hearing, modify such order.
No order may be entered under Section 25212, 25213, 25213.3, or 25252 except after notice to any person affected thereby (and, in the case of an agent, to his or her employer or prospective employer if known to the commissioner) of the intention of the commissioner to enter that order and of the reasons therefor and that upon receipt of a request the matter will be set down for hearing to commence within 15 business days after that receipt unless the person affected consents to a later date. If no hearing is requested within 30 days after the mailing of the notice and none is ordered by the commissioner, the order may be entered without hearing to remain in effect until it is modified or vacated by the commissioner. In the case of an original application for a certificate, that hearing shall be set down to commence within 15 business days after receipt of a written request by the applicant made 30 days or more after the filing of the application, even though no notice by the commissioner has been given, unless the applicant consents to a later date. If a hearing is requested or ordered, it shall be held in accordance with the provisions of the Administrative Procedure Act (Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code), and the commissioner shall have all of the powers granted thereunder.
No broker-dealer or agent shall effect any transaction in, or induce or attempt to induce the purchase or sale of, any security in this state by means of any manipulative, deceptive or other fraudulent scheme, device, or contrivance. The commissioner shall, for the purposes of this subdivision, by rule define such schemes, devices or contrivances as are manipulative, deceptive, or otherwise fraudulent.
No broker-dealer or agent shall effect any transaction in, or induce or attempt to induce the purchase or sale of, any security in this state in connection with which such broker-dealer or agent engages in any fraudulent, deceptive or manipulative act or practice or makes any fictitious quotation. The commissioner shall, for the purposes of this subdivision, by rule define and prescribe means reasonably designed to prevent such acts and practices as are fraudulent, deceptive, or manipulative and such quotations as are fictitious.
No broker-dealer or agent shall effect any transaction in, or induce or attempt to induce the purchase or sale of, any security in this state in contravention of such rules as the commissioner may prescribe as necessary or appropriate in the public interest or for the protection of investors to provide safeguards with respect to the financial responsibility of broker-dealers. Subject to the limitations of Section 15(h) of the Securities Exchange Act of 1934, those rules may require a minimum capital for broker-dealers or prescribe a ratio between net capital and aggregate indebtedness or both and a fidelity bond.
No broker-dealer or agent shall effect or attempt to effect in this state, in contravention of such rules as the commissioner may prescribe as necessary or appropriate in the public interest or for the protection of investors, (1) any transaction in connection with any security whereby any party to such transaction acquires any put, call, straddle, or other option or privilege (A) of buying or selling the security, (B) on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the market value thereof), (C) entered into on a national securities exchange relating to foreign currency, or (2) any transaction in connection with any security with relation to which the broker-dealer or agent has, directly or indirectly, any interest in any such put, call, straddle, option, or privilege, or (3) any transaction in any security for the account of any person who the broker-dealer or agent has reason to believe has, and who actually has, directly or indirectly, any interest in any such put, call, straddle, option, or privilege with relation to such security.
The commissioner may by rule require any issuer who employs agents in connection with any security or transaction not exempted by Chapter 1 (commencing with Section 25100) of Part 2 of this division to post a surety bond in an amount not exceeding ten thousand dollars ($10,000), conditioned that the issuer will comply with the provisions of this law and the rules and orders issued thereunder. The bond, unless previously canceled, shall cover for the entire period that the qualification is in effect. If a deposit in lieu of a bond is made pursuant to Article 7 (commencing with Section 995.710) of Chapter 2 of Title 14 of Part 2 of the Code of Civil Procedure, the deposit may include an appropriate deposit of securities. No suit may be maintained to enforce any liability on the bond unless brought within two years after the contract of sale or other act upon which the suit is based.
A broker-dealer licensed under this chapter shall not effect any transaction in, or induce or attempt to induce the purchase or sale of, any security in this state unless that broker-dealer and all agents employed by that broker-dealer meet specified and appropriate standards with respect to training, experience, supervision, terms of employment, and other qualifications as the commissioner finds necessary or desirable. The commissioner may establish those standards by rules, which may: (1) appropriately classify broker-dealers and agents (taking into account relevant matters, including types of business done and nature of securities sold); (2) specify that all or any portion of those standards shall be applicable to any class; (3) require persons in any class to pass examinations prescribed in accordance with those rules; and (4) provide that persons in any class, other than a broker-dealer and partners, officers and supervisory employees (which term may be defined by the commissioner’s rules and as so defined shall include branch managers of broker-dealers) of broker-dealers, may be qualified solely on the basis of compliance with such specified standards of training and such other qualifications as the commissioner finds appropriate.
In addition to the fees imposed by Section 25608, the commissioner may prescribe by rule reasonable fees and charges to defray the cost of any examination administered by the commissioner or under the commissioner’s direction. The commissioner may cooperate with national securities associations and national securities exchanges and with the Securities and Exchange Commission in administering examinations and may require broker-dealers and agents to pass examinations administered by or on behalf of any association or exchange or by the Securities and Exchange Commission and to pay to that association or exchange or that commission reasonable fees or charges to defray the costs incurred by that association or exchange or commission in administering the examinations.
No broker-dealer licensed under this chapter shall effect any transaction in, or induce or attempt to induce the purchase or sale of, any security in this state in contravention of such rules as the commissioner may prescribe designed to promote just and equitable principles of trade, to provide safeguards against unreasonable profits or unreasonable rates of commissions or other charges, and in general to protect investors and the public interest, and to remove impediments to and perfect the mechanism of a free and open market.
Notwithstanding any other provision of this division, if in his or her opinion the public interest and the protection of investors so require, the commissioner is authorized summarily to suspend all over-the-counter trading in this state by broker-dealers and agents in any security or summarily to suspend all trading on a national securities exchange located in this state in any security (provided, in the case of trading on that exchange, that the security is not listed on any national securities exchange located outside this state on which trading has not been suspended) for a period not exceeding 90 days, and for successive periods of 90 days. No broker-dealer or agent shall effect any transaction (other than an unsolicited brokerage transaction effected on a national securities exchange located outside this state) in, or induce or attempt to induce the purchase or sale of, any security in this state in which trading is in any manner suspended under this section, except in performance of a contract previously entered into.
At any time after the issuance of an order under Section 25219, any interested person (including, but not limited to, the issuer of the security and any broker-dealer who has been making a market in the security) may in writing request that the suspension of trading be rescinded. Upon the receipt of such a written request, the matter shall be set down for hearing to commence within 15 business days after such receipt unless the person making the request consents to a later date. After such hearing, which shall be conducted in accordance with the provisions of the Administrative Procedure Act, Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, and in connection with which the commissioner shall have all of the powers granted thereunder, the commissioner may order such suspension to be continued until modified or rescinded by further order of the commissioner if he finds that trading in the security will be unfair, unjust, or inequitable to investors or will tend to work a fraud upon the purchasers or sellers of such security. Otherwise, he shall rescind the suspension of trading and no further orders may be entered under Section 25219 with respect to the same security in the absence of changed circumstances justifying such order.
Notwithstanding any other provision of law, a broker-dealer, or any affiliate thereof, licensed under this chapter, or any officer or employee thereof, may submit to the Department of Justice fingerprints of an applicant for employment for the purpose of obtaining information as to the existence and nature of a record of a conviction and of an arrest for which the Department of Justice establishes that the applicant was released on bail or on his or her own recognizance pending trial. Fingerprints taken pursuant to this section include fingerprints taken by the use of fingerprint live-scan technology, as described in Section 1596.871 of the Health and Safety Code.
The Department of Justice shall provide the following information to the broker-dealer, affiliate, or officer or employee thereof pursuant to subdivision (a):
Every conviction rendered against the applicant.
Every arrest for which the Department of Justice establishes that the applicant was released on bail or on his or her own recognizance pending trial.
CHAPTER 3. Licensing and Notice Filing Requirements of Investment Adviser Representatives and Investment Advisers [25230. - 25238.]
It is unlawful for any investment adviser to conduct business as an investment adviser in this state unless the investment adviser has first applied for and secured from the commissioner a certificate, then in effect, authorizing the investment adviser to do so or unless the investment adviser is exempted by the provisions of Chapter 1 (commencing with Section 25200) of this part or unless the investment adviser is subject to Section 25230.1.
No person, on behalf of an investment adviser that has obtained a certificate pursuant to Section 25231, may, in this state: offer or negotiate for the sale of investment advisory services of the investment adviser; determine which recommendations shall be made to, make recommendations to, or manage the accounts of, clients of the investment adviser; or determine the reports or analyses concerning securities to be published by the investment adviser, unless the investment adviser and that person have complied with rules that the commissioner may adopt for the qualification and employment of those persons.
The commissioner may, consistent with Section 25232.1, review the disciplinary history of an investment adviser representative upon the filing of notice of any of the following:
The employment, association, or transfer of the investment adviser representative.
An amendment to the information filed by the investment adviser representative at the time of employment, association, or transfer.
The termination of employment or association of the investment adviser representative.
A person that is registered under Section 203 of the Investment Advisers Act of 1940 as an investment adviser is not subject to the requirement of obtaining a certificate under Section 25230, but may not conduct business in this state unless the person has fewer than six clients as specified in Section 25202 or unless the person first complies with subdivision (b). An investment adviser representative that has a place of business in this state may be required to obtain a certificate pursuant to Section 25231.
A person subject to subdivision (a) shall:
File with the commissioner an annual notice, consisting of those documents filed with the Securities and Exchange Commission pursuant to the securities laws that the commissioner by rule or order deems appropriate or, in lieu thereof, a form prescribed by the commissioner, and a consent to service of process under Section 25240.
Pay the notice filing fee provided for in subdivision (d) of Section 25608.1.
No investment adviser representative, on behalf of an investment adviser subject to subdivision (a), may, in this state: offer or negotiate for the sale of investment advisory services of the investment adviser; determine which recommendations shall be made to, make recommendations to, or manage the accounts of, clients of the investment adviser; or determine the reports or analysis concerning securities to be published by the investment adviser, unless the investment adviser representative has complied with rules that the commissioner may adopt for the qualification and employment of investment adviser representatives.
Subdivision (a) does not prohibit the commissioner from investigating and bringing enforcement actions with respect to fraud or deceit, including and without limitation, fraud or deceit under Section 25235 and the rules of the commissioner adopted thereunder, against an investment adviser or an investment adviser representative.
Any investment adviser, or any person who contemplates becoming an investment adviser, may apply for a certificate to act as an investment adviser by filing with the commissioner an application. The application shall be accompanied by the consent to service of process specified in Section 25240 and shall contain information, in such form and detail, as the commissioner may by rule prescribe.
Unless otherwise provided by rule or order of the commissioner, all investment adviser and investment adviser representative applications, amendments, reports, notices, related filings, and fees required to be filed with the commissioner pursuant to this title shall be filed electronically with and transmitted to the Web-based Investment Adviser Registration Depository operated by the Financial Industry Regulatory Authority.
The commissioner may, after appropriate notice and opportunity for hearing, by order censure, deny a certificate to, or suspend for a period not exceeding 12 months or revoke the certificate of, an investment adviser, if the commissioner finds that the censure, denial, suspension, or revocation is in the public interest and that the investment adviser, whether prior or subsequent to becoming such, or any partner, officer or director thereof or any person performing similar functions or any person directly or indirectly controlling the investment adviser, whether prior or subsequent to becoming such, or any employee of the investment adviser while so employed has done any of the following:
Has willfully made or caused to be made in any application for a certificate or any report filed with the commissioner under this division, or in any proceeding before the commissioner, any statement which was at the time and in the light of the circumstances under which it was made false or misleading with respect to any material fact, or has willfully omitted to state in the application or report any material fact which is required to be stated therein.
Has been either (1) convicted of or has pled nolo contendere to any felony or misdemeanor, or (2) held liable in a civil action by final judgment of a court based upon conduct showing moral turpitude, and the commissioner finds that the felony, misdemeanor or civil action (A) involved the purchase or sale of any security, (B) arose out of the conduct of the business of a broker-dealer or investment adviser, (C) involved theft, or (D) involved the violation of Section 1341, 1342, or 1343 of Title 18 of the United States Code.
Is permanently or temporarily enjoined by order, judgment, or decree of any court of competent jurisdiction from acting as an investment adviser, underwriter or broker-dealer or as an affiliated person or employee of any investment company, bank, or insurance company, or from engaging in or continuing any conduct or practice in connection with that activity, or in connection with the purchase or sale of any security.
Is or has been subject to (1) any order of the Securities and Exchange Commission or the securities administrator of any other state denying or revoking or suspending his or her registration as an investment adviser, or investment adviser representative, or as a broker or dealer or agent, (2) any order of any national securities association or national securities exchange (registered under the Securities Exchange Act of 1934) suspending or expelling him or her from membership in that association or exchange or from association with any member thereof, or (3) any other order of the commission or any administrator, association, or exchange referred to in this subdivision which is or has been necessary for the protection of any investor.
Has willfully violated any provision of the Securities Act of 1933, the Securities Exchange Act of 1934, the Investment Advisers Act of 1940, the Investment Company Act of 1940, the Commodity Exchange Act, or Title 4 (commencing with Section 25000), including the Franchise Investment Law, Division 5 (commencing with Section 31000), or the California Commodity Law of 1990, Division 4.5 (commencing with Section 29500), or of any rule or regulation under any of those statutes, or any order of the commissioner which is or has been necessary for the protection of any investor.
Is or has been subject to (1) any order of the Commodity Futures Trading Commission denying registration to, or revoking or suspending the registration of, that person under the Commodity Exchange Act, (2) any order of any board of trade or commodity exchange, including, but not limited to, the New York Mercantile Exchange, the Chicago Mercantile Exchange, the Chicago Board of Trade, or the Chicago Board Options Exchange, suspending or expelling that person from membership in the board of trade or commodity exchange or from association with any member thereof, or (3) any other order of the commission or any board or exchange referred to in this subdivision which is or has been necessary for the protection of any investor.
Has aided, abetted, counseled, commanded, induced, or procured the violation by any other person of any statute or rule or regulation referred to in subdivision (e).
Has violated any provision of this division or the rules thereunder or, in the case of an applicant only, any similar regulatory scheme of the State of California or a foreign jurisdiction.
The commissioner may, after appropriate notice and opportunity for hearing, by order censure, or suspend for a period not exceeding 12 months, or bar from any position of employment, management or control of any investment adviser, broker-dealer or commodity adviser, any officer, director, partner, employee of, or person performing similar functions for, an investment adviser, or any other person, if he or she finds that the censure, suspension or bar is in the public interest and that the person has committed any act or omission enumerated in subdivision (a), (e), (f), or (g) of Section 25232 or has been convicted of any offense or held liable in any civil action specified in subdivision (b) of Section 25232 or is enjoined from any act, conduct or practice specified in subdivision (c) of Section 25232 or is subject to any order specified in subdivision (d) of Section 25232.
It is unlawful for any person, as to whom an order suspending or revoking the person’s certificate as an investment adviser is in effect pursuant to Section 25232 or as to whom an order suspending or barring employment is in effect pursuant to Section 25232.1, willfully to become or to be employed by any investment adviser, broker-dealer or commodity adviser, without the consent of the commissioner, and it is unlawful for any investment adviser to permit a person as to whom an order is in effect pursuant to Section 25212.1 or 25232.1 to become or to remain employed by the investment adviser, without the consent of the commissioner, if such investment adviser knew, or in the exercise of reasonable care should have known, of such order.
The commissioner may immediately revoke the certificate of any investment adviser if the investment adviser fails to comply with any currently effective order of the commissioner which is necessary for the protection of any investor, unless the investment adviser secures a court order restraining the enforcement of the commissioner’s revocation order within 10 days of the date the order is issued.
No order may be entered under Section 25232, 25232.1, or 25252 except after notice to the person affected thereby of the intention of the commissioner to enter that order and of the reasons therefor and that upon receipt of a request the matter shall be set down for hearing to commence within 15 business days after that receipt unless the person affected consents to a later date. If no hearing is requested within 30 days after the mailing of that notice and none is ordered by the commissioner, the order may be entered without hearing to remain in effect until it is modified or vacated by the commissioner. In the case of an original application for a certificate, such a hearing shall be set down to commence within 15 business days after receipt of a written request by the applicant made 30 days or more after the filing of the application, even though no such notice by the commissioner has been given, unless the applicant consents to a later date. If a hearing is requested or ordered, it shall be held in accordance with the provisions of the Administrative Procedure Act (Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code), and the commissioner shall have all of the powers granted thereunder.
No investment adviser licensed under this chapter shall in this state enter into, extend or renew any investment advisory contract, or in any way perform any investment advisory contract entered into, extended or renewed on or after the effective date of this law, if that contract:
Provides for compensation to the investment adviser on the basis of a share of capital gains upon or capital appreciation of the funds or any portion of the funds of the client, except as may be permitted by rule or order of the commissioner;
Fails to provide, in substance, that no assignment of the contract shall be made by the investment adviser without the consent of the other party to the contract;
Fails to provide, in substance, that the investment adviser, if a partnership, will notify the other party to the contract of any change in the membership of the partnership within a reasonable time after the change.
As used in this section, “investment advisory contract” means any contract or agreement whereby a person agrees to act as investment adviser or to manage any investment or trading account for a person other than an investment company. Paragraph (1) of subdivision (a) of this section does not prohibit an investment advisory contract that provides for compensation based upon the total value of a fund averaged over a definite period, or as of definite dates, or taken as of a definite date.
It is unlawful for any investment adviser, directly or indirectly, in this state:
To employ any device, scheme, or artifice to defraud any client or prospective client.
To engage in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon any client or prospective client.
Acting as principal for his own account, knowingly to sell any security to or purchase any security from a client for whom he is acting as investment adviser, or, acting as broker for a person other than such client, knowingly to effect any sale or purchase of any security for the account of such client, without disclosing to such client in writing before the completion of the transaction the capacity in which he is acting and obtaining the written consent of the client to such transaction.
To engage in any act, practice, or course of business which is fraudulent, deceptive, or manipulative. The commissioner shall, for the purpose of this subdivision, by rule define and prescribe means reasonably designed to prevent such acts, practices, and courses of business as are fraudulent, deceptive, or manipulative.
To represent that he is an investment counsel or to use the name “investment counsel” as descriptive of his business unless his principal business consists of acting as investment adviser and a substantial part of his business consists of rendering investment advisory services on the basis of the individual needs of his clients.
No investment adviser licensed under this chapter shall conduct any business as such investment adviser in this state unless the investment adviser and all natural persons associated with such investment adviser meet such specified and appropriate standards with respect to training, experience and other qualifications as the commissioner finds necessary or desirable. The commissioner may establish such standards by rule, which may
Appropriately classify investment advisers and persons associated with investment advisers;
Specify that all or any portion of such standards shall be applicable to any such class; and
Require persons in any such class to pass examinations prescribed in accordance with such rules.
In addition to the fees imposed by Section 25608, the commissioner may prescribe by rule reasonable fees and charges to defray the costs of carrying out this section, including, but not limited to, fees for any examination administered by him or under his direction.
The commissioner shall prescribe rules with respect to investment advisers licensed under this chapter who have custody of their clients’ securities or funds or who have any power of attorney from their clients to execute transactions as he or she finds to be necessary or appropriate in the public interest or for the protection of investors. The rules may require a minimum capital for those investment advisers or prescribe a minimum ratio between net capital and aggregate indebtedness or both, and may require a fidelity bond.
No investment adviser licensed under this chapter and no natural person associated with the investment adviser shall engage in investment advisory activities, or attempt to engage in investment advisory activities, in this state in contradiction of such rules as the commissioner may prescribe designed to promote fair, equitable and ethical principles.
CHAPTER 4. General Provisions [25240. - 25256.]
Every applicant for a certificate as a broker-dealer or an investment adviser (other than a California corporation), and every investment adviser subject to Section 25230.1, shall file with the commissioner, in such form as the commissioner by rule prescribes, an irrevocable consent appointing the commissioner or the commissioner’s successor in office to be the person’s attorney to receive service of any lawful process in any noncriminal suit, action or proceeding against the person or the person’s successor, executor, or administrator, which arises under this law or any rule or order hereunder after the consent has been filed, with the same force and validity as if served personally on the person filing the consent. A person who has filed such a consent in connection with a previous application under this law (or under any prior law if the application states that such consent is still effective), or a person who has filed such a consent in connection with a previous notice filed under Section 25230.1, need not file another. Service may be made by leaving a copy of the process in the office of the commissioner, but it is not effective unless (1) the plaintiff, who may be the commissioner in a suit, action or proceeding instituted by the commissioner, forthwith sends notice of the service and a copy of the process by registered or certified mail to the defendant or respondent at the person’s last address on file with the commissioner, and (2) the plaintiff’s affidavit of compliance with this section is filed in the case on or before the return day of the process, if any, or within such further time as the court allows.
Every broker-dealer and every investment adviser licensed under Section 25230 shall make and keep accounts, correspondence, memorandums, papers, books, and other records and shall file financial and other reports as the commissioner by rule requires, subject to the limitations of Section 15(h) of the Securities Exchange Act of 1934 with respect to broker-dealers and Section 222 of the Investment Advisers Act of 1940 with respect to investment advisers.
All records so required shall be preserved for the time specified in the rule.
All records referred to in this section are subject at any time and from time to time to reasonable periodic, special, or other examinations by the commissioner, within or without this state, as the commissioner deems necessary or appropriate in the public interest or for the protection of investors.
For the purpose of avoiding unnecessary duplications of examinations, the commissioner, insofar as he or she deems it practicable in administering this section, may cooperate with the securities administrators of other states, the Securities and Exchange Commission and any national securities exchange or national securities association.
Unless otherwise provided by rule, every investment adviser subject to Section 25230 and every broker-dealer, including an applicant for a license under Section 25210 or 25230, shall furnish an authorization for disclosure to the commissioner of financial records of the licensee’s broker-dealer or investment adviser business pursuant to Section 7473 of the Government Code.
Surrender of a certificate as a broker-dealer or investment adviser becomes effective 30 days after receipt of an application to surrender that certificate or within a shorter period of time as the commissioner may determine, unless a revocation or suspension proceeding is pending when the application is filed or a proceeding to revoke or suspend or to impose conditions upon the withdrawal is instituted within 30 days after the application is filed. If a proceeding is pending or instituted, withdrawal becomes effective at a time and upon any conditions as the commissioner by order determines.
If the commissioner finds that any broker-dealer or investment adviser is no longer in existence, or has ceased to do business as a broker-dealer or investment adviser, or is subject to an adjudication of mental incompetence or to the control of a committee or conservator or guardian, or cannot be located after reasonable search, the commissioner may by order summarily revoke the certificate of that broker-dealer or investment adviser.
The commissioner may summarily suspend or revoke the certificate of a broker-dealer or investment adviser if he or she (1) fails to pay any fee required by Section 25608 or imposed pursuant to Section 25217, 25218 or 25236 within 10 days after notice by the commissioner that the fee is due and unpaid, (2) fails to file any report required under Section 25241 within 10 days after notice by the commissioner that the report is due, (3) fails to maintain any bond required by subdivision (e) of Section 25216 or by Section 25237, (4) fails to file an application pursuant to subdivision (a) of Section 25211 when required by subdivision (c) of that section, within the time specified therein or within 10 days after notice by the commissioner that the application is required, whichever last occurs, (5) fails to maintain any capital required by subdivision (c) of Section 25216 or by Section 25237, or (6) fails to maintain records as required by Section 25241.
It is unlawful for any person holding a certificate as a broker-dealer or investment adviser under this part to represent or imply in any manner whatsoever that such person has been sponsored, recommended, or approved or that the person’s abilities or qualifications have in any respect been passed upon by the commissioner. Nothing in this section prohibits a statement (other than in a paid advertisement) that a person holds a certificate under this law, if such statement is true in fact and if the effect of such licensing is not misrepresented.
A broker-dealer or investment adviser, or an agent or representative thereof, shall not use a senior-specific certification, credential, or professional designation in connection with the offer, sale, or purchase of securities, or the provision of advice as to the value of or the advisability of investing in, purchasing, or selling securities, either directly or indirectly or through publications or writings or by issuing or promulgating analyses or reports relating to securities, that indicates or implies that the broker-dealer, investment adviser, or an agent or representative thereof, has special certification or training in advising or servicing senior citizens or retirees, in such a way as to mislead any person.
The prohibited use of these certifications, credentials, or professional designations includes, but is not limited to, the following:
The use of a certification, credential, or professional designation by a person who has not actually earned or is otherwise ineligible to use the certification, credential, or designation.
The use of a nonexistent or self-conferred certification, credential, or professional designation.
The use of a certification, credential, or professional designation that indicates or implies a level of occupational qualifications obtained through education, training, or experience that the person using the certification, credential, or professional designation does not have.
The use of a certification, credential, or professional designation that was obtained from a designating, credentialing, or certifying organization where any of the following apply:
The organization is primarily engaged in the business of instruction in sales marketing.
The organization does not have reasonable standards or procedures for assuring the competency of individuals to whom it grants a certification, credential, or professional designation.
The organization does not have reasonable standards or procedures for monitoring and disciplining individuals with a certification, credential, or professional designation for improper or unethical conduct.
The organization does not have reasonable continuing education requirements for individuals with a certification, credential, or professional designation in order to maintain the certificate, credential, or professional designation.
There is a rebuttable presumption that a designating, credentialing, or certifying organization is not disqualified solely for the purposes of paragraph (4) of subdivision (b) when the organization has been accredited by the American National Standards Institute, the National Commission for Certifying Agencies, or an organization that is on the United States Department of Education’s list entitled “Accrediting Agencies Recognized for Title IV Purposes” and the certification, credential, or professional designation issued therefrom does not primarily apply to sales and/or marketing.
In determining whether a combination of words, or an acronym standing for a combination of words, constitutes a certification, credential, or professional designation indicating or implying that a person has special certification or training in advising or serving senior citizens or retirees, factors to be considered shall include both of the following:
This section shall not apply to the use of a job title by a person within an organization that is licensed or registered by the Department of Financial Protection and Innovation or a federal financial services regulatory agency, when that job title indicates seniority or standing within the organization, or specifies a person’s area of specialization within the organization. For the purposes of this subdivision, federal financial services regulatory agency includes, but is not limited to, an agency that regulates brokers or dealers, investment advisers, or investment companies as described under the Investment Company Act of 1940 (15 U.S.C. Sec. 809-1 et seq.).
This section shall not apply to a broker or agent who is licensed by the Department of Insurance and is in compliance with the requirements of Section 787.1 of the Insurance Code.
This subdivision shall be operative only if Assembly Bill 2150 of the 2007–08 Regular Session is chaptered and becomes effective and that bill adds Section 787.1 to the Insurance Code.
This section shall become operative on July 1, 2009.
Any person whose certificate as a broker-dealer or investment adviser has been suspended or revoked shall immediately surrender such certificate to the commissioner.
It is unlawful for any person willfully to make any untrue statement of a material fact in any application, notice, or report filed with the commissioner under this part, or willfully to omit to state in any such application, notice, or report any material fact which is required to be stated therein.
It is unlawful for any agent or broker-dealer to require, as a condition to the purchase or sale of securities for and in the name of a married person, that the prior consent or authorization of the spouse of that person be obtained.
Upon written or oral request, the commissioner shall make available to any person the information specified in Section 7929.005 of the Government Code and made available through the Public Disclosure Program of the Financial Industry Regulatory Authority with respect to any broker-dealer or agent licensed or regulated under this part. The commissioner shall also make available the current license status and the year of issuance of the license of a broker-dealer. Any information disclosed pursuant to this subdivision shall constitute a public record. Notwithstanding any other law, the commissioner may disclose either orally or in writing that information pursuant to this subdivision. There shall be no liability on the part of, and no cause of action of any nature shall arise against, the state, the Department of Financial Protection and Innovation, the Commissioner of Financial Protection and Innovation, or any officer, agent, or employee of the state or the Department of Financial Protection and Innovation for the release of any false or unauthorized information, unless the release of that information was done with knowledge and malice.
Any broker-dealer or agent licensed or regulated under this part shall, upon request, deliver a written notice to any client when a new account is opened stating that information about the license status or disciplinary record of a broker-dealer or an agent may be obtained from the Division of Corporations, or from any other source that provides substantially similar information.
The notice provided under subdivision (b) shall contain the office location or telephone number where the information may be obtained.
A broker-dealer or agent is exempt from providing the notice required under subdivision (b) if a person who does not have a financial relationship with the broker-dealer or agent, requests only general operational information such as the nature of the broker-dealer’s or agent’s business, office location, hours of operation, basic services, and fees, but does not solicit advice regarding investments or other services offered.
Upon written or oral request, the commissioner shall make available to any person the disciplinary records maintained on the Investment Adviser Registration Depository and made available through the Investment Adviser Public Disclosure internet website as to any investment adviser, investment adviser representative, or associated person of an investment adviser licensed or regulated under this part. The commissioner shall also make available the current license status and the year of issuance of the license of an investment adviser. Any information disclosed pursuant to this subdivision shall constitute a public record. Notwithstanding any other law, the commissioner may disclose that information either orally or in writing pursuant to this subdivision. There shall be no liability on the part of, and no cause of action of any nature shall arise against, the state, the Department of Financial Protection and Innovation, the Commissioner of Financial Protection and Innovation, or any officer, agent, or employee of the state or the Department of Financial Protection and Innovation for the release of any false or unauthorized information, unless the release of that information was done with knowledge and malice.
Section 461 of the Business and Professions Code shall not apply to the Division of Corporations when using a national, uniform application adopted or approved for use by the Securities and Exchange Commission, the North American Securities Administrators Association, or the Financial Industry Regulatory Authority that is required for participation in the Central Registration Depository or the Investment Adviser Registration Depository.
This section shall not require the disclosure of criminal history record information maintained by the Federal Bureau of Investigation pursuant to Section 534 of Title 28 of the United States Code, and the rules thereunder, or information not otherwise subject to disclosure under the Information Practices Act of 1977.
If the commissioner finds, as a result of any examination or investigation or from any report made to the commissioner, that any person subject to this part, other than an investment adviser subject to Section 25230.1, is in an insolvent condition, or is conducting a securities, broker-dealer, or investment advisory business in such an unsafe, injurious, or unauthorized manner as to render further operations hazardous to the public or to customers, the commissioner may, by an order addressed to and served by registered or certified mail or by personal service on that person and on any other person having in his or her possession or control any client funds, trust funds, or other property deposited with that person, direct discontinuance of the disbursement of client or trust funds by the parties or any of them, the receipt of client or trust funds, or other business operations. No person having in his or her possession any of these funds shall be liable for failure to comply with the order unless he or she has received written notice of the order. Subject to subdivision (b), the order shall remain in effect until set aside by the commissioner, in whole or in part, the person is the subject of an order for relief in bankruptcy, or pursuant to Section 25253, the commissioner has assumed possession of the broker-dealer or investment adviser.
Within 15 days from the date of an order pursuant to subdivision (a), the person may request a hearing under the Administrative Procedure Act (Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code). Upon receipt of a request, the matter shall be set for hearing to commence within 30 days after that receipt unless the person subject to this division consents to a later date. If no hearing is requested within 15 days after the mailing or service of the notice and none is ordered by the commissioner, the failure to request a hearing shall constitute a waiver of the right to a hearing. Neither the request for a hearing nor the hearing itself shall stay the order issued by the commissioner under subdivision (a).
If, after examination or investigation, the commissioner has reasonable grounds to believe that any broker-dealer or investment adviser is violating or has violated any law or rule binding upon it, the commissioner shall, by written order addressed to the broker-dealer or investment adviser, direct the discontinuance of the violation. The order shall be effective immediately, but shall not become final except in accordance with the provisions of Section 25251.
If, after examination or investigation, the commissioner has reasonable grounds to believe that any broker-dealer or investment adviser, other than an investment adviser subject to Section 25230.1, is conducting or has conducted business in an unsafe or injurious manner, the commissioner shall, by written order addressed to the broker-dealer or investment adviser, direct the discontinuance of the unsafe or injurious practices. The order shall be effective immediately, but shall not become final except in accordance with the provisions of Section 25251.
No order issued pursuant to Section 25249 or 25250 may become final except after notice to the affected broker-dealer or investment adviser of the commissioner’s intention to make the order final and of the reasons for the finding. The commissioner shall also notify the broker-dealer or investment adviser that upon receiving a request the matter shall be set for hearing to commence within 15 business days after receipt of the request. The broker-dealer or investment adviser may consent to have the hearing commence at a later date. If no hearing is requested within 30 days after the mailing or service of the required notice, and none is ordered by the commissioner, the order may become final without a hearing and the broker-dealer or investment adviser shall immediately discontinue the practices named in the order. If a hearing is requested or ordered, it shall be held in accordance with the provisions of the Administrative Procedure Act (Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code), and the commissioner shall have all of the powers granted under that act. If, upon the conclusion of the hearing, it appears to the commissioner that the broker-dealer or investment adviser is conducting or has conducted business in an unsafe and injurious manner or is violating or has violated any law of this state, or any rule binding upon it, the commissioner shall make the order of discontinuance final and the broker-dealer or investment adviser shall immediately discontinue the practices named in the order.
The broker-dealer or investment adviser may within 10 days after an order is made final commence an action to restrain enforcement of the order. If the enforcement of the order is not enjoined within 10 days by the court in which the action is brought, the broker-dealer or investment adviser shall comply with the order.
The commissioner may, after appropriate notice and opportunity for hearing, by orders, levy administrative penalties as follows:
Any person subject to this division, other than a broker-dealer or investment adviser, who willfully violates any provision of this division, or who willfully violates any rule or order adopted or issued pursuant to this division, is liable for administrative penalties of not more than one thousand dollars ($1,000) for the first violation, and not more than two thousand five hundred dollars ($2,500) for each subsequent violation.
Any broker-dealer or investment adviser that willfully violates any provision of this division to which it is subject, or that willfully violates any rule or order adopted or issued pursuant to this division and to which it is subject, is liable for administrative penalties of not more than five thousand dollars ($5,000) for the first violation, not more than ten thousand dollars ($10,000) for the second violation, and not more than fifteen thousand dollars ($15,000) for each subsequent violation.
The administrative penalties shall be collected by the commissioner and paid into the State Corporations Fund.
The administrative penalties available to the commissioner pursuant to this section are not exclusive, and may be sought and employed in any combination with civil, criminal, and other administrative remedies deemed advisable by the commissioner to enforce the provisions of this division.
After the exhaustion of the review procedures provided in accordance with the provisions of the Administrative Procedure Act, Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, the commissioner may apply to the appropriate superior court for a judgment in the amount of the administrative penalty and costs awarded in a final decision and order compelling the respondent, or the named or cited person, to comply with the final decision of the commissioner brought under this division. The application shall include a certified copy of the final decision of the commissioner and shall constitute a sufficient showing to warrant the issuance of the judgment and order from superior court.
Whenever it appears to the commissioner that any of the conditions specified in subdivision (b) has occurred with respect to any broker-dealer or investment adviser subject to this division, the commissioner shall dispatch a written notice demanding remedial action and a summary of findings, as referred to in Section 25248, to the principal officer of that broker-dealer or investment adviser or to its manager of record.
The conditions that require the commissioner to commence remedial action against a broker-dealer or investment adviser pursuant to subdivision (a) includes any of the following:
The broker-dealer or investment adviser is in an insolvent condition.
It is conducting its securities, broker-dealer, or investment advisory business in an unsafe or unauthorized manner.
It has violated any rule or order adopted or issued pursuant to this division that is or has been necessary for the protection of any investor.
It refuses to submit its books, papers, and affairs to the inspection of any examiner or investigator.
It neglects or refuses to observe any order of the commissioner made pursuant to this division that is or has been necessary for the protection of any investor, within the time specified therein, unless the enforcement of the order is restrained in a proceeding brought by the broker-dealer or investment adviser.
It has violated any provision of this division or any similar regulatory scheme of this state or a foreign jurisdiction relating to the protection of any investor.
Any officer, director, stockholder, or partner of the broker-dealer or investment adviser, or attorney-in-fact of the broker-dealer or investment adviser has embezzled, misappropriated, or willfully diverted the assets or client or trust funds of the broker-dealer or investment adviser.
It has permitted its capital to be lower than the minimum required by law, including any rule or order adopted or issued pursuant to this division.
The broker-dealer or investment adviser shall be afforded a reasonable opportunity to comply or otherwise effect those remedies specified in the written notice or any other remedies that the commissioner may deem acceptable. However, if the broker-dealer or investment adviser fails to comply within five days of receipt of the notice, or as soon as it appears to the commissioner that no compliance is possible, or in the event prompt delivery of the written notice is impossible, the commissioner may take possession of the property and business of the broker-dealer or investment adviser and retain possession until the broker-dealer or investment adviser, subject to those conditions that the commissioner may prescribe, resumes its business or its affairs are finally liquidated.
Whenever the commissioner has taken possession of any broker-dealer or investment adviser, the broker-dealer or investment adviser, within 10 days after the taking, may apply to the superior court to enjoin further proceedings in any California county or city and county in which the California office or offices of the broker-dealer or investment adviser is located. The court, after ordering the commissioner to show cause why further proceedings should not be enjoined and after a hearing and a determination of the facts upon the merits, may dismiss the application or enjoin the commissioner from further proceedings and direct the commissioner to surrender the property and business to the broker-dealer or investment adviser, or make any further order that may be just.
If any facts occur that would entitle the commissioner under subdivision (b) to take possession of the property, business, and assets of a broker-dealer or investment adviser, the commissioner may appoint a conservator of the broker-dealer or investment adviser and require the conservator to post a bond. The conservator, under the direction of the commissioner, shall take possession of the property, business, and assets of the broker-dealer or investment adviser and take any action that the conservator deems necessary to conserve the assets of the broker-dealer or investment adviser pending further disposition of its business. The conservator shall retain possession until the property, business, and assets of the broker-dealer or investment adviser are returned to the broker-dealer or investment adviser or until further order of the commissioner.
Subject to the other provisions of this section, a conservator, while in possession of the property, business, and assets of a broker-dealer or investment adviser, has the same powers and rights and is subject to the same duties and obligations as the commissioner while in possession of the property, business, and assets of a broker-dealer or investment adviser. During that time, the rights of a broker-dealer or investment adviser and of all persons with respect thereto, subject to the other provisions of this section, are the same as if the commissioner had taken possession of the property, business, and assets. A conservator, while in possession of the property, business, and assets of a broker-dealer or investment adviser shall have all the rights, powers, and privileges of the broker-dealer or investment adviser, its officers and directors or partners. All expenses of the conservatorship shall be paid out of the assets of the broker-dealer or investment adviser and shall be a lien thereon which shall be prior to any other lien.
An investment adviser subject to Section 25230.1 is not subject to this section, unless that investment adviser or persons acting on behalf of that investment adviser committed any of the acts of fraud or deceit set forth in paragraph (7) of subdivision (b).
If the commissioner determines it is in the public interest, the commissioner may include in any administrative action brought under this part a claim for ancillary relief, including, but not limited to, a claim for restitution or disgorgement or damages on behalf of the persons injured by the act or practice constituting the subject matter of the action, and the administrative law judge shall have jurisdiction to award additional relief.
In an administrative action brought under this part, the commissioner is entitled to recover costs, which in the discretion of the administrative law judge may include an amount representing reasonable attorney’s fees and investigative expenses for the services rendered, for deposit into the State Corporations Fund for the use of the Department of Financial Protection and Innovation.
After the exhaustion of the review procedures provided in accordance with the provisions of the Administrative Procedure Act, Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, the commissioner may apply to the appropriate superior court for a judgment in the amount of the ancillary relief and costs awarded in a final decision and order compelling the respondent, or the named or cited person, to comply with the final decision of the commissioner brought under this division. The application shall include a certified copy of the final decision of the commission and shall constitute a sufficient showing to warrant the issuance of the judgment and order from superior court.
The civil, criminal, and administrative remedies available to the commissioner pursuant to this division are not exclusive, and may be sought and employed in any combination deemed advisable by the commissioner to enforce the provisions of this division.
For any broker-dealer or investment adviser, a disciplinary action taken by the State of California, another state, an agency of the federal government, or another country for an action substantially related to the activity regulated under this division may be grounds for disciplinary action by the commissioner. A certified copy of the record of the disciplinary action taken against the licensee by the State of California, other state, agency of the federal government, or other country shall be conclusive evidence of the events related therein.
Nothing in this section precludes the commissioner from applying a specific statutory provision in this division providing for discipline against a broker-dealer or investment adviser, as a result of disciplinary action taken against a broker-dealer or an investment adviser, by the State of California, another state, an agency of the federal government, or another country.
PART 4. ADVERTISING SECURITIES [25300. - 25302.]
No person shall publish any advertisement in this state concerning any security sold or offered for sale in this state unless a true copy of the advertisement has first been filed in the office of the commissioner at least three business days prior to the publication or a shorter period as the commissioner may by rule or order allow.
Subdivision (a) of this section does not apply to:
Any advertisement for any security published by a licensed broker-dealer if the broker-dealer is not effecting transactions in that security as an underwriter or other participant in a distribution for the issuer;
Any advertisement for any security published by an issuer or any underwriter or other participant in a distribution for the issuer if the security or transaction is exempted by the provisions of Chapter 1 (commencing with Section 25100) of Part 2 of this division;
Any advertisement permitted or required by Section 5(b)(2) or Section 2(a)(10)(b) of the Securities Act of 1933 with respect to a security which has been registered under the Securities Act of 1933 and qualified for sale in this state;
Any advertisement with respect to (A) a security that is subject to Sections 25100.1 and 25101.1 and the advertisement is permitted or required under the Securities Act of 1933, (B) a transaction that is subject to Section 25102.1 and the advertisement is permitted or required under the Securities Act of 1933, or (C) an investment adviser that is subject to Section 25230.1 and the advertisement is permitted or required under the Investment Adviser Act of 1940; or
Any other advertisement exempted by rule of the commissioner.
All advertisements published by any broker-dealer that are exempted from filing by paragraph (1) or paragraph (6) of subdivision (b) of Section 25300 shall be approved prior to use by signature or initial of an officer, partner, or responsible supervisory official of the broker-dealer and the signed or initialed copy shall be retained by the broker-dealer in an appropriate file for a period of three years, subject to examination by the commissioner.
A person shall not publish any advertisement concerning any security in this state after the commissioner finds that the advertisement contains any statement that is false or misleading or omits to make any statement necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading and so notifies the person in writing. This notification may be given summarily without notice or hearing. At any time after the issuance of a notification under this section, the person desiring to use the advertisement may in writing request that the order be rescinded. Upon the receipt of the written request, the matter shall be set for hearing to commence within 15 business days after receipt unless the person making the request consents to a later date. After the hearing, which shall be conducted in accordance with the provisions of the Administrative Procedure Act (Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code), the commissioner shall determine whether to affirm and continue or to rescind the order, and the commissioner shall have all the powers granted under the act.
This section does not apply to any advertisement for any security which is subject to the supervision, regulation or examination of any of the following:
The Insurance Commissioner.
The Commissioner of Financial Protection and Innovation.
The Public Utilities Commission.
The Comptroller of the Currency of the United States.
The Federal Deposit Insurance Corporation.
The Board of Governors of the Federal Reserve System.
PART 5. FRAUDULENT AND PROHIBITED PRACTICES [25400. - 25404.]
It is unlawful for any person, directly or indirectly, in this state:
For the purpose of creating a false or misleading appearance of active trading in any security or a false or misleading appearance with respect to the market for any security, (1) to effect any transaction in a security which involves no change in the beneficial ownership thereof, or (2) to enter an order or orders for the purchase of any security with the knowledge that an order or orders of substantially the same size, at substantially the same time and at substantially the same price, for the sale of any such security, has been or will be entered by or for the same or different parties, or (3) to enter an order or orders for the sale of any security with the knowledge that an order or orders of substantially the same size, at substantially the same time and at substantially the same price, for the purchase of any such security, has been or will be entered by or for the same or different parties.
To effect, alone or with one or more other persons, a series of transactions in any security creating actual or apparent active trading in such security or raising or depressing the price of such security, for the purpose of inducing the purchase or sale of such security by others.
If such person is a broker-dealer or other person selling or offering for sale or purchasing or offering to purchase the security, to induce the purchase or sale of any security by the circulation or dissemination of information to the effect that the price of any such security will or is likely to rise or fall because of market operations of any one or more persons conducted for the purpose of raising or depressing the price of such security.
If such person is a broker-dealer or other person selling or offering for sale or purchasing or offering to purchase the security, to make, for the purpose of inducing the purchase or sale of such security by others, any statement which was, at the time and in the light of the circumstances under which it was made, false or misleading with respect to any material fact, or which omitted to state any material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, and which he knew or had reasonable ground to believe was so false or misleading.
For a consideration, received directly or indirectly from a broker-dealer or other person selling or offering for sale or purchasing or offering to purchase the security, to induce the purchase or sale of any security by the circulation or dissemination of information to the effect that the price of such security will or is likely to rise or fall because of the market operations of any one or more persons conducted for the purpose of raising or depressing the price of such security.
It is unlawful for any person to offer or sell a security in this state, or to buy or offer to buy a security in this state, by means of any written or oral communication that includes an untrue statement of a material fact or omits to state a material fact necessary to make the statements made, in the light of the circumstances under which the statements were made, not misleading.
It is unlawful for an issuer or any person who is an officer, director or controlling person of an issuer or any other person whose relationship to the issuer gives him access, directly or indirectly, to material information about the issuer not generally available to the public, to purchase or sell any security of the issuer in this state at a time when he knows material information about the issuer gained from such relationship which would significantly affect the market price of that security and which is not generally available to the public, and which he knows is not intended to be so available, unless he has reason to believe that the person selling to or buying from him is also in possession of the information.
Every person who with knowledge directly or indirectly controls and induces any person to violate any provision of this division or any rule or order thereunder shall be deemed to be in violation of that provision, rule, or order to the same extent as the controlled and induced person.
Any person that knowingly provides substantial assistance to another person in violation of any provision of this division or any rule or order thereunder shall be deemed to be in violation of that provision, rule, or order to the same extent as the person to whom the assistance was provided.
It shall be unlawful for any person directly or indirectly to do any act or thing which would be unlawful for that person to do under any provision of this division or any rule or order thereunder through or by any other person.
Nothing in this section shall be construed to limit the power of the state to punish any person for any conduct which constitutes a crime under any other statute.
It is unlawful for any person to knowingly alter, destroy, mutilate, conceal, cover up, falsify, or make a false entry in any record, document, or tangible object with the intent to impede, obstruct, or influence the administration or enforcement of this division.
It is unlawful for any person to knowingly make an untrue statement to the commissioner during the course of licensing, investigation, or examination, with the intent to impede, obstruct, or influence the administration or enforcement of any provision of this division.
PART 6. ENFORCEMENT [25500. - 25550.]
CHAPTER 1. Civil Liability [25500. - 25510.]
Any person who willfully participates in any act or transaction in violation of Section 25400 shall be liable to any other person who purchases or sells any security at a price which was affected by such act or transaction for the damages sustained by the latter as a result of such act or transaction. Such damages shall be the difference between the price at which such other person purchased or sold securities and the market value which such securities would have had at the time of his purchase or sale in the absence of such act or transaction, plus interest at the legal rate.
Any person who violates Section 25401 shall be liable to the person who purchases a security from, or sells a security to, that person, who may sue either for rescission or for damages (if the plaintiff or the defendant, as the case may be, no longer owns the security), unless the defendant proves that the plaintiff knew the facts concerning the untruth or omission or that the defendant exercised reasonable care and did not know (or if the defendant had exercised reasonable care, would not have known) of the untruth or omission. Upon rescission, a purchaser may recover the consideration paid for the security, plus interest at the legal rate, less the amount of any income received on the security, upon tender of the security. Upon rescission, a seller may recover the security, upon tender of the consideration paid for the security plus interest at the legal rate, less the amount of any income received by the defendant on the security. Damages recoverable under this section by a purchaser shall be an amount equal to the difference between (a) the price at which the security was bought plus interest at the legal rate from the date of purchase and (b) the value of the security at the time it was disposed of by the plaintiff plus the amount of any income received on the security by the plaintiff. Damages recoverable under this section by a seller shall be an amount equal to the difference between (1) the value of the security at the time of the filing of the complaint plus the amount of any income received by the defendant on the security and (2) the price at which the security was sold plus interest at the legal rate from the date of sale. Any tender specified in this section may be made at any time before entry of judgment. In addition to the relief described above, the court shall award reasonable attorney’s fees and costs to a prevailing purchaser or seller who succeeds in establishing a right to the relief provided by this section.
A person who purchases a security from or sells a security to a broker-dealer that is required to be licensed and has not, at the time of the sale or purchase, applied for and secured from the commissioner a certificate under Part 3 (commencing with Section 25200), that is in effect at the time of the sale or purchase authorizing that broker-dealer to act in that capacity, may bring an action for rescission of the sale or purchase or, if the plaintiff or the defendant no longer owns the security, for damages.
Upon rescission and tender of the security, a purchaser may recover the consideration paid for the security plus interest at the legal rate, less the amount of any income received on the security.
Upon rescission and tender of the consideration paid for the security plus interest at the legal rate, a seller may recover the security plus the amount of any income received by the defendant on the security.
Damages recoverable under this section by a purchaser shall be an amount equal to the difference between the following:
The price at which the security was bought plus interest at the legal rate from the date of purchase.
The value of the security at the time it was disposed of by the plaintiff plus the amount of any income received on the security by the plaintiff.
Damages recoverable under this section by a seller shall be an amount equal to the difference between the following:
The value of the security at the time of the filing of the complaint plus the amount of any income received by the defendant on the security.
The price at which the security was sold plus interest at the legal rate from the date of sale.
A tender of a security or of consideration paid for a security plus interest pursuant to this section may be made at any time before entry of judgment.
The court, in its discretion, may award reasonable attorney’s fees and costs to a prevailing plaintiff under this section.
Any person who violates Section 25402 shall be liable to the person who purchases a security from him or sells a security to him, for damages equal to the difference between the price at which such security was purchased or sold and the market value which such security would have had at the time of the purchase or sale if the information known to the defendant had been publicly disseminated prior to that time and a reasonable time had elapsed for the market to absorb the information, plus interest at the legal rate, unless the defendant proves that the plaintiff knew the information or that the plaintiff would have purchased or sold at the same price even if the information had been revealed to him.
Any person other than the issuer who violates Section 25402 shall be liable to the issuer of the security purchased or sold in violation of Section 25402 for damages in an amount up to three times the difference between the price at which the security was purchased or sold and the market value which the security would have had at the time of the purchase or sale if the information known to the defendant had been publicly disseminated prior to that time and a reasonable time had elapsed for the market to absorb the information and shall be liable to the issuer of the security or to a person who institutes an action under this section in the right of the issuer of the security for reasonable costs and attorney’s fees.
The amounts recoverable under this section by the issuer shall be reduced by any amount paid by the defendant in a proceeding brought by the Securities and Exchange Commission with respect to the same transaction or transactions under the federal Insider Trading Sanctions Act of 1984 (15 U.S.C. Secs. 78a, 78c, 78o, 78t, 78u, and 78ff) or any other act regardless of whether the amount was paid pursuant to a judgment or settlement or paid before or after the filing of an action by the plaintiff against the defendant. If a proceeding has been commenced by the Securities and Exchange Commission but has not been finally resolved, the court shall delay entering a judgment for the plaintiff under this section until that proceeding is resolved.
If any shareholder of an issuer alleges to the board that there has been a violation of this section, the board shall be required to consider the allegation in good faith, and if the allegation involves misconduct by any director, that director shall not be entitled to vote on any matter involving the allegation. However, that director may be counted in determining the presence of a quorum at a meeting of the board or a committee of the board.
This section shall only apply to issuers who have total assets in excess of one million dollars ($1,000,000) and have a class of equity security held of record by 500 or more persons.
Any person who violates Section 25110, 25130, or 25133, or a condition of qualification under Chapter 2 (commencing with Section 25110) of this part, imposed pursuant to Section 25141, or an order suspending trading issued pursuant to Section 25219, shall be liable to any person acquiring from them the security sold in violation of that section, who may sue to recover the consideration they paid for that security with interest thereon at the legal rate, and reasonable attorney’s fees, less the amount of any income received therefrom, upon the tender of that security, or for damages, if they no longer own the security, or if the consideration given for the security is not capable of being returned. Damages, if the plaintiff no longer owns the security, shall be equal to the difference between (a) the purchase price plus interest at the legal rate from the date of purchase, plus reasonable attorney’s fees, and (b) the value of the security at the time it was disposed of by the plaintiff plus the amount of any income received therefrom by the plaintiff.
Damages, if the consideration given for the security is not capable of being returned, shall be equal to the value of that consideration plus interest at the legal rate from the date of purchase, provided the security is tendered, plus reasonable attorney’s fees; and if the plaintiff no longer owns the security, damages in that case shall be equal to the difference between (a) the value of the consideration given for the security plus interest at the legal rate from the date of purchase, plus reasonable attorney’s fees; and (b) the value of the security at the time it was disposed of by the plaintiff plus the amount of any income received therefrom by the plaintiff. Any person who violates Section 25120 or a condition of qualification under Chapter 3 (commencing with Section 25120) of this part imposed pursuant to Section 25141, shall be liable to any person acquiring from them the security sold in violation of that section who may sue to recover the difference between (a) the value of the consideration received by the seller and (b) the value of the security at the time it was received by the buyer, with interest thereon at the legal rate from the date of purchase, plus reasonable attorney’s fees. Any person on whose behalf an offering is made and any underwriter of the offering, whether on a best efforts or a firm commitment basis, shall be jointly and severally liable under this section, but in no event shall any underwriter (unless that underwriter shall have knowingly received from the issuer for acting as an underwriter some benefit, directly or indirectly, in which all other underwriters similarly situated did not share in proportion to their respective interest in the underwriting) be liable in any suit or suits authorized under this section for damages in excess of the total price at which the securities underwritten by them and distributed to the public were offered to the public. Any tender specified in this section may be made at any time before entry of judgment. No person shall be liable under this section for violation of Section 25110, 25120 or 25130 if the sale of the security is qualified prior to the payment or receipt of any part of the consideration for the security sold, even though an offer to sell or a contract of sale may have been made or entered into without qualification.
Every person who directly or indirectly controls a person liable under Section 25501 or 25503, every partner in a firm so liable, every principal executive officer or director of a corporation so liable, every person occupying a similar status or performing similar functions, every employee of a person so liable who materially aids in the act or transaction constituting the violation, and every broker-dealer or agent who materially aids in the act or transaction constituting the violation, are also liable jointly and severally with and to the same extent as such person, unless the other person who is so liable had no knowledge of or reasonable grounds to believe in the existence of the facts by reason of which the liability is alleged to exist.
Any person who materially assists in any violation of Section 25110, 25120, 25130, 25133, or 25401, or a condition of qualification under Chapter 2 (commencing with Section 25110) of Part 2 of this division imposed pursuant to Section 25141, or a condition of qualification under Chapter 3 (commencing with Section 25120) of Part 2 of this division imposed pursuant to Section 25141, or an order suspending trading issued pursuant to Section 25219, with intent to deceive or defraud, is jointly and severally liable with any other person liable under this chapter for such violation.
Any accountant, engineer, appraiser, or other person whose profession gives authority to a statement made by such person, who pursuant to rule of the commissioner has given written consent to be and has been named in any prospectus or offering circular distributed in connection with the offer or sale of securities as having prepared or certified in such capacity either any part of such document or any written report or valuation which is distributed with or referred to in any such document is jointly and severally liable with any other person liable under Section 25501 if:
The part of such document so prepared or certified or the report or valuation so distributed or referred to includes an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; and
The person asserting such liability acquired a security described in such document in reliance on such untrue statement or in reliance on such part of the document or on such report or valuation without notice of such omission.
Notwithstanding the provisions of subdivision (a), no such accountant, engineer, appraiser, or other person shall be liable as provided therein if such person sustains the burden of proof that:
Such person had, after reasonable investigation, reasonable ground to believe and did believe, at the time such person consented to such use of such person’s name, that the statements so included in such part of such document or in such report or valuation were true and that there was no omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or
Such part of such document did not fairly represent such person’s statement as an expert or was not a fair copy of or extract from such person’s report or valuation as an expert; or
Prior to the acquisition of the security by the person asserting the liability, such accountant, engineer, appraiser, or other person advised the issuer and the commissioner in writing that such person would not be responsible for such part of the document or the report or valuation.
A person who participates in the preparation of a document described in subdivision (a) of this section shall be deemed to have prepared or certified only those portions thereof which are expressly stated with such person’s written consent to have been made on such person’s authority.
A corporation which is liable under this chapter shall have a right of indemnification against any of its principal executive officers, directors, and controlling persons whose willful violation of any provision of this law gave rise to such liability. All persons liable under this chapter shall have a right of contribution against all other persons similarly liable, based upon each person’s proportionate share of the total liability, except that no person whose willful violation of any provision of this law has given rise to any liability shall have any right of contribution against any other person guilty merely of a negligent violation, and except that no principal executive officer, director, or controlling person whose willful violation has given rise to any liability shall have any right of contribution against the corporation to which he sustains that relationship.
For proceedings commencing before January 1, 2005, no action shall be maintained to enforce any liability created under Section 25500, 25501, or 25502 (or Section 25504 or Section 25504.1 insofar as they related to those sections) unless brought before the expiration of four years after the act or transaction constituting the violation or the expiration of one year after the discovery by the plaintiff of the facts constituting the violation, whichever shall first expire.
For proceedings commencing on or after January 1, 2005, no action shall be maintained to enforce any liability created under Section 25500, 25501, or 25502 (or Section 25504 or Section 25504.1 insofar as they related to those sections) unless brought before the expiration of five years after the act or transaction constituting the violation or the expiration of two years after the discovery by the plaintiff of the facts constituting the violation, whichever shall first expire.
No action shall be maintained to enforce any liability created under Section 25504.2 unless brought within one year after the discovery of the facts constituting the violation, or after such discovery should have been made by the exercise of reasonable diligence. In no event shall any such action be brought more than three years after the act or transaction constituting the violation.
No action shall be maintained to enforce any liability created under Section 25503 (or Section 25504 or Section 25504.1 insofar as they relate to that section) unless brought before the expiration of two years after the violation upon which it is based or the expiration of one year after the discovery by the plaintiff of the facts constituting such violation, whichever shall first expire.
No buyer may commence an action under Section 25503 (or Section 25504 or Section 25504.1 insofar as they relate to that section) if, before suit is commenced, such buyer shall have received a written offer approved as to form by the commissioner (1) stating the respect in which liability under such section may have arisen, (2) offering to repurchase the security for a cash price payable upon delivery of the security or offering to pay the buyer an amount in cash equal in either case to the amount recoverable by the buyer in accordance with Section 25503, or, offering to rescind the transaction by putting the parties back in the same position as before the transaction, (3) providing that such offer may be accepted by the buyer at any time within a specified period of not less than 30 days after the date of receipt thereof unless rejected earlier during such period by the buyer, (4) setting forth the provisions of this subdivision (b), and (5) containing such other information as the commissioner may require by rule or order, and such buyer shall have failed to accept such offer in writing within the specified period after receipt thereof.
The commissioner may by rule or order impose as a condition to approval of an offer under subdivision (b) of this section, if the commissioner finds such action is necessary and appropriate for the protection of investors, conditions requiring:
That the offer be made subject to a condition voiding such offer if the issuer, by reason of acceptances, is disabled from commencing or continuing business;
That the offer be made within a specified period after approval thereof by the commissioner;
If the consideration paid by the offeree was other than monetary or if the offer is of rescission, and if the offer is rejected by the offeree on the ground that it does not accord him the damages payable under Section 25503 or that the rescission offered does not place the parties back in the same position as before the transaction, that an offer so rejected shall not bar the commencement of an action by the offeree under Section 25503 (or Section 25504 or Section 25504.1 insofar as they relate to that section); or
That the offeror file a report or reports with the commissioner containing such information as he may require concerning the making of the offer, its acceptance or rejection, and compliance with its terms and conditions or with conditions imposed under this subdivision.
Each person who files a repurchase offer with the commissioner pursuant to subdivision (b) shall file with the commissioner, in such form as the commissioner by rule prescribes, an irrevocable consent appointing the commissioner or the commissioner’s successor in office to be such person’s attorney to receive service of any lawful process in any noncriminal suit, action or proceeding against such person or such person’s successor, executor or administrator, which arises under this law or any rule or order hereunder after the consent has been filed, with the same force and validity as if served personally on the person filing the consent. A person who has filed such a consent in connection with a qualification under this law (or application for a permit under any prior law if the application under this law states that such consent is still effective) need not file another. Service may be made by leaving a copy of the process in the office of the commissioner but it is not effective unless (1) the plaintiff, who may be the commissioner in a suit, action or proceeding instituted by him, forthwith sends notice of the service and a copy of the process by registered or certified mail to the defendant or respondent at such person’s last address on file with the commissioner, and (2) the plaintiff’s affidavit of compliance with this section is filed in the case on or before the return day of the process, if any, or within such further time as the court allows.
No action shall be maintained to enforce any right of indemnification or contribution created by Section 25505 unless brought before the expiration of one year after final judgment based upon the liability for which the right of indemnification or contribution exists.
In addition to any other rights provided for under this division, including, but not limited to, Sections 25501 and 25506, or otherwise, a person who purchases a viatical or life settlement contract or a fractionalized or pooled interest therein may rescind or cancel the purchase for any reason. The person may rescind or cancel the purchase at any time before seven calendar days after the date the person remits the required consideration to the issuer or the issuer’s agent by giving written notice of rescission or cancellation to the issuer or the issuer’s agent. No specific form is required for the rescission or cancellation. The notice is effective when personally delivered, deposited in the United States mail, or deposited with a commercial courier or delivery service. The issuer shall refund all the person’s money within seven calendar days after receiving the notice of rescission or cancellation.
Every cause of action under this chapter survives the death of any person who might have been a plaintiff or defendant.
Except as explicitly provided in this chapter, no civil liability in favor of any private party shall arise against any person by implication from or as a result of the violation of any provision of this law or any rule or order hereunder. Nothing in this chapter shall limit any liability which may exist by virture of any other statute or under common law if this law were not in effect.
CHAPTER 2. Powers of the Commissioner [25530. - 25536.]
Whenever it appears to the commissioner that any person has engaged, is engaging, or is about to engage in any act or practice constituting a violation of any provision of this division or any rule or order hereunder, the commissioner may in the commissioner’s discretion bring an action in the name of the people of the State of California in the superior court to enjoin the acts or practices or to enforce compliance with this law or any rule or order hereunder. Upon a proper showing, a permanent or preliminary injunction, restraining order, or writ of mandate shall be granted and a receiver, monitor, conservator, or other designated fiduciary or officer of the court may be appointed for the defendant or the defendant’s assets, or any other ancillary relief may be granted as appropriate.
A receiver, monitor, conservator, or other designated fiduciary or officer of the court appointed by the superior court pursuant to this section may, with the approval of the court, exercise any or all of the powers of the defendant’s officers, directors, partners, trustees or persons who exercise similar powers and perform similar duties, including the filing of a petition for bankruptcy. No action at law or in equity may be maintained by any party against the commissioner, or a receiver, monitor, conservator, or other designated fiduciary or officer of the court, by reason of their exercising these powers or performing these duties pursuant to the order of, or with the approval of, the superior court.
If the commissioner determines it is in the public interest, the commissioner may include in any action authorized by subdivision (a) a claim for ancillary relief, including but not limited to, a claim for restitution or disgorgement or damages on behalf of the persons injured by the act or practice constituting the subject matter of the action, and the court shall have jurisdiction to award additional relief.
In any case in which a defendant is ordered by the court to pay restitution to a victim, the court may in its order require the payment as a money judgment, which shall be enforceable by a victim as if the restitution order were a separate civil judgment, and enforceable in the same manner as is provided for the enforcement of any other money judgment. Any order issued under this subdivision shall contain provisions that are designed to achieve a fair and orderly satisfaction of the judgment.
In any proceeding under Section 25530, the court may prohibit, conditionally or unconditionally, and permanently or for such period of time as it shall determine, any person who violated Section 25401 from acting as an officer or director of any issuer that has securities qualified pursuant to Section 25110, or that has securities or a transaction exempt from qualification pursuant to Section 25100, 25102, or 25103, if the person’s conduct demonstrates unfitness to serve as an officer or director of the issuer.
The commissioner in his discretion (1) may make such public or private investigations within or outside of this state as he deems necessary to determine whether any person has violated or is about to violate any provision of this law or any rule or order hereunder or to aid in the enforcement of this law or in the prescribing of rules and forms hereunder, and (2) may publish information concerning any violation of this law or any rule or order hereunder.
In making any investigation authorized by subdivision (a) of this section, the commissioner may, for a reasonable time not exceeding 30 days, take possession of the books, records, accounts and other papers pertaining to the business of any broker-dealer or investment adviser and place a keeper in exclusive charge of them in the place where they are usually kept. During such possession no person shall remove or attempt to remove any of the books, records, accounts, or other papers except pursuant to a court order or with the consent of the commissioner; but the directors, officers, partners, and employees of the broker-dealer or investment adviser may examine them, and employees shall be permitted to make entries therein reflecting current transactions.
For the purpose of any investigation or proceeding under this law, the commissioner or any officer designated by him may administer oaths and affirmations, subpoena witnesses, compel their attendance, take evidence, and require the production of any books, papers, correspondence, memoranda, agreements, or other documents or records which the commissioner deems relevant or material to the inquiry.
In case of contumacy by, or refusal to obey a subpoena issued to, any person, the superior court, upon application by the commissioner, may issue to the person an order requiring him to appear before the commissioner, or the officer designated by him, there to produce documentary evidence, if so ordered, or to give evidence touching the matter under investigation or in question. Failure to obey the order of the court may be punished by the court as a contempt.
No person is excused from attending and testifying or from producing any document or record before the commissioner, or in obedience to the subpoena of the commissioner or any officer designated by him, or in any proceeding instituted by the commissioner, on the ground that the testimony or evidence (documentary or otherwise) required of him may tend to incriminate him or subject him to a penalty or forfeiture; but no individual may be prosecuted or subjected to any penalty or forfeiture for or on account of any transaction, matter, or thing concerning which he is compelled, after validly claiming his privilege against self-incrimination, to testify or produce evidence (documentary or otherwise), except that the individual testifying is not exempt from prosecution and punishment for perjury or contempt committed in testifying.
If, in the opinion of the commissioner, (1) the sale of a security is subject to qualification under this law and it is being or has been offered or sold without first being qualified, the commissioner may order the issuer or offeror of the security to desist and refrain from the further offer or sale of the security until qualification has been made under this law or (2) the sale of a security is subject to the requirements of Section 25100.1, 25101.1, or 25102.1 and the security is being or has been offered or sold without first meeting the requirements of those sections, the commissioner may order the issuer or offeror of that security to desist and refrain from the further offer or sale of the security until those requirements have been met.
If, in the opinion of the commissioner, a person has been or is acting as a broker-dealer or investment adviser, or has been or is engaging in broker-dealer or investment adviser activities, in violation of Section 25210, 25230, or 25230.1, the commissioner may order that person to desist and refrain from the activity until the person has been appropriately licensed or the required filing has been made under this law.
If, in the opinion of the commissioner, a person has violated or is violating Section 25401, the commissioner may order that person to desist and refrain from the violation.
If the commissioner determines that a person has engaged, is engaging, or is about to engage in an act, practice, or course of business constituting a violation of this division or a rule adopted or order issued under this division, the commissioner may issue an order directing the person to desist and refrain from engaging in the act, practice, or course of business, or take other action necessary or appropriate to comply with this division.
If the commissioner determines it is in the public interest, the commissioner may include in any administrative action brought under this division a claim for ancillary relief, including, but not limited to, a claim for restitution or disgorgement or damages on behalf of the persons injured by the act or practice constituting the subject matter of the action, and the administrative law judge shall have jurisdiction to award additional relief.
If, after an order has been served under subdivision (a), (b), (c), or (d), a request for hearing is filed in writing within 30 days of the date of service of the order by the person to whom the order was directed, a hearing shall be held in accordance with provisions of the Administrative Procedure Act, Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, and the commissioner shall have all of the powers granted under that chapter. Unless the hearing is commenced within 15 business days after the request is filed (or the person affected consents to a later date), the order is rescinded.
If that person fails to file a written request for a hearing within 30 days from the date of service of the order, the order shall be deemed a final order of the commissioner and is not subject to review by any court or agency, notwithstanding Section 25609.
The commissioner may file a certified copy of the final order with the clerk of the superior court or any court of competent jurisdiction. The order so filed has the same effect as a judgment of the court and may be recorded, enforced, or satisfied in the same manner as a judgment of the court.
If a person does not comply with an order under this section, the commissioner may petition the superior court or any court of competent jurisdiction to enforce the order. The court may not require the commissioner to post a bond in an action or proceeding under this section. If the court finds, after service and opportunity for hearing, that the person was not in compliance with the order, the court may adjudge the person in civil contempt of the order. The court may impose a further civil penalty against the person for contempt and may grant any other relief the court determines is just and proper in the circumstances.
The commissioner may refer any evidence available concerning any violation of this law or of any rule or order hereunder to the Attorney General or the district attorney of the county in which the violation occurred, who may, with or without this type of a reference, institute appropriate criminal proceedings under this law. The commissioner and his or her counsel, deputies, or assistants may, upon request of the Attorney General or the district attorney, assist the prosecuting attorney in presenting the law or facts at the trial.
The commissioner shall send a copy of a desist and refrain order issued under this law to the Attorney General and the district attorney of the county in which the person who is the subject of the order resides or maintains a principal place of business. There shall be no liability on the part of, and no cause of action of any nature shall arise against, the State of California, the department and its employees, the commissioner, the members of the commissioner’s staff, or the commissioner’s authorized representatives for the failure to provide to the Attorney General or the district attorney a copy of the order as required by this section.
Whenever any securities are issued which the commissioner determines were offered or sold in violation of Section 25110, 25120, or 25130, the commissioner may, by written order to the issuer and notice to the holders of such securities, require certificates evidencing such securities to have stamped or printed prominently on their face a legend, in the form prescribed by rule of the commissioner, restricting the transfer of such securities. Upon receipt of the order, the issuer shall stamp or print such legend prominently on the face of all outstanding certificates subject to the order. If, after such order or notice has been given, a request for a hearing is filed in writing by the person or persons to whom such order or notice was addressed, a hearing shall be held in accordance with the provisions of the Administrative Procedure Act, Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, and the commissioner shall have all the powers granted thereunder; unless such hearing is commenced within 15 business days after the request for hearing is received by the commissioner (or the person or persons affected and the issuer consent to a later date), such order and notice are rescinded.
Any person who violates any provision of this law, or who violates any rule or order under this law, shall be liable for a civil penalty not to exceed twenty-five thousand dollars ($25,000) for each violation, which shall be assessed and recovered in a civil action brought in the name of the people of the State of California by the commissioner in any court of competent jurisdiction.
As applied to the penalties for acts in violation of this division, the remedies provided by this section and by other sections of this division are not exclusive, and may be sought and employed in any combination to enforce the provisions of this division.
No action shall be maintained to enforce any liability created under subdivision (a) unless brought before the expiration of four years after the act or transaction constituting the violation.
The commissioner may take such actions as are authorized by Section 6d of the federal Commodity Exchange Act (7 U.S.C. Sec. 1 et seq.) as amended before or after the effective date of this section.
Nothing in this section shall be construed as a limitation on the powers of the commissioner under this division or any other law administered by the commissioner.
CHAPTER 3. Crimes [25540. - 25542.]
Except as provided for in subdivision (b), any person who willfully violates any provision of this division, or who willfully violates any rule or order under this division, shall upon conviction be fined not more than one million dollars ($1,000,000), or imprisoned pursuant to subdivision (h) of Section 1170 of the Penal Code, or in a county jail for not more than one year, or be punished by both that fine and imprisonment; but no person may be imprisoned for the violation of any rule or order if he or she proves that he or she had no knowledge of the rule or order.
Any person who willfully violates Section 25400, 25401, or 25402, or who willfully violates any rule or order under this division adopted pursuant to those provisions, shall upon conviction be fined not more than ten million dollars ($10,000,000), or imprisoned pursuant to subdivision (h) of Section 1170 of the Penal Code for two, three, or five years, or be punished by both that fine and imprisonment.
Any issuer, as defined in Section 2 of the Sarbanes-Oxley Act of 2002 (Public Law 107-204), who willfully violates Section 25400, 25401, or 25402, or who willfully violates any rule or order under this division adopted pursuant to those provisions, shall upon conviction be fined not more than twenty-five million dollars ($25,000,000), or imprisoned pursuant to subdivision (h) of Section 1170 of the Penal Code for two, three, or five years, or be punished by both that fine and imprisonment.
Any person who willfully employs, directly or indirectly, any device, scheme, or artifice to defraud in connection with the offer, purchase, or sale of any security or willfully engages, directly or indirectly, in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person in connection with the offer, purchase, or sale of any security shall upon conviction be fined not more than ten million dollars ($10,000,000), or imprisoned pursuant to subdivision (h) of Section 1170 of the Penal Code for two, three, or five years, or be punished by both that fine and imprisonment.
Any issuer, as defined in Section 2 of the Sarbanes-Oxley Act of 2002 (Public Law 107-204), who willfully violates subdivision (a) shall upon conviction be fined not more than twenty-five million dollars ($25,000,000), or imprisoned pursuant to subdivision (h) of Section 1170 of the Penal Code for two, three, or five years, or be punished by both that fine and imprisonment.
Nothing in this law limits the power of the state to punish any person for any conduct which constitutes a crime under any other statute.
CHAPTER 4. Service of Process [25550. - 25550.]
When any person, including any nonresident of this state, engages in conduct prohibited or made actionable by this law or any rule or order hereunder, whether or not he has filed a consent to service of process under subdivision (h) of Section 25102, Section 25165, or Section 25240, and personal jurisdiction over him cannot otherwise be obtained in this state, that conduct shall be considered equivalent to his appointment of the commissioner or his successor in office to be his attorney to receive service of any lawful process in any noncriminal suit, action, or proceeding against him or his successor, executor, or administrator which grows out of that conduct and which is brought under this law or any rule or order hereunder, with the same force and validity as if served on him personally. Service may be made by leaving a copy of the process in the office of the commissioner, but it is not effective unless (a) the plaintiff, who may be the commissioner in a suit, action, or proceeding instituted by him, forthwith sends notice of the service and a copy of the process by registered or certified mail to the defendant or respondent at his last known address or takes other steps which are reasonably calculated to give actual notice, and (b) the plaintiff’s affidavit of compliance with this section is filed in the case on or before the return day of the process, if any, or within such further time as the court allows.
PART 7. ADMINISTRATION [25604. - 25620.]
The administration and enforcement of, and the education of the public relative to, the laws and programs of the Department of Financial Protection and Innovation shall be supported from the State Corporations Fund. Funds appropriated from the State Corporations Fund and made available for expenditure for any law or program of the department may come from fees collected from the following:
Section 25608, except for fees collected pursuant to subdivisions (o) to (r), inclusive, of Section 25608.
Section 25608.1.
The commissioner may publish any information filed with him or obtained by him, if, in the judgment of the commissioner, such action is in the public interest. No provision of this law authorizes the commissioner or any of his assistants, clerks, or deputies to disclose any information withheld from public inspection except among themselves or when necessary or appropriate in a proceeding or investigation under this law or to other federal or state regulatory agencies. No provision of this law either creates or derogates from any privilege which exists at common law or otherwise when documentary or other evidence is sought under a subpoena directed to the commissioner or any of his assistants, clerks, or deputies.
It is unlawful for the commissioner or any of his assistants, clerks, or deputies to use for personal benefit any information which is filed with or obtained by the commissioner and which is not then generally available to the public.
The Attorney General shall render to the commissioner opinions upon all questions of law, relating to the construction or interpretation of any law under the commissioner’s jurisdiction or arising in the administration thereof, that may be submitted to the Attorney General by the commissioner, and upon the commissioner’s request shall act as the attorney for the commissioner in actions and proceedings brought by or against the commissioner under or pursuant to any provision of any law under the commissioner’s jurisdiction.
Neither the commissioner nor any of the commissioner’s assistants, clerks, or deputies shall be interested as a director, officer, shareholder, member (other than a member of an organization formed for religious purposes), partner, agent, or employee of any person who, during the period of the official’s or employee’s association with the Department of Financial Protection and Innovation, (1) was licensed or applied for license as a broker-dealer or investment adviser under this division, or (2) applied for or secured the qualification of the sale of securities under this division.
Nothing contained in subdivision (a) shall prohibit the holding or purchasing of any securities by any assistant, clerk, or deputy in accordance with rules as the commissioner shall adopt for the purpose of protecting the public interest and avoiding conflicts of interest.
Nothing contained in subdivision (a) shall prohibit the holding or purchasing of any securities by the commissioner if any of the following criteria is met:
The securities held or purchased by the commissioner are exempt from the qualification requirements of Sections 25110, 25120, and 25130 by virtue of Section 25100, provided that the holding or purchasing of those securities is in accordance with rules adopted for the purpose of protecting the public interest and avoiding conflicts of interest.
The securities held or purchased by the commissioner are not subject to Sections 25110, 25120, and 25130 by virtue of Section 25100.1, provided that the holding or purchasing of those securities is in accordance with rules adopted for the purpose of protecting the public interest and avoiding conflicts of interest.
The holding or purchasing of any securities by the commissioner meets each of the following requirements:
The securities are held or purchased through a management account or trust administered by a bank or trust company authorized to do business in this state, and the bank or trust company has sole investment discretion regarding the holding, purchase, and sale of securities.
The commissioner did not, directly or indirectly, advise, counsel, command, or suggest the holding, purchase, or sale of any security or furnish any information relating to the security to the bank or trust company.
The account or trust does not at any time have more than 10 percent of its total assets invested in the securities of any one issuer or hold more than 5 percent of the outstanding shares or units of any class of securities of any one issuer.
The commissioner shall report to the Attorney General not less often than quarterly all holdings, purchases, and sales of securities by the commissioner as authorized in paragraph (3), which reports shall be retained by the Attorney General as public documents.
The commissioner shall charge and collect the fees fixed in this section and Section 25608.1. All fees charged and collected under this section and Section 25608.1 shall be transmitted to the Treasurer at least weekly, accompanied by a detailed statement thereof and shall be credited to the Financial Protection Fund.
The fee for filing an application for a negotiating permit under subdivision (c) of Section 25102 is fifty dollars ($50).
The fee for filing a notice pursuant to paragraph (5) of subdivision (h) of Section 25102, for filing a notice pursuant to paragraph (4) of subdivision (f) of Section 25102, or for filing a notice pursuant to paragraph (10) of subdivision (r) of Section 25102, in addition to the fee prescribed in those paragraphs, if applicable, shall be determined based on the value of the securities proposed to be sold in the transaction for which the notice is filed and in accordance with subdivision (g), and shall be as follows:
The fee for filing an application for designation of an issuer pursuant to subdivision (k) of Section 25100 is fifty dollars ($50).
The fee for filing an application for qualification of the sale of securities by notification under Section 25112 or by permit under paragraph (1) of subdivision (b) of Section 25113 (except applications for qualification by permit of the sale of any guarantee of any security, the fees for which applications are fixed in subdivision (k)) is two hundred dollars ($200) plus one-fifth of 1 percent of the aggregate value of the securities sought to be sold in this state up to a maximum aggregate fee of two thousand five hundred dollars ($2,500).
The fee for filing a small company application for qualification of the sale of securities by permit under paragraph (2) of subdivision (b) of Section 25113 is two thousand five hundred dollars ($2,500). In the case where the costs of processing a small company application exceed the filing fee, an additional fee shall be charged, not to exceed one thousand dollars ($1,000), over and above the filing fee based on the costs of the salary or other compensation paid to persons processing the application plus overhead costs reasonably incurred in the performance of the work. In determining the costs, the commissioner may use the estimated average hourly cost for all persons processing applications for the fiscal year.
The fee for filing an application for qualification of the sale of securities by coordination under Section 25111 or a notice of intention to sell under subdivision (t) of Section 25100 is two hundred dollars ($200) plus one-fifth of 1 percent of the aggregate value of the securities sought to be sold in this state up to a maximum aggregate fee of two thousand five hundred dollars ($2,500).
For the purpose of determining the fees fixed in subdivisions (e) and (f):
The value of the securities shall be the price at which the company proposes to sell the securities, or the value, as alleged in the application, or the actual value, as determined by the commissioner, of the consideration (if other than money) to be received in exchange therefor, or of the securities when sold, whichever is greater.
Interim or voting trust certificates shall have a value equal to the aggregate value of the securities to be represented by the interim or voting trust certificates.
The value of a warrant or right to purchase or subscribe to another security of the same or another issuer shall be an amount equal to the consideration to be paid for that warrant or right plus an amount equal to the consideration to be paid upon purchase of the additional securities, provided that if the latter amount is not determinable at the time of qualification, that amount shall then be the value of the additional securities as determined by the commissioner.
In the case of a share dividend where the shareholders are given an option to accept either cash or additional shares of common stock, the value of the securities to be sold shall be the maximum amount of cash that would be payable in the event that all shareholders elected to accept cash.
The fee for filing an application for qualification of the sale of securities by permit under Section 25121 is:
Two hundred dollars ($200) in connection with any change (including any stock split or reverse stock split or stock dividend, except a stock dividend where the shareholders are given an option to accept either cash or additional shares of common stock) in the rights, preferences, privileges, or restrictions of or on outstanding securities.
Two hundred dollars ($200) plus one-fifth of 1 percent of the value, as alleged in the application, or the actual value, as determined by the commissioner, of the consideration to be received in exchange therefor, up to a maximum aggregate fee of two thousand five hundred dollars ($2,500), in any exchange of securities by the issuer with its existing security holders exclusively, or in any exchange in connection with any merger or consolidation or purchase of corporate assets in consideration of the issuance of securities, or any entity conversion transaction.
The fee for filing an application for qualification of the sale of securities by notification under Section 25131 shall be one hundred dollars ($100).
The fee for an application for the removal of any condition under Section 25141 is fifty dollars ($50).
The fee for filing any application for a permit to execute or issue any guarantee of any security is fifty dollars ($50).
The fee for acting as escrowholder for securities under Section 25149 is fifty dollars ($50). In addition, a fee of two dollars and fifty cents ($2.50) shall be paid for the deposit with the commissioner of each new certificate or other document resulting from a transfer in escrow.
The fee for filing an application for an order (1) consenting to the transfer in escrow of securities or (2) consenting to the transfer of securities subject to any condition imposed by the commissioner requiring the commissioner’s consent to the transfer is twenty dollars ($20) for each transfer.
The filing fee for an amendment to an application filed after the effective date of the qualification of the sale of securities is fifty dollars ($50) plus any additional fee that would have been required to be paid with the original application for qualification of the sale of securities under this section if the matters set forth in the amendment had been included in the original application.
The fee for filing an application for a broker-dealer certificate under Section 25211 is three hundred dollars ($300).
Each broker-dealer shall pay to the commissioner its pro rata share of all costs and expenses, reasonably incurred in the administration of the broker-dealer program under this division, as estimated by the commissioner for the ensuing year and any deficit actually incurred or anticipated in the administration of the program in the year in which the assessment is made. The pro rata share shall be the proportion that the broker-dealer and the number of its agents in this state bears to the aggregate number of broker-dealers and agents in this state as shown by records maintained by or on behalf of the commissioner. The pro rata share may include the costs of any examinations, audit, or investigation provided for in subdivision (r).
Every broker-dealer who has secured from the commissioner a certificate shall, in order to keep the certificate in effect for an additional period, pay a minimum assessment of seventy-five dollars ($75) on or before the 31st of December in each year.
The commissioner may assess and levy against each broker-dealer any additional amount above the minimum assessment amount of seventy-five dollars ($75) that is reasonable and necessary to support the broker-dealer program under this division. If an additional amount is assessed, the commissioner shall notify each broker-dealer by mail of any additional amount assessed and levied against it on or before the 30th day of May in each year, and that amount shall be paid within 20 days thereafter. If payment is not made within 20 days, the commissioner shall assess and collect a penalty in addition to the assessment of 1 percent of the assessment for each month or part of a month that the payment is delayed or withheld.
If a broker-dealer fails to pay any assessment on or before the 30th day of the month following the day upon which payment is due, the commissioner may by order summarily suspend or revoke the certificate issued to the broker-dealer. If, after that order is made, a request for hearing is filed in writing and a hearing is not held within 60 days thereafter, the order is deemed rescinded as of its effective date. During any period when its certificate is revoked or suspended, a broker-dealer shall not conduct business pursuant to this division except as may be permitted by order of the commissioner; provided, however, that the revocation, suspension, or surrender of a certificate shall not affect the powers of the commissioner as provided under this division.
In determining the amount assessed, the commissioner shall consider all appropriations from the Financial Protection Fund for the support of the broker-dealer program under this division and all reimbursements applicable to the administration of the broker-dealer program under this division.
No person shall, on behalf of a broker-dealer licensed pursuant to Section 25211, effect any transaction in, or induce or attempt to induce the purchase or sale of, any security in this state unless the broker-dealer pays the annual fee required by paragraph (2) of this subdivision on or before the day upon which payment is due.
No person may, in this state, on behalf of an investment adviser licensed pursuant to Section 25231, offer or negotiate for the sale of investment advisory services of the investment adviser, determine which recommendations shall be made to, make recommendations to, or manage the accounts of, clients of the investment adviser, or determine the reports or analyses concerning securities to be published by the investment adviser, unless the investment adviser pays the annual fee required by paragraph (2) on or before the day upon which payment is due.
The commissioner may by order summarily enjoin an individual from performing any activity under paragraph (3) or (4) if the annual fee in paragraph (2) is not paid on or before the day upon which payment is due. An order under this paragraph may not be made before 10 days after notice by the commissioner that the fee is due and unpaid.
Except as provided for in paragraph (2), the fee for filing an application for an investment adviser under Section 25231 is one hundred twenty-five dollars ($125), and payment of this amount shall keep the certificate, if granted, in effect during the calendar year during which it is granted. Every investment adviser who has secured from the commissioner a certificate shall, in order to keep the certificate in effect for an additional period, pay a renewal fee of one hundred twenty-five dollars ($125) on or before the 31st day of December.
Paragraph (1) shall not apply to a broker-dealer licensed under Section 25210.
Except as provided for in paragraph (2), the fee for any routine or nonroutine regulatory examination, audit, or investigation is the amount of the salary or other compensation paid to the persons making the examination, audit, or investigation plus the amount of expenses including overhead reasonably incurred in the performance of the work. In determining the costs associated with an examination, audit, or investigation, the commissioner may use the estimated average hourly cost for all persons performing examinations, audits, or investigations for the fiscal year.
An investment adviser licensed under Section 25230 pursuant to the Investment Adviser Registration Depository shall not be subject to paragraph (1) only in regard to the fee for a routine regulatory examination of its investment advisory services for which it is licensed under Section 25230.
The fee for any hearing held by the commissioner pursuant to Section 25142 shall be the sum determined by the commissioner to cover the actual expense of noticing and holding the hearing.
The commissioner may fix by rule a reasonable charge for any publications issued under the commissioner’s authority. The charges shall not apply to reports of the commissioner in the ordinary course of distribution.
The fee for filing an offer under subdivision (b) of Section 25507 shall be the amount of filing fee payable under subdivision (e), (f), (h), or (i) of this section if an application had been filed to qualify the transaction in which the securities upon which the offer is to be made were sold in violation of the qualification provisions of this law.
The fee for filing an application for exemption pursuant to subdivision (l) of Section 25100 is two hundred fifty dollars ($250).
The commissioner may by rule require payment of a fee for filing a notice or report required by a rule adopted pursuant to Section 25105. The fee required in connection with a transaction as defined by that rule shall not exceed the fees specified in subdivision (c) based on the value of the securities sold, but the commissioner may permit a single notice for more than one transaction.
The fee for filing the first notice of transaction under subdivision (n) of Section 25102 is six hundred dollars ($600).
The fee for filing a notice of transaction under subdivision (h) of Section 25103 shall be six hundred dollars ($600).
The fee for an investment company filing a notice pursuant to subdivision (b) of Section 25100.1 is two hundred dollars ($200) plus one-fifth of 1 percent of the aggregate value of the securities sought to be sold in this state up to a maximum aggregate fee of two thousand five hundred dollars ($2,500).
The fee for an issuer filing a notice pursuant to subdivision (a) of Section 25102.1 is six hundred dollars ($600).
The fee for an issuer filing a notice pursuant to subdivision (d) of Section 25102.1 is three hundred dollars ($300).
The fee for an investment adviser filing a notice pursuant to subdivision (b) of Section 25230.1 is one hundred twenty-five dollars ($125) and the fee for filing a notice or report required by rules adopted pursuant to subdivision (c) of Section 25230.1 is twenty-five dollars ($25).
The commissioner may by order summarily enjoin an individual from performing any activity under subdivision (c) of Section 25230.1 if the annual fee required by paragraph (2) is not paid on or before the day upon which payment is due. An order under this paragraph may not be made before 10 days after notice by the commissioner that the fee is due and unpaid.
Commencing July 1, 2000, the fee provisions of subdivision (c) of Section 25608, as they apply to the fee for filing a notice pursuant to paragraph (4) of subdivision (f) of Section 25102, and the fee provisions of subdivisions (a), (b), and (c) of Section 25608.1, shall be the maximum fees that may be levied on a notice filing under subdivision (b) of Section 25100.1, subdivision (f) of Section 25102, and subdivisions (a), (c), and (d) of Section 25102.1. The commissioner, however, may set the notice filing fee under subdivision (c) of Section 25608, as it relates to a notice filing under subdivision (f) of Section 25102, and the notice filing fees under subdivisions (a), (b), and (c) of Section 25608.1, at amounts below the maximum fees set forth in those sections. The commissioner shall set the notice filing fees under those sections for the upcoming fiscal year on or about June 1 of each year. If the commissioner fails to set the notice filing fees for the upcoming fiscal year, then the filing fees shall be the maximum fees that may be levied under those sections for the upcoming fiscal year.
Notwithstanding Sections 25608 and 25608.1, the commissioner may set any fee under those sections at an amount below the maximum fee set forth in those sections. The commissioner shall set the fee for the upcoming fiscal year on or about June 1 of each year, except that for the six-month period of January 1, 2002, through June 30, 2002, and for the 2002–03 fiscal year, the commissioner, on January 1, 2002, shall, in a reasonable and prudent manner, reduce any fee under Sections 25608 and 25608.1 by an amount below the maximum fee set forth in those sections. For the fiscal year commencing on July 1, 2003, and thereafter, the commissioner shall establish the level of fees adequate to cover anticipated costs, including the maintenance of a prudent reserve, but not to exceed the maximum fees that may be levied under Sections 25608 and 25608.1. If, for the fiscal year commencing on July 1, 2003, or thereafter, the commissioner fails to set the fee for the upcoming fiscal year on or before June 1, then the fee for the next fiscal year shall be the fee that was in effect for the current fiscal year.
In carrying out this section, the commissioner shall reduce or suspend fees to achieve no more than a 25-percent fund balance in the State Corporations Fund by June 30, 2007, and thereafter.
The department shall report by February 1, 2002, to the Chair of the Joint Legislative Budget Committee and the chairs of the budget committees on the fees to be reduced and the projected revenue and fund balance impact on the State Corporations Fund through the 2006–07 fiscal year. Each year from 2002 through 2007, the department shall submit a status update report by November 1 on the fees reduced, the revenue and fund balance impact in the prior fiscal year, and the projected revenue and fund balance impact through the 2006–07 fiscal year.
Every final order, decision, license, or other official act of the commissioner is subject to judicial review in accordance with law.
The commissioner may from time to time make, amend and rescind such rules, forms, and orders as are necessary to carry out the provisions of this law, including rules and forms governing applications and reports, and defining any terms, whether or not used in this law, insofar as the definitions are not inconsistent with the provisions of this law. For the purpose of rules and forms, the commissioner may classify securities, persons, and matters within his jurisdiction, and may prescribe different requirements for different classes. The commissioner may in his discretion waive any requirement of any rule or form in situations where in his opinion such requirement is not necessary in the public interest or for the protection of investors.
The commissioner may prepare and make available to interested persons lists of persons whose securities are qualified for trading purposes in this state, are exempt from qualification, or are not subject to qualification as the commissioner may determine to be necessary or desirable, and the commissioner may make reasonable charges for those lists to defray the expenses of preparation and dissemination.
No rule, form or order may be made, amended, or rescinded unless the commissioner finds that the action is necessary or appropriate in the public interest or for the protection of investors and consistent with the purposes fairly intended by the policy and provisions of this law.
Unless otherwise provided by rule, the commissioner shall require the use of the following forms:
Form BD (Uniform Application for Broker-Dealer Registration) for a broker-dealer application.
Form ADV (Uniform Application for Investment Adviser Registration) for an investment adviser application.
Form BDW (Uniform Request for Broker-Dealer Withdrawal) for withdrawing from licensure as a broker-dealer.
Form ADV-W (Notice of Withdrawal from Registration as an Investment Adviser) for withdrawing from licensure as an investment adviser.
Form U4 (Uniform Application for Securities Industry Registration or Transfer) for the reporting of an agent of a broker-dealer or an investment adviser representative or associated person of an investment adviser.
Form U5 (Uniform Termination Notice for Securities Industry Registration) for the reporting of the termination of an agent of a broker-dealer or an investment adviser representative or associated person of an investment adviser.
To encourage uniform interpretation and administration of this law and the Franchise Investment Law (Division 5 (commencing with Section 31000)) and effective securities and franchise regulation and enforcement, the commissioner may cooperate with the securities agencies or administrators of one or more states, Canadian provinces or territories, or other countries, the Securities and Exchange Commission, the Commodity Futures Trading Commission, the Securities Investor Protection Corporation, any self-regulatory organization, any national or international organization or securities officials or agencies, and any governmental law enforcement or regulatory agency.
The cooperation authorized by subdivision (a) includes, but is not limited to, the following actions:
Prescribing rules and forms with a view to achieving maximum uniformity in the form and content of registration statements, applications, and reports wherever practicable.
Participating in a nationwide central depository for qualification or registration of securities under this law and for documents or records required or allowed to be maintained under this law.
Participating in the Central Registration Depository, or any successor or alternative nationwide or regional depository, for the registering, certifying, or licensing of broker-dealers or agents, or both.
Participating in the Investment Adviser Registration Depository, or any successor or alternative nationwide or regional depository, for the registering, certifying, or licensing of investment advisers or investment adviser representatives, or both.
Cooperating in any regulatory activity necessary in the administration of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (Public Law 107-56; USA Patriot Act), consistent with state law.
Notwithstanding any other provision of law, any application for qualification, amendment to the application or related securities qualification or registration document or notice under Sections 25100.1, 25101.1, 25102, 25102.1, 25110, 25120, 25130, and 25230.1 or record otherwise required to be signed that is filed in this state as an electronic record pursuant to a nationwide central depository for qualification or registration of securities, or any electronic record filed through the Central Registration Depository or the Investment Adviser Registration Depository, shall be deemed to be a valid original document upon reproduction to paper form by the Department of Financial Protection and Innovation.
For purposes of this section, “electronic record” has the same meaning as in subdivision (g) of Section 1633.2 of the Civil Code.
The commissioner may by rule or order prescribe (1) the form and content of financial statements required under this law, (2) the circumstances under which consolidated financial statements shall be filed, and (3) the circumstances under which financial statements shall be audited by independent certified public accountants or public accountants.
All rules of the commissioner (other than those relating solely to the internal administration of the Department of Financial Protection and Innovation) shall be made, amended, or rescinded in accordance with the provisions of the Administrative Procedure Act, Chapter 4 (commencing with Section 11370) of Part 1 of Division 3 of Title 2 of the Government Code. Rules may be adopted prior to the effective date of this law to become effective upon its effective date.
A document is filed when it is received by the commissioner; but no qualification of the sale of securities shall become effective until the appropriate fee has been paid.
The commissioner shall keep an index of all qualifications which are or have ever been effective, all denial, suspension, or revocation orders which have been entered and all permits and certificates which have been issued by him under this law.
Upon request and at such reasonable charges as he prescribes by rule, the commissioner shall furnish to any person photostatic or other copies (certified under his seal of office if requested) of any document which is retained as a matter of public record, except that he shall not charge or collect any fee for photostatic or other copies of any document furnished to public officers for use in their official capacity. In any judicial proceeding or prosecution, any copy so certified is prima facie evidence of the contents of the document certified.
The commissioner in his discretion may honor requests from interested persons for interpretive opinions.
The commissioner may destroy any applications, notices, orders, permits, and revoked or surrendered certificates, together with the files and folders, as useless or obsolete, four years after the date of filing or issuance, with the approval of the Department of General Services; provided, that a permanent record shall be maintained of any disciplinary action taken by the commissioner.
When acting as escrow holder for securities, the commissioner may destroy any certificates evidencing securities of any corporation which has been dissolved or whose charter has been suspended for a period of not less than two years for nonpayment of taxes or penalties and may destroy any other records pertaining to the escrow of the securities destroyed, and he or she shall have no further liability or accountability therefor; provided, that the commissioner shall maintain a permanent record containing such information as he or she may by rule prescribe relating to the certificates and records so destroyed.
Copies on microfilm or in other form which may be retained by the commissioner in his discretion of any records destroyed under this section shall be accepted for all purposes as equivalent to the original when certified by the commissioner.
Notwithstanding any other law, the commissioner may by rule or order prescribe circumstances under which to accept electronic records or electronic signatures. This section does not require the commissioner to accept electronic records or electronic signatures.
For purposes of this section, the following terms have the following meanings:
“Electronic record” means a record created, generated, sent, communicated, received, or stored by electronic means. “Electronic record” also includes, but is not limited to, all of the following:
An application, amendment, supplement, and exhibit, filed for any qualification, registration, order, permit, certificate, license, consent, or other authority.
A financial statement, report, or advertising.
An order, permit, certificate, license, consent, or other authority.
A notice of public hearing, accusation, and statement of issues in connection with any application, qualification, registration, order, permit, certificate, license, consent, or other authority.
A proposed decision of a hearing officer and a decision of the commissioner.
The transcripts of a hearing.
A release, newsletter, interpretive opinion, determination, or specific ruling.
Correspondence between a party and the commissioner directly relating to any document listed in subparagraphs (A) to (G), inclusive.
“Electronic signature” means an electronic sound, symbol, or process attached to or logically associated with an electronic record and executed or adopted by a person with the intent to sign the electronic record.
The Legislature finds and declares that the Department of Financial Protection and Innovation has continuously implemented methods to accept records filed electronically, including broker-dealer and investment adviser applications, and is encouraged to continue to expand its use of electronic filings to the extent feasible, as budget, resources, and equipment are made available to accomplish that goal.
PART 8. GENERAL PROVISIONS [25700. - 25707.]
No provision of this law imposing any liability applies to any act done or omitted in good faith in conformity with any rule, form, permit, order, or written interpretive opinion of the commissioner, or any such opinion of the Attorney General, notwithstanding that the rule, form, permit, order, or written interpretive opinion may later be amended or rescinded or be determined by judicial or other authority to be invalid for any reason.
Any condition, stipulation or provision purporting to bind any person acquiring any security to waive compliance with any provision of this law or any rule or order hereunder is void.
Whenever a person is entitled under this law to a hearing in accordance with the provisions of the Administrative Procedure Act, Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, a formal hearing before the Department of Financial Protection and Innovation may be substituted with the consent of such person and of the commissioner for such hearing before an independent hearing officer; and in that case after such hearing before the Department of Financial Protection and Innovation such person shall not be entitled to any further administrative remedy.
If any provision of this law or the application thereof to any person or circumstance is held invalid, the invalidity shall not affect other provisions or applications of this law which can be given effect without the invalid provision or application, and to this end the provisions of this law are declared to be severable.
Except as expressly provided in this section, prior law exclusively governs all suits, actions, prosecutions or proceedings which are pending or may be initiated on the basis of facts or circumstances occurring before the effective date of this law.
No civil suit or action may be maintained to enforce any liability or to establish that any securities are void under prior law unless brought within any period of limitation which applied when the cause of action accrued and, in any event, within three years after the effective date of this law.
All effective permits, certificates, orders, consents, and registrations under prior law, all administrative orders relating to the same and all conditions imposed upon the same remain in effect so long as they would have remained in effect if this law had not been enacted. They are considered to have been filed, entered, or imposed under this law, but are governed by prior law. Certificates dated as of January 1, 1969, may be issued by the commissioner after the effective date of this law pursuant to applications filed prior thereto and shall be considered to have been issued under the prior law. Applications for permits filed prior to January 1, 1969, may subsequently be processed without amendment if they comply with prior law, but thereafter shall be otherwise governed by this law.
Judicial review of all administrative orders as to which review proceedings have not been instituted by the effective date of this law are governed by Section 25609, except that no review proceeding may be instituted unless the petition is filed within any period of limitation which applied to a review proceeding when the order was entered.
All references to “the Corporate Securities Law” in any code or statute of the State of California shall hereafter be deemed to be references to the Corporate Securities Law of 1968.
All effective permits, orders, and consents under the Real Estate Syndicate Act, all administrative orders relating to the Real Estate Syndicate Act, and all conditions imposed upon the Real Estate Syndicate Act remain in effect so long as they would have remained in effect if such act had not been repealed, but shall be considered to have been filed, entered, or imposed under this law. An application to amend, extend, modify, revoke, or set aside any such permits, orders, or consents shall be filed under and be subject to the provisions of this division.
Any application pending under the Real Estate Syndicate Act, upon the effective date of this section, shall be processed by the Real Estate Commissioner pursuant to the provisions of the Real Estate Syndicate Act in effect on December 31, 1977, until such application is granted or denied by such commissioner.
Except as expressly provided by this section, the Real Estate Syndicate Act continues to govern all suits, actions, prosecutions, or proceedings which are pending prior to, or which may be initiated thereunder on the basis of facts or circumstances occurring prior to, the effective date of this section.
No civil suit or action may be maintained to enforce any liability under the Real Estate Syndicate Act, unless brought within any period of limitation which applied the time the cause of action accrued.
Judicial review of all administrative orders under the Real Estate Syndicate Act as to which review proceedings have not been commenced prior to the effective date of this section shall be governed by Section 25609, except that no review proceeding may be commenced unless the petition is filed within the applicable period of limitation which applied to a review proceeding when the order was issued and except that judicial review of administrative orders of the Real Estate Commissioner made pursuant to subdivision (b) shall be governed by the provisions of law applicable to such proceedings on December 31, 1977.
All permits and orders issued under Article 6 (commencing with Section 10237) of Chapter 3 of Part 1 of Division 4 of the Business and Professions Code, and all conditions imposed pursuant to those provisions, shall remain in effect for the period of time that they would have remained in effect if those provisions had not been repealed by the act enacting this section. Following the repeal of those provisions, the permits, orders, and conditions shall be deemed to have been issued or imposed under this division. An application to amend, extend, modify, revoke, or set aside a permit or order shall be filed under this division and is subject to this division.
An application pending under Article 6 (commencing with Section 10237) of Chapter 3 of Part 1 of Division 4 of the Business and Professions Code, on the effective date of this section, shall be processed by the Real Estate Commissioner subject to those provisions as they were in effect on December 31, 1996, until each application that was pending on the effective date of this section is granted or denied by the Real Estate Commissioner.
Except as expressly provided by this section, all actions, prosecutions, or proceedings under Article 6 (commencing with Section 10237) of Chapter 3 of Part 1 of Division 4 of the Business and Professions Code that are pending prior to the effective date of this section, or that otherwise could be initiated based on facts or circumstances occurring prior to the effective date of this section, shall be governed by those provisions.
No civil action may be brought to enforce any liability under Article 6 (commencing with Section 10237) of Chapter 3 of Part 1 of Division 4 of the Business and Professions Code, unless it is brought within the period of limitations that applied to the action at the time the action accrued.
Judicial review of orders under Article 6 (commencing with Section 10237) of Chapter 3 of Part 1 of Division 4 of the Business and Professions Code that had not commenced prior to the effective date of this section shall be governed by Section 25609, except that no review proceeding shall be commenced unless the petition is filed within the applicable period of limitations that applied to a review proceeding when the order was issued. Judicial review of an order of the Real Estate Commissioner made pursuant to subdivision (b) shall be governed by the provisions of law applicable to those proceedings on December 31, 1996.
DIVISION 2. SECURITY OWNERS PROTECTION [27000. - 27202.]
CHAPTER 1. Definitions and General Provisions [27000. - 27003.]
Unless the provision or the context otherwise indicates, and except as expressly otherwise provided in this chapter, words used in this division have the meanings prescribed in Part 1 (commencing with Section 25000) of the Corporate Securities Law.
As used in this division “security” includes all of the things enumerated in Section 25019 and also includes shares, stock, and investment certificates as defined in the Savings Association Law.
As used in this division, “individual” includes every natural person, domestic or foreign private corporation, nonprofit corporation, unincorporated association, company, partnership of whatever kind, syndicate, joint stock company, trustee, protective committee, depositors’ league, and other similar organization however described.
As used in this division, “individual” does not include any of the following persons:
Any licensed practicing attorney rendering or performing services in connection with the practice of law.
Any person holding a broker-dealer’s or investment adviser’s certificate then in effect issued by the commissioner, rendering or performing services as such.
Any holder of a permit then in effect, granted by the commissioner under the Corporate Securities Law, permitting the issue of certificates of deposit.
Any broker licensed by the Real Estate Commissioner of this state rendering or performing services with respect to securities, if the person would not be subject to the broker-dealer certification requirements for effecting transactions in the securities.
Any security owner or holder who, without compensation of any kind, induces or attempts to induce, other security holders or owners of the same issuer into entering into agreements with persons who are excluded from “individual” by virtue of paragraphs (1) to (5), inclusive.
If any provision of this division, or the application thereof to any person or circumstance, is held invalid, the remainder of this division, or the application of such provision to other persons or circumstances, shall not be affected thereby.
CHAPTER 2. Unlawful and Fraudulent Conduct [27100. - 27101.]
Any individual who, within this state, solicits, receives, collects, or solicits any subscription or contract to pay, any contributions, fees, funds, or compensation of any kind, from any owner or holder of any security, for the purpose of protecting, enforcing, or representing the rights of the security owners or holders evidenced by the security, shall be subject to the provisions of this division.
It is unlawful for any individual, directly or indirectly, in connection with the solicitation, receipt, or collection of, or solicitation of any subscription or contract to pay any contributions, fees, funds, or compensation of any kind, from any owner or holder of any security, for the purpose of protecting, enforcing, or representing the rights of the security owners or holders evidenced by the security, to do any of the following:
Employ any device, scheme, or artifice to defraud.
By means of any written or oral communication, make any untrue statement of a material fact, or omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading.
Engage in any transaction, act, practice, or course of business which operates or would operate as a fraud or deceit upon any person.
Misappropriate or convert the funds, security, or property of any other person.
CHAPTER 3. Civil Liability and Crimes [27200. - 27202.]
Every individual who solicits, receives, collects, or contracts for the payment of, any contributions, fees, funds, or compensation of any kind, in violation of this division, is civilly liable for the return of the full amount of that contribution, fee, or fund, together with reasonable attorney’s fees. This liability is both joint and several.
No action shall be maintained to enforce any liability created under Section 27200 unless brought before the expiration of two years after the violation upon which it is based or the expiration of one year after the discovery by the plaintiff of the facts constituting the violation, whichever shall first expire.
Every individual who willfully violates Section 27101 is guilty of a public offense punishable by a fine not exceeding two hundred fifty thousand dollars ($250,000), or by imprisonment pursuant to subdivision (h) of Section 1170 of the Penal Code for two, three, or four years, or by both fine and imprisonment.
DIVISION 2.5. Fair Investment Practices by Venture Capital Companies [27500. - 27506.]
CHAPTER 1. Fair Investment Practices by Venture Capital Companies [27500. - 27506.]
For purposes of this chapter, the following definitions apply:
“Commissioner” means the Commissioner of Financial Protection and Innovation.
“Covered entity” means a venture capital company that meets both of the following criteria:
The venture capital company primarily engages in the business of investing in, or providing financing to, startup, early-stage, or emerging growth companies.
The venture capital company meets any of the following criteria:
The venture capital company is headquartered in California.
The venture capital company has a significant presence or operational office in California.
The venture capital company makes venture capital investments in businesses that are located in, or have significant operations in, California.
The venture capital company solicits or receives investments from a person who is a resident of California.
“Department” means the Department of Financial Protection and Innovation.
“Diverse founding team member” means a founding team member who self-identifies as a woman, nonbinary, Black, African American, Hispanic, Latino-Latina, Asian, Pacific Islander, Native American, Native Hawaiian, Alaskan Native, disabled, veteran or disabled veteran, lesbian, gay, bisexual, transgender, or queer.
“Founding team member” means either of the following:
A person who satisfies all of the following conditions:
The person owned initial shares or similar ownership interests of the business.
The person contributed to the concept of, research for, development of, or work performed by the business before initial shares were issued.
The person was not a passive investor in the business.
A person who has been designated as the chief executive officer or president.
“Primarily founded by diverse founding team members” means a founding team for which more than one-half of the founding team members responded to the survey described in paragraph (1) of subdivision (c) of Section 27501 and at least one-half of the founding team members are diverse founding team members.
“Venture capital company” has the same meaning as defined in paragraph (4) of subdivision (a) of Section 260.204.9 of Title 10 of the California Code of Regulations.
“Venture capital investment” has the same meaning as defined in paragraph (5) of subdivision (a) of Section 260.204.9 of Title 10 of the California Code of Regulations.
Commencing March 1, 2026, a covered entity shall submit to the department the following information in a manner prescribed by the department:
The name of the covered entity.
The name, title, and email address of the person who serves as the designated point of contact for the covered entity.
The designated email address, telephone number, physical address, and internet website of the covered entity.
The covered entity shall keep the information provided under paragraph (1) updated by submitting any changes to that information when filing the report required by subdivision (b).
If a covered entity fails to update the information provided under paragraph (1) in the report required by subdivision (b) by April 1 of any year, the department shall notify the covered entity that the covered entity has 60 calendar days from the date of the notification to submit the updated information without penalty.
If a covered entity has not submitted the updated information after the 60-day period described in subparagraph (A) has elapsed, the department may pursue any remedy provided under this chapter.
By April 1, 2026, and annually thereafter, a covered entity shall report to the department all of the following information about its funding determinations:
At an aggregated level, all of the following information for the founding teams of all of the businesses in which the covered entity made a venture capital investment in the prior calendar year to the extent the information was provided pursuant to the survey described in paragraph (1) of subdivision (c):
The gender identity of each member of the founding team, including nonbinary and gender-fluid identities.
The race of each member of the founding team.
The ethnicity of each member of the founding team.
The disability status of each member of the founding team.
Whether any member of the founding team identifies as LGBTQ+.
Whether any member of the founding team is a veteran or a disabled veteran.
Whether any member of the founding team is a resident of California.
Whether any member of the founding team declined to provide any of the information described in subparagraphs (A) to (G), inclusive.
During the prior calendar year, the number of venture capital investments to businesses primarily founded by diverse founding team members, as a percentage of the total number of venture capital investments the covered entity made, in the aggregate and broken down into the categories described in subparagraphs (A) to (H), inclusive, of paragraph (1).
The information provided pursuant to this subparagraph shall be anonymized to the extent possible.
During the prior calendar year, the total amount of venture capital investments to businesses primarily founded by diverse founding team members, as a percentage of venture capital investments made by the covered entity, in the aggregate and broken down into the categories described in subparagraphs (A) to (H), inclusive, of paragraph (1).
The total amount of money in venture capital investments the covered entity invested in each business during the prior calendar year.
The principal place of business of each company in which the covered entity made a venture capital investment during the prior calendar year.
The survey described in paragraph (1) of subdivision (b) shall be provided pursuant to a standardized form specified by the department. The survey shall include a “decline to state” option for each question on the survey.
The founding team member’s decision to disclose their demographic information is voluntary.
No adverse action will be taken against the founding team member if they decline to participate in the survey.
The aggregate data collected for each demographic category will be reported to the department.
A covered entity required to conduct the survey described in paragraph (1) of subdivision (c) shall do both of the following:
The department shall make the reports received pursuant to subdivision (b) of Section 27501 readily accessible, easily searchable, and easily downloadable on the department’s internet website.
The department may publish aggregate results or aggregate information based on the information received pursuant to this chapter.
The department may use any information collected pursuant to this chapter in furtherance of its statutory duties, including, but not limited to, using the information in a civil action brought by the department under this chapter or other law.
A covered entity shall make and keep records related to its obligation under this chapter. All records related to a report delivered to the department pursuant to subdivision (b) of Section 27501 shall be preserved for at least five years after the covered entity delivers the report.
The commissioner may examine the records of a covered entity to determine their compliance with this chapter using powers set forth in Sections 11180 to 11191, inclusive, of the Government Code and may further require a covered entity to do either of the following:
Produce documentary material for inspection and copying or reproduce in the form or medium requested by the department.
File written reports or answers to questions.
The department shall charge and collect fees from covered entities to cover the expenses incurred in the administration of this chapter, not to exceed the reasonable costs of that administration.
If a covered entity fails to file a report required by subdivision (b) of Section 27501 by April 1 of any year, the department shall notify the covered entity that the covered entity has 60 calendar days from the date of the notification to submit the report without penalty.
If a covered entity has not submitted a report after the 60 calendar days described in paragraph (1) has elapsed, the department may pursue all remedies provided under this chapter.
With respect to the investigative powers of the commissioner under this chapter, the commissioner may do the following at their discretion:
Make public or private investigations within or outside of this state as they deem necessary to determine whether a covered entity has violated or is about to violate any provision of this chapter, any rule or order pursuant to this chapter or to aid in the enforcement of this chapter in the prescribing of rules and forms pursuant to this chapter.
Publish information concerning any violations of this chapter or of any rule or order pursuant to this chapter.
With respect to the enforcement powers of the commissioner and the department under this chapter, all of the following apply:
The commissioner may take any action authorized by this chapter against a covered entity who fails to meet the requirements of Section 27501 or who makes an untrue statement of a material fact in any report filed with the department.
Relief under this chapter may include, but is not limited to, any of the following:
An order requiring the covered entity to desist and refrain from the violation.
An order requiring costs, representing reasonable attorney’s fees and investigative expenses for the services rendered, for deposit into the Financial Protection Fund for use by the department.
An order requiring the payment of monetary penalties, as set forth by subdivision (b).
In any civil or administrative action brought pursuant to this chapter in which the commissioner orders penalties, the following penalty amounts apply:
For any violation of this chapter, rule or final order pursuant to this chapter, or condition imposed in writing by the department, a penalty shall not exceed five thousand dollars ($5,000) for each day during which the violation or failure to pay continues.
Notwithstanding subparagraph (A), for any reckless violation by a covered entity subject to this chapter, rule or final order pursuant to this chapter, or condition imposed by the department, a penalty that is sufficient to deter the covered entity from failing to comply with this chapter as determined by the commissioner under paragraph (2), and exceeds the penalty amount provided in subparagraph (A) for each day during which the violation continues.
Notwithstanding subparagraphs (A) or (B), for any knowing violation by a covered entity subject to this chapter, rule or final order pursuant to this chapter, or condition imposed by the department, a penalty that is sufficient to deter the covered entity from failing to comply with this chapter as determined by the commissioner under paragraph (2), and exceeds the penalty amount provided in subparagraph (B) for each day during which the violation continues.
In determining the amount of any penalty ordered under this chapter, the commissioner shall take into account mitigating factors and the appropriateness of the penalty with respect to all of the following:
The financial standing of the covered entity.
The number of assets under management by the covered entity.
The nature of the covered entity’s failure to comply with this chapter.
The amount of financial resources available to the covered entity.
The covered entity’s history of previous violations.
The commissioner may compromise, modify, or remit any penalty that may be ordered or that has already been ordered.
If, after an order has been served pursuant to Section 27504, a request for hearing is filed in writing within 30 days of the date of service of the order on the covered entity, a hearing shall be conducted in accordance with the Administrative Procedure Act (Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code), and the commissioner shall have all of the powers granted under that chapter.
If a covered entity fails to file a written request for a hearing within 30 days from the date of service of the order, the order shall be deemed a final order of the commissioner and is not subject to review by any court or agency, notwithstanding subdivision (b).
Every final order, decision, or other official act of the commissioner is subject to judicial review in accordance with law.
The commissioner may file a certified copy of the final order with the clerk of the superior court or any court of competent jurisdiction. The final order filed has the same effect as a judgment of the court and may be recorded, enforced, or satisfied in the same manner as a judgment of the court.
If a covered entity does not comply with an order under this chapter, the commissioner may petition the superior court or any court of competent jurisdiction to enforce the order.
The court shall not require the commissioner to post a bond in an action or proceeding under this chapter.
If the court finds, after service and opportunity for hearing, that the covered entity was not in compliance with the order, the court may adjudge the covered entity in civil contempt of the order. The court may impose a further civil penalty against the covered entity for contempt and may grant any other relief the court determines is just and proper under the circumstances.
When a covered entity, including a nonresident of this state, engages in conduct prohibited or made actionable by this chapter or any rule or order pursuant to this chapter, whether or not the covered entity has filed a consent to service of process, and personal jurisdiction over the covered entity cannot otherwise be obtained in this state, that conduct shall be considered equivalent to the covered entity’s appointment of the commissioner or the commissioner’s successor in office to be the covered entity’s attorney to receive service of any lawful process in any noncriminal suit, action, or proceeding against the covered entity or the covered entity’s successor, executor, or administrator that grows out of that conduct and that is brought under this chapter or any rule or order pursuant to this chapter, with the same force and validity as if served on the covered entity personally. Service may be made by leaving a copy of the process in the office of the commissioner, but it is not in effect unless the following conditions are met:
The plaintiff, who may be the commissioner in a suit, action, or proceeding instituted by commissioner, sends notice of the service and a copy of the process by registered or certified mail to the covered entity at the covered entity’s last known address or take other steps that are reasonably calculated to give actual notice.
The plaintiff’s affidavit of compliance with this chapter is filed in the case on or before the return day of the process, if any, or within such further time as the court allows.
The commissioner may make, amend, and rescind any rules, forms, and orders as are necessary to carry out the provisions of this chapter, including rules and forms governing applications and reports, and defining any terms, whether or not used in this chapter, insofar as the definitions are not inconsistent with the provisions of this chapter.
Moneys collected pursuant to this chapter shall be deposited in the Financial Protection Fund established pursuant to Section 12895 of the Government Code. It is the intent of the Legislature that the moneys collected pursuant to this chapter be appropriated in the annual Budget Act to the department for administration of this chapter.
DIVISION 3. CAPITAL ACCESS COMPANIES [28000. - 28958.]
CHAPTER 1. General Provisions [28000. - 28049.]
ARTICLE 1. Short Title and Construction [28000. - 28004.]
This division shall be known and may be cited as the “Capital Access Company Law.”
This division shall be liberally construed to accomplish its purposes.
The provisions of the Corporate Securities Law of 1968 (Division 1 (commencing with Section 25000) of Title 4) shall apply to licensees.
The Legislature finds all of the following:
It is necessary to increase job opportunities in the state.
Promoting the establishment, growth, and expansion of small business firms in this state is an efficient way to increase job opportunities in the state.
Small business firms are unable to grow and create job opportunities unless they have access to risk capital.
Congress has exempted from the provisions of the federal Investment Company Act of 1940, certain companies that are not in the business of issuing redeemable securities, the operations of which are subject to state regulation governing entities that provide financial or managerial assistance to enterprises doing business, or proposing to do business, in that state.
Therefore, in order for the state to obtain the full benefits of that exemption, it is necessary that the state provide for the licensure and regulation of capital access companies, to permit these companies to operate pursuant to the exemption from regulation under the federal Investment Company Act of 1940.
The purpose of this division is to provide for the licensure and regulation of capital access companies that will provide risk capital and management assistance, primarily to small business firms in the state, to enable those companies to operate pursuant to the exemption from regulation under the federal Investment Company Act of 1940.
The purpose of this division as set forth in subdivision (a) constitutes the standard that the commissioner shall observe in administering the provisions of this division.
ARTICLE 2. Definitions [28030. - 28049.]
Subject to additional definitions contained in this division which are applicable to specific provisions of this division, and unless the context otherwise requires, the definitions in this article apply throughout this division.
“Accredited investor” means a person who is defined in Section 2(a)(15) of the Securities Act of 1933, or any other person that the Securities and Exchange Commission may so designate by rule, regulation, or order, who, by purchasing the securities of a licensee, provides the investment funds with which the licensee will provide financial assistance to small business firms.
“Affiliate” means any person or persons controlling, controlled by, or under common control with, other specified persons.
“Commissioner” means the Commissioner of Financial Protection and Innovation or their designee with respect to a particular matter.
“Company” means a corporation, limited partnership, limited liability company, or other form of business entity, which is organized under the laws of the State of California.
“Control” means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a specified person.
“Controlling person,” when used with respect to a specified person, means any person who controls the specified person, directly or indirectly, through one or more intermediaries.
“Insolvent,” when used with respect to any person, means a person who has ceased to pay his or her debts in the ordinary course of business, who cannot pay his or her debts as they become due, or whose liabilities exceed his or her assets.
“License” means a license issued under this division authorizing a licensee to transact business as a capital access company.
“Licensee” means a company that is licensed under this division.
“Officer” means either of the following:
When used with respect to a corporation, any person appointed or designated as an officer of the corporation by or pursuant to applicable law or the articles of incorporation or bylaws of the corporation or any person who performs with respect to the corporation functions usually performed by an officer of a corporation.
When used with respect to a specified person other than a natural person or a corporation, any person who performs with respect to the specified person functions usually performed by an officer of a corporation with respect to the corporation.
“Order” means any approval, consent, authorization, exemption, denial, prohibition, or requirement applicable to a specific case issued by the commissioner. “Order” includes any condition of a license and any agreement made by any person with the commissioner under this division.
“Parent,” when used with respect to a specified person other than a natural person, means any person other than a natural person that controls the specified person, directly or indirectly, through one or more intermediaries.
“Person” means any natural person, proprietorship, joint venture, partnership, trust, business trust, syndicate, association, joint stock company, corporation, limited liability company, government, agency of any government, or any other organization. However, “person,” when used with respect to acquiring control of or controlling a specified person, includes any combination of two or more persons acting in concert.
“Principal security holder,” means any person who owns, directly or indirectly, of record or beneficially, securities representing 10 percent or more of the voting power of the issuer of those securities.
“To provide financing assistance to a person” means to purchase securities issued by the person, either directly from the person, or indirectly through a securities underwriter.
“Security” has the meaning set forth in Section 25019.
“Small business firm” means a person that proposes to transact, or transacts, business on a regular and continuous basis in California and, together with its affiliates, has a net worth of not more than eighteen million dollars ($18,000,000) and average net income after federal income taxes, excluding any carryover losses, for the preceding two years no greater than six million dollars ($6,000,000).
“Smaller business firm” means a person that proposes to transact, or transacts, business on a regular and continuous basis in California and, together with its affiliates, has a net worth of not more than six million dollars ($6,000,000), and average net income after federal income taxes, excluding any carryover losses, for the preceding two years no greater than two million dollars ($2,000,000).
“Subsidiary,” when used with respect to a specified person other than a natural person, means any person other than a natural person controlled by the specified person, directly or indirectly, through one or more intermediaries.
“Voting power” has the meaning set forth in Section 194.5.
CHAPTER 2. Administration [28100. - 28111.]
The commissioner shall administer and enforce the provisions of this division in a manner that facilitates the legislative purposes set forth in Section 28004, consistent with protection of investors.
Whenever the commissioner issues an order or license under this division, the commissioner may impose any conditions that are in his or her opinion necessary to carry out the provisions and purposes of this division.
Any application filed with the commissioner under this division or under any regulation or order issued under this division shall be in a form, shall contain information, shall be signed in a manner, and shall be verified in a manner, that the commissioner may by regulation or order require.
In determining whether to approve any application filed under this division or under any regulation or order issued under this division, the commissioner may consider proposals made by the applicant, including, but not limited to, proposals to appoint officers, sell securities, obtain financing, or purchase securities of small business firms, and, if in the opinion of the commissioner it is probable that the applicant will be able to implement the proposal, the commissioner may make findings on the basis of the proposal. However, whenever the commissioner approves an application on the basis, in whole or in part, of a proposal made by the applicant, the commissioner shall impose upon the approval appropriate conditions requiring that the applicant implement the proposal within a period of time specified by the commissioner.
The commissioner may do both of the following:
Make public or private investigations within or outside this state that he or she deems necessary to determine whether to approve any application filed under this division or under any regulation or order issued under this division, to determine whether any person has violated or may violate any provision of this division or of any regulation or order issued under this division, to aid in the enforcement of any provision of this division or of any regulation or order issued under this division, or to aid in the issuing of regulations or orders under this division.
Publish information concerning any violation of any provision of this division or of any regulation or order issued under this division.
For purposes of any investigation, examination, or other proceeding under this division, the commissioner may administer oaths and affirmations, subpoena witnesses, compel their attendance, take evidence, and require the production of any books, papers, correspondence, memoranda, agreements, or other documents or records that the commissioner deems relevant or material to the inquiry.
In case of contumacy by, or refusal to obey a subpoena issued to, any person, the superior court, upon application by the commissioner, may issue to the person an order requiring him or her to appear before the commissioner, and to produce documentary evidence, if so ordered, or to give evidence relevant to the matter under investigation or in question. Failure to obey the order of the court may be punished by the court as a contempt.
The commissioner may provide information relating to a licensee or any parent or subsidiary of the licensee to, or receive information relating to a licensee or any parent or subsidiary of the licensee from, any governmental agency.
If the commissioner permits any licensee, any affiliate of the licensee, or any governmental agency to inspect or make copies of any record relating to the licensee or to any director, officer, employee, or affiliate of the licensee, or if the commissioner provides the record, or a copy thereof, to any of those persons, Section 7922.000 of the Government Code, subdivision (a) of Section 7922.540 of the Government Code, and each provision listed in Section 7920.505 of the Government Code shall continue to apply to the record to the extent that these provisions applied to the record prior to that action by the commissioner.
The commissioner may refer any evidence available concerning any violation of this division or of any regulation or order issued under this division that constitutes a crime to the district attorney of the county in which the violation occurred, who may, with or without that reference, institute appropriate criminal proceedings.
Before any applicant for a license is issued a license, the applicant and each parent and subsidiary of the applicant shall file, and each person that becomes a parent or subsidiary of a licensee shall file, not less than 30 days after becoming a parent or subsidiary of the licensee, with the commissioner, in the form the commissioner may by regulation or order require, an irrevocable consent appointing the commissioner to be the person’s attorney-in-fact to receive service of any lawful process in any noncriminal judicial or administrative proceeding against the person, or the person’s successor, executor, or administrator, which arises under this division or under any regulation or order issued under this division after the consent has been filed, with the same force and validity as if served personally on the person. Service may be made by leaving a copy of the process at any office of the commissioner, but the service is not effective unless (a) the party making the service, who may be the commissioner, forthwith sends notice of the service and a copy of the process by registered or certified mail to the person served at the person’s last address on file with the commissioner, and (b) an affidavit of compliance with this section by the party making service is filed on or before the return date, if any, or within that further time as the court, in the case of a judicial proceeding, or the administrative agency, in the case of an administrative proceeding, allows.
Whenever any person, including any nonresident of this state, engages in conduct prohibited or made actionable by this division or by any regulation or order issued under this division, whether or not the person has filed a consent to service of process under Section 28108, and if personal jurisdiction over the person cannot otherwise be obtained in this state, that conduct shall be considered equivalent to the person’s appointment of the commissioner to be the person’s attorney-in-fact to receive service of any lawful process in any noncriminal judicial or administrative proceeding against the person or the person’s successor, executor, or administrator, which grows out of that conduct and which is brought under this division or under any regulation or order issued under this division, with the same force and validity as if served on the person personally. Service may be made by leaving a copy of the process in any office of the commissioner, but the service is not effective unless (a) the party making the service, who may be the commissioner, forthwith sends notice of the service and a copy of the process by registered or certified mail to the person served at the person’s last known address or takes other steps which are reasonably calculated to give actual notice, and (b) an affidavit of compliance with this section by the party making service is filed in the case on or before the return date, if any, or within that further time as the court, in the case of a judicial proceeding, or the administrative agency, in the case of an administrative proceeding, allows.
Fees shall be paid to, and collected by, the commissioner, as follows:
The fee for filing with the commissioner an application for a license shall be no greater than two thousand dollars ($2,000).
The fee for filing with the commissioner an application for approval to acquire control of a licensee shall be no greater than one thousand dollars ($1,000).
The fee for filing with the commissioner an application for approval for a licensee to merge with another company, an application for approval for a licensee to purchase all or substantially all of the business of another person, or an application for approval for a licensee to sell all or substantially all of its business or of the business of any of its offices to another licensee, shall be no greater than one thousand dollars ($1,000). However, whenever two or more applications relating to the same merger, purchase, or sale are filed with the commissioner, the fee for filing each application shall be the quotient determined by dividing one thousand dollars ($1,000) by the number of the applications.
Whenever the commissioner examines, audits, or investigates any licensee or any affiliate of a licensee, that licensee shall pay, within 10 days after receipt of a statement from the commissioner, a fee that equals the amount of the salary or other compensation paid to the persons making the examination, audit, or investigation plus the amount of expenses, including overhead, reasonably incurred in the performance of the work. The licensee shall be given a preliminary estimate of the fee before the commissioner commences an examination, audit, or investigation. In determining the costs associated with an examination, audit, or investigation, the commissioner may use the estimated average hourly cost for all departmental persons performing examinations, audits, or investigations for the fiscal year.
Each fee for filing an application with the commissioner shall be paid at the time the application is filed with the commissioner.
No fee for filing an application with the commissioner shall be refundable, regardless of whether the application is approved, denied, withdrawn, or abandoned.
All fees charged and collected under this section shall be transmitted to the Treasurer at least weekly, accompanied by a detailed statement therefor, and shall be credited to the State Corporations Fund.
If a licensee becomes licensed as a small business investment company and is subject to regulation by the Small Business Administration under the federal Small Business Investment Act of 1958, the commissioner may by rule or order provide that a licensee in compliance with those federal regulations shall be deemed to be in compliance with the regulatory requirements under this division except those provisions required to exempt licensees from regulation under the federal Investment Company Act of 1940, and the provisions of Chapter 8 (commencing with Section 28550), Chapter 9 (commencing with Section 28600), Chapter 10 (commencing with Section 28650), Chapter 11 (commencing with Section 28700), Chapter 12 (commencing with Section 28800), Chapter 13 (commencing with Section 28900), and Chapter 14 (commencing with Section 28950).
A violation by a licensee of any regulation promulgated by the Small Business Administration that the commissioner has by rule or order deemed to be consistent with the regulatory requirements under this division shall constitute a violation of this division. The commissioner shall have all of the powers granted in this division to enforce those federal regulations against a licensee.
CHAPTER 3. Licensing [28150. - 28155.]
Except as provided in subdivision (b), no person proposing to transact or transacting business in this state, other than a licensee, shall use any name or title that indicates that it is a capital access company or otherwise represent that it is a capital access company or that it is a licensee.
Any company that proposes to apply for a license or that has applied for a license, may, before being issued a license, use a name or title that indicates that it is a capital access company if it meets all of the following requirements:
The company appends to the name the designation “proposed,” “in organization,” or “in formation,” or any similar designation that the commissioner may approve. The designation shall be set forth at least as conspicuously as the name or title.
The company performs only those acts that may be necessary to (A) apply for and obtain the license and (B) prepare to commence transacting business as a licensee.
The company does not represent that it is a licensee.
No person other than a person who meets the definition of a licensee may be issued a license under this division.
If the commissioner finds all of the following with respect to an application for a license, the commissioner shall approve the application:
That the applicant has a tangible net worth, exclusive of the funds to invest under subdivision (b), in an amount that is not less than two hundred fifty thousand dollars ($250,000) and that the tangible net worth is adequate for the applicant to transact business as a capital access company.
That the applicant has funds to invest in an amount that is not less than five million dollars ($5,000,000).
That the applicant has, in addition to the requirements of subdivisions (a) and (b), financial resources in an amount that is adequate for the applicant to pay its expenses in transacting business as a capital access company for a period of not less than three years from the date of licensure.
That the directors, officers, and controlling persons of the applicant are each of good character and sound financial standing, that the directors and officers of the applicant are each competent to perform their functions with respect to the applicant, and that the directors and officers of the applicant are collectively adequate to manage the business of the applicant as a capital access company. For purposes of this subdivision, the commissioner shall accord weight to the prior or current successful operation of a commercial or investment enterprise.
That none of the following persons are subject to any act or omission enumerated in subdivision (a), (e), (f), or (g) of Section 25212, or has been convicted of, or pled nolo contendere to, any offense or been held liable in any civil action specified in subdivision (b) of Section 25212, or is enjoined from any act, conduct, or practice specified in subdivision (c) of Section 25212, or is subject to any order specified in subdivision (d) of Section 25212:
A person who is or will be a controlling person of the applicant.
A person who makes or will make recommendations with respect to the investment of funds of the applicant.
A person who is or will be a partner, principal executive officer, manager, or director of the applicant.
A person who occupies or will occupy a similar status or who performs or will perform similar functions to those listed above in paragraphs (1) to (3), inclusive.
An employee who materially aids or assists or will materially aid or assist in the applicant’s investment-related functions.
A broker-dealer or agent who materially aids or assists or will materially aid or assist in the sale or distribution of any securities of the applicant.
That it is reasonable to believe that the applicant, if licensed, will comply with the provisions of Section 6(a)(5) of the Investment Company Act of 1940, the applicable provisions of the Corporate Securities Law of 1968, this division, and of any regulation adopted or order issued under this division.
If, after notice and a hearing, the commissioner finds otherwise, the commissioner shall deny the application.
For purposes of Section 28152, the commissioner may find:
That a director, officer, or controlling person of an applicant is not of good character if the director, officer, or controlling person or any director or officer of the controlling person has been convicted of, or has pleaded nolo contendere to, a crime involving fraud or dishonesty.
That it is not reasonable to believe that an applicant, if licensed, will comply with all applicable provisions of this division and of any regulation or order issued under this division if the applicant has been convicted of, or has pleaded nolo contendere to, a crime involving fraud or dishonesty.
Subdivision (a) shall not be deemed to be the only grounds upon which the commissioner may find, for purposes of Section 28152, that a director, officer, or controlling person of an applicant is not of good character or that it is not reasonable to believe that an applicant, if licensed, will comply with all applicable provisions of the Investment Company Act of 1940, the Corporate Securities Law of 1968, this division, and of any regulation or order issued under this division.
Except pursuant to Section 28551, no license shall be transferable or assignable.
No licensee shall represent that it is sponsored, recommended, or approved by, or that its abilities or qualifications have in any respect been passed upon by, the commissioner. No licensee shall advertise, print, display, publish, distribute, or broadcast, or cause or permit to be advertised, printed, displayed, published, distributed, or broadcast in any manner, any statement or representation with regard to the business subject to the provisions of this division that is false, misleading, or deceptive, or that omits material information that is necessary to make the statements not false, misleading, or deceptive, or in the case of a licensee, that refers to the supervision of business by the state or any department or official of the state. Nothing in this section shall be deemed to prohibit a licensee from stating that it is licensed if the effect of such license is not misrepresented.
CHAPTER 4. Organizational Matters [28200. - 28212.]
ARTICLE 1. Organization and Name [28200. - 28201.]
The organizational documents of the licensee shall include the following statement:
The activities of the licensee are limited to the promotion of economic, business, or industrial development in the State of California through the provision of financial or managerial assistance primarily to small business firms and to other activities that are incidental or necessary to carry out that purpose.
The licensee will not engage in the business of issuing redeemable securities.
The security holders of the licensee are limited, on a class-by-class basis, to persons who reside in the State of California, or who have a substantial business presence in the State of California, and who hold not less than 80 percent of the licensee’s securities.
The securities of the licensee will be sold solely to accredited investors (Section 28031) and the licensee will not purchase any securities issued by an investment company as defined in Section 3 of the Investment Company Act of 1940 or issued by any company that would be an investment company except for the exclusions from that definition under paragraph (1) or (7) of Section 3(a) of that act, other than (1) any debt security that is rated investment grade by not less than one nationally recognized statistical rating organization or (2) any security issued by a registered open-end investment company that is required by its investment policies to invest not less than 65 percent of its total assets in securities described in paragraph (1) or securities that are determined by that registered open-end investment company to be comparable in quality to securities described in paragraph (1).
The licensee will engage in the transaction of business pursuant to the exemption from registration under the Investment Company Act of 1940 afforded to economic, business, and industrial development companies as provided for by Section 6(a)(5) of the Investment Company Act of 1940, as amended (15 U.S.C. Sec. 80a-6(a)), and a license pursuant to the Capital Access Company Law (Division 3 (commencing with Section 28000)).
The investment of funds by the licensee will be limited by and subject to the provisions of Section 6(a)(5) of the Investment Company Act of 1940, the Corporate Securities Law of 1968, and the Capital Access Company Law.
No licensee shall, except by prior written notice to the commissioner, transact business under any name other than its corporate name.
ARTICLE 2. Directors [28210. - 28212.]
Each licensee shall have a board of directors, executive committee, or other policy body, which shall consist of not less than three members.
The board of directors, executive committee, or other policy body of each licensee shall hold a meeting not less frequently than once each calendar year.
The board of directors, executive committee, or other policy body of each licensee shall approve the contract to be entered into between the licensee and any person who will make recommendations with respect to the investment of funds of the licensee.
CHAPTER 5. Offices [28320. - 28320.]
ARTICLE 1. Establishing, Relocating, and Closing Offices [28320. - 28320.]
No licensee shall relocate its head office without prior written notice to the commissioner.
No licensee shall establish, relocate, or close any office (other than its head office) unless it files a notice with the commissioner not less than two business days after taking the action.
CHAPTER 6. Transaction of Business [28400. - 28405.]
No licensee shall engage in any business other than the following:
The business of providing financing assistance through the purchase of securities of small business firms or smaller business firms doing business or proposing to do business wholly or substantially in this state.
The business of providing managerial assistance (including managerial and technical assistance) to small business firms or smaller business firms doing business or proposing to do business wholly or substantially in this state.
At least 20 percent of all financing assistance provided by the licensee shall be through purchase of securities of smaller business firms doing business or proposing to do business wholly or substantially in this state.
No licensee shall provide financing assistance to any small business firm for the purpose of evading the requirements of this division.
This section creates and authorizes an exempt class of persons pursuant to Section 1 of Article XV of the California Constitution. The restrictions upon rates of interest contained in Section 1 of Article XV of the California Constitution shall not apply to any evidence of indebtedness purchased by any licensee.
CHAPTER 7. Records, Reports, and Examinations [28500. - 28505.]
Each licensee shall make and keep books, accounts, and other records in the form and in the manner that the commissioner may by regulation or order require. All records so required shall be kept at the place and shall be preserved for the time that the commissioner may by regulation or order specify.
Each licensee shall, not more than 90 days after the close of each of its fiscal years or within a longer period that the commissioner may by regulation or order specify, file with the commissioner an audit report containing all of the following:
Financial statements (including balance sheets, statements of income or loss, statements of changes in capital accounts, and statements of cashflows or, in the case of a licensee that is a California nonprofit corporation, comparable financial statements) for, or as of, the end of the fiscal year, prepared, with audit, by an independent certified public accountant in accordance with generally accepted accounting principles.
A report, certificate, or opinion of the independent certified public accountant or independent public accountant, stating that the financial statements were prepared in accordance with generally accepted accounting principles.
Any other information that the commissioner may by regulation or order require.
Each licensee, director, officer, and employee of a licensee, and each parent and subsidiary of a licensee shall file with the commissioner all reports that the commissioner may by regulation or order require within the timeframe specified. In addition, each affiliate of a licensee (other than a parent or subsidiary of the licensee) shall file with the commissioner all reports regarding transactions between the affiliate and the licensee that the commissioner may require within the timeframe specified. Each report shall be in a form, shall contain information, shall be signed in a manner, and shall be verified in a manner, that the commissioner may by regulation or order require.
The commissioner shall examine each licensee not less frequently than once each calendar year.
The commissioner may at any time examine any licensee or any parent or subsidiary of a licensee.
The commissioner may at any time examine any affiliate of a licensee (other than a parent or subsidiary of the licensee), but only with respect to matters relating to transactions between the affiliate and the licensee.
The directors, officers, and employees of any licensee or of any affiliate of a licensee being examined by the commissioner and any other person having custody of any of the books, accounts, or records of the licensee or of the affiliate shall exhibit to the commissioner, on request, any or all of the books, accounts, and other records of the licensee or of the affiliate and shall otherwise facilitate the examination so far as it may be in their power to do so. However, in the case of an examination of an affiliate of a licensee other than a parent or subsidiary of the licensee, only books, accounts, and records of the affiliate that relate to transactions between the affiliate and the licensee shall be subject to this subdivision.
The commissioner may, if in his or her opinion it is necessary in the examination of any licensee or of any affiliate of a licensee, retain any certified public accountant, attorney, appraiser, or other person to assist him or her, and the licensee shall pay, within 10 days after receipt of a statement from the commissioner, the fees of the person retained.
A licensee may, after the approval of the board of directors, executive committee, or other policy body of the licensee, cause or permit any other person to make or keep any of its books, accounts, or other records.
If any person other than a licensee makes or keeps any of the books, accounts, or other records of the licensee, the provisions of this division and of any regulation or order issued under this division shall apply to the person with respect to the performance of those services and with respect to those books, accounts, and other records to the same extent as if the person were the licensee.
If any person other than an affiliate of a licensee makes or keeps any of the books, accounts, or other records of the affiliate or, in the case of an affiliate other than a parent or subsidiary of the licensee, the books, accounts, and other records of the affiliate that relate to transactions between the affiliate and the licensee, the provisions of this division and of any regulation or order issued under this division shall apply to the person with respect to those books, accounts, and other records to the same extent as if the person were the affiliate.
Subject to the provisions of Rules 250.10 and 250.10.5 of the Commissioner of Financial Protection and Innovation (10 C.C.R. Secs. 250.10 and 250.10.5), the commissioner may make available to the public any report filed with the commissioner under this division or under any regulations or order issued under this division.
CHAPTER 8. Acquisition of Control [28550. - 28552.]
No person shall, except with the prior written approval of the commissioner, acquire control of a licensee.
The commissioner shall approve an application for approval to acquire control of a licensee only if, after notice and a hearing, the commissioner finds all of the following:
That the applicant and the directors and officers of the applicant are of good character and sound financial standing.
That it is reasonable to believe that, if the applicant acquires control of the licensee, the applicant will comply with all applicable provisions of this division and of any regulation or order issued under this division.
That the applicant’s plans, if any, to make any major change in the business, corporate structure, or management of the licensee are not detrimental to the safety and soundness of the licensee or the accredited investors of the licensee, or to the public convenience and advantage.
For purposes of Section 28551, the commissioner may find:
That an applicant or a director or officer of an applicant is not of good character if the person has been convicted of, or has pleaded nolo contendere to, a crime involving fraud or dishonesty.
That an applicant’s plan to make a major change in the management of a licensee is detrimental to the safety and soundness of the licensee or the accredited investors of the licensee and to the public convenience and advantage if the plan provides for a person who has been convicted of, or has pleaded nolo contendere to, a crime involving fraud or dishonesty to become a director or officer of the licensee.
Subdivision (a) shall not be deemed to be the only grounds upon which the commissioner may find, for purposes of Section 28551, that an applicant or a director or officer of an applicant is not of good character or that an applicant’s plan to make a major change in the management of a licensee is detrimental to the safety and soundness of a licensee or to the accredited investors of the licensee, or to the public convenience and advantage.
CHAPTER 9. Merger and Purchase or Sale of Business [28600. - 28604.]
For purposes of this chapter:
“Acquiring licensee” means either of the following:
In the case of a merger, the licensee that is the surviving company.
In the case of a purchase or sale, the licensee that is the purchaser.
“Disappearing company” has the meaning set forth in Section 165.
“Surviving company” has the meaning set forth in Section 190.
No licensee shall merge with any other company unless either of the following apply:
If the licensee is to be the surviving company, the merger is first approved by the commissioner.
If the licensee is to be a disappearing company, the surviving company is a licensee and the merger is first approved by the commissioner.
No licensee shall purchase all or substantially all of the business of any other person unless the purchase is first approved by the commissioner.
No licensee shall sell all or substantially all of its business to any other person unless the other person is a licensee and the sale is first approved by the commissioner.
The commissioner shall approve an application for approval of a merger, purchase, or sale, only if, after notice and a hearing, the commissioner finds all of the following:
That the merger, purchase, or sale will be safe and sound with respect to the acquiring licensee.
That it is reasonable to believe that, upon consummation of the merger, purchase, or sale, the acquiring licensee will comply with all applicable provisions of this division and of any regulation or order issued under this division.
That the merger, purchase, or sale will not be detrimental to the licensee or the accredited investors of the licensee, or the public convenience and advantage, or, if the merger, purchase, or sale would be detrimental to any of the foregoing, then it is necessary in the interests of the safety and soundness of any of the parties to it.
CHAPTER 10. Voluntary Surrender of License [28650. - 28651.]
Any licensee may offer to surrender its license by filing with the commissioner the license and a report, which shall (a) be in a form, (b) contain information, and (c) be signed and verified in a manner, that the commissioner may by regulation or order require.
Except as otherwise provided in subdivision (b), a voluntary surrender of a license shall be effective upon the issuance of an order by the commissioner accepting the offer of surrender and the report required under Section 28650.
If a proceeding to revoke or suspend a license is pending at the time when the license and the report required under Section 28650 are filed with the commissioner or if a proceeding to revoke or suspend a license or to impose conditions upon the surrender of a license is instituted before the license and the report called for in Section 28650 are filed with the commissioner, the voluntary surrender of the license shall become effective at the time and upon the conditions that the commissioner may by order specify.
CHAPTER 11. Enforcement [28700. - 28716.]
For purposes of this chapter, unless the context otherwise requires:
“Office with a licensee” means the position of director, officer, or employee of the licensee or of any subsidiary of the licensee.
“Subject person,” when used with respect to a licensee, means any of the following:
Any controlling person or affiliate of the licensee.
Any director, officer, or employee of the licensee or of any of the persons specified in paragraph (1).
Any other person who participates in the conduct of the business of the licensee.
Whenever it appears to the commissioner that any person has violated, or that there is reasonable cause to believe that any person may violate, any provision of this division or of any regulation or order issued under this division, the commissioner may bring an action in the name of the people of this state in the superior court to enjoin the violation or to enforce compliance with this division or with any regulation or order issued under this division. Upon a proper showing, a restraining order, preliminary or permanent injunction, or writ of mandate shall be granted, and a receiver or a conservator may be appointed for the defendant or the defendant’s assets. The court may not require the commissioner to post a bond.
If the commissioner finds that any person has violated, or that there is reasonable cause to believe that any person may violate, Section 28150, the commissioner may order the person to cease and desist from the violation unless and until the person is issued a license.
Within 30 days after an order is issued pursuant to subdivision (a), the person to whom the order is directed may file with the commissioner an application for a hearing on the order. If the commissioner fails to commence a hearing within 15 business days after the application is filed with him or her (or within any longer period to which the person consents), the order shall be deemed rescinded. Upon the completion of the hearing, the commissioner shall affirm, modify, or rescind the order.
The right of any person to whom an order is issued under subdivision (a) to petition for judicial review of the order shall not be affected by the failure of the person to apply to the commissioner for a hearing on the order pursuant to paragraph (1).
The commissioner may issue a cease and desist order, including an order to take appropriate corrective action, if, after notice and a hearing, the commissioner finds either of the following:
That any licensee or any subject person of a licensee has violated, is violating, or that there is reasonable cause to believe that any licensee or any subject person of a licensee may violate, any provision of this division or of any regulation or order issued under this division or any provision of any other applicable law.
That any licensee or any subject person of a licensee has engaged or participated in, is engaging or participating in, or that there is reasonable cause to believe that any licensee or any subject person of a licensee may engage or participate in, any unsafe or unsound act with respect to the business of the licensee.
The commissioner may issue a cease and desist order, including an order to take appropriate corrective action, if the commissioner finds both of the following:
That any of the factors set forth in Section 28703 is true with respect to any licensee or any subject person of a licensee.
That the action or violation is likely to cause the insolvency of, or substantial dissipation of the assets or earnings of, the licensee, or is likely to seriously weaken the condition of the licensee or otherwise to seriously prejudice the interests of the licensee or the accredited investors of the licensee, prior to the completion of proceedings conducted pursuant to Section 28703.
Within 30 days after an order is issued pursuant to subdivision (a), any licensee or subject person of a licensee to whom the order is directed may file with the commissioner an application for a hearing on the order. The filing of an application for a hearing shall not stay the effectiveness of the order. If the commissioner fails to commence a hearing within 15 business days after the application is filed (or within any longer period to which the licensee or subject person consents), the order shall be deemed rescinded. Upon the completion of the hearing, the commissioner shall affirm, modify, or rescind the order.
The right of any licensee or subject person of a licensee to whom an order is issued under subdivision (a) to petition for judicial review of the order shall not be affected by the failure of the licensee or subject person to apply to the commissioner for a hearing on the order pursuant to paragraph (1).
The commissioner may issue an order removing a subject person from that person’s office with the licensee, if any, and prohibiting that person from further participating in any manner in the conduct of the business of the licensee, if, after notice and a hearing, the commissioner finds all of the following:
That the subject person of a licensee has violated a provision of this division or of any regulation or order issued under this division or any provision of any other applicable law;
That the subject person of a licensee has engaged or participated in any unsafe or unsound act with respect to the business of the licensee; or
That the subject person of a licensee has engaged or participated in any act which constitutes a breach of his or her fiduciary duty as a subject person.
That the act, violation, or breach of fiduciary duty has caused or is likely to cause substantial financial loss or other damage to the licensee or the accredited investors of the licensee; or
That the act, violation, or breach of fiduciary duty has seriously prejudiced or is likely to seriously prejudice the interests of the licensee or the accredited investors of the licensee; or
That the subject person has received financial gain by reason of the act, violation, or breach of fiduciary duty.
That the act, violation, or breach of fiduciary duty either involves dishonesty on the part of the subject person or demonstrates the subject person’s gross negligence with respect to the business of the licensee or a willful disregard for the safety and soundness of the licensee.
The commissioner may issue an order removing a subject person from his or her office, if any, with the licensee and prohibiting him or her from further participating in any manner in the conduct of the business of the licensee, except with the prior consent of the commissioner, if the commissioner finds, after notice and a hearing, that the subject person of a licensee has, by engaging or participating in any act with respect to any financial or other business institution which resulted in substantial financial loss or other damage, demonstrated either of the following:
Dishonesty.
Willful or continuing disregard for the safety and soundness of the financial or other business institution.
The commissioner may issue an order suspending a subject person from his or her office, if any, with the licensee and prohibiting him or her from further participating in any manner in the conduct of the business of the licensee, except with the consent of the commissioner, if the commissioner finds both of the following:
That it is necessary for the protection of the interests of the licensee or the accredited investors of the licensee, or for the protection of the public interest that the commissioner immediately suspend the subject person from his or her office, if any, with the licensee and prohibit him or her from further participating in any manner in the conduct of the business of the licensee.
Within 30 days after an order is issued pursuant to subdivision (a), any subject person of a licensee to whom the order is directed may file with the commissioner an application for a hearing on the order. The filing of an application for a hearing shall not stay the effectiveness of the order. If the commissioner fails to begin a hearing within 15 business days after the application is filed (or within any longer period to which the subject person consents), the order shall be deemed rescinded. Upon the completion of the hearing, the commissioner shall affirm, modify, or rescind the order.
The right of any subject person of a licensee to whom an order is issued under subdivision (a) to petition for judicial review of the order shall not be affected by the failure of the subject person to apply to the commissioner for a hearing on the order pursuant to paragraph (1).
The commissioner may issue an order suspending a subject person from his or her office, if any, with the licensee and prohibiting him or her from further participating in any manner in the conduct of the business of the licensee, except with the consent of the commissioner, if the commissioner finds both of the following:
That the subject person of a licensee has been indicted by a grand jury for, or held to answer by a magistrate for, a crime involving dishonesty or breach of trust.
That the continuation of that person as a subject person of the licensee may threaten the interests of the licensee or the accredited investors of the licensee, or may threaten to impair public confidence in the licensee.
The commissioner may issue an order suspending or removing the subject person or former subject person from his or her office, if any, with the licensee and prohibiting him or her from further participating in any manner in the conduct of the business of the licensee, except with the prior consent of the commissioner, if the commissioner finds both of the following:
That the subject person or former subject person of a licensee to whom an order was issued pursuant to subdivision (a) or any other subject person of a licensee has been finally convicted of a crime which is punishable by imprisonment for a term exceeding one year and which involves dishonesty or breach of trust.
That the continuation or resumption by that person as a subject person of the licensee may threaten the interests of the licensee or the accredited investors of the licensee, or may threaten to impair public confidence in the licensee.
The fact that any subject person of a licensee charged with a crime involving dishonesty or breach of trust is not finally convicted of the crime shall not preclude the commissioner from issuing an order to the subject person pursuant to any other section of this division.
Any person to whom an order is issued under Section 28705, 28706, 28707, or 28708 may apply to the commissioner to modify or rescind the order. The commissioner shall not grant the application unless the commissioner finds that it is in the public interest to do so and that it is reasonable to believe that the person will, if and when he or she becomes a subject person of a licensee, comply with all applicable provisions of this division and of any regulation or order issued under this division.
The commissioner may issue an order suspending or revoking the license of a licensee, if, after notice and a hearing, the commissioner finds any of the following:
That the licensee or any controlling person or affiliate of the licensee has violated any provision of this division or of any regulation or order issued under this division or any provision of any other applicable law.
That the licensee is conducting its business in an unsafe and unsound manner.
That the licensee is in a condition that it is unsafe or unsound for it to transact business.
That the licensee has ceased to transact business as a capital access company.
That the licensee is insolvent.
That the licensee has suspended payment of its obligations, has made an assignment for the benefit of its creditors, or has admitted in writing its inability to pay its debts as they become due.
That the licensee is the subject of an order for relief in bankruptcy or has sought other similar relief under any other bankruptcy, reorganization, insolvency, or moratorium law, or that any person has applied for any of that relief under any of those laws against any licensee and the licensee has by any affirmative act approved of or consented to the action or the relief has been granted.
That any fact or condition exists which, if it had existed at the time when any licensee applied for its license, would have been grounds for denying the application.
If the commissioner finds that any of the factors set forth in Section 28710 is true with respect to any licensee and that it is necessary for the protection of the public interest that the commissioner immediately suspend or revoke the license of the licensee, the commissioner may issue an order suspending or revoking the license of the licensee.
Within 30 days after an order is issued pursuant to subdivision (a), any licensee to whom the order is directed may file with the commissioner a request for a hearing on the order. If the commissioner fails to commence a hearing within 15 business days after the request is filed (or within any longer period to which the licensee consents), the order shall be deemed rescinded. Upon the completion of the hearing, the commissioner shall affirm, modify, or rescind the order.
Any person whose license is suspended or revoked shall immediately deliver the license to the commissioner.
Any person to whom an order is issued under Section 28709 or 28710 may apply to the commissioner to modify or rescind the order.
The commissioner shall not grant the application unless the commissioner finds that it is in the public interest to do so and that it is reasonable to believe that the person will, if and when it becomes a licensee, comply with all applicable provisions of this division and of any regulation or order issued under this division.
If the commissioner finds that any of the factors set forth in Section 28709 is true with respect to any licensee and that it is necessary for the protection of the interests of the licensee or the accredited investors of the licensee, or for the protection of the public interest that the commissioner take immediate possession of the property and business of the licensee, the commissioner may forthwith take possession of the property and business of the licensee and retain possession until the licensee resumes business or is finally liquidated. The licensee may, with the consent of the commissioner, resume business upon any conditions that the commissioner may prescribe.
Whenever the commissioner takes possession of the property and business of a licensee pursuant to subdivision (a), the licensee may apply within 10 days to the superior court in the county in which the head office of the licensee is located to enjoin further proceedings. The court, after citing the commissioner to show cause why further proceedings should not be enjoined and after a hearing, may dismiss the application or enjoin the commissioner from further proceedings and order the commissioner to surrender the property and business of the licensee to the licensee or make any further order that may be just.
An appeal may be taken from the judgment of the superior court by the commissioner or by the licensee in the manner provided by law for appeals from the judgment of a superior court. An appeal from the judgment of the superior court shall operate as a stay of the judgment. No bond need be given if the appeal is taken by the commissioner, but if the appeal is taken by the licensee, a bond shall be given as required by the Code of Civil Procedure.
Whenever the commissioner takes possession of the property and business of a licensee pursuant to subdivision (a), the commissioner shall conserve or liquidate the property and business of the licensee.
It is unlawful for any person to knowingly alter, destroy, mutilate, conceal, cover up, falsify, or make a false entry in any record, document, or tangible object with the intent to impede, obstruct, or influence the administration or enforcement of this division.
It is unlawful for any person to knowingly make an untrue statement to the commissioner during the course of licensing, investigation, or examination, with the intent to impede, obstruct, or influence the administration or enforcement of any provision of this division.
CHAPTER 12. Crimes and Criminal Penalties [28800. - 28881.]
ARTICLE 1. General Provisions [28800. - 28802.]
It shall be unlawful for any person willfully to make any untrue statement of a material fact in any application, report, or other document filed with the commissioner under this division or under any regulation or order issued under this division, or willfully to omit to state in any application, report or other document filed with the commissioner under this division any material fact which is required to be stated therein.
It shall be unlawful for any person having custody of any of the books, accounts, or other records of a licensee willfully to refuse to allow the commissioner, upon request, to inspect or make copies of any of those books, accounts, or other records.
It shall be unlawful for any person, with intent to deceive any director, officer, employee, auditor, or attorney of a licensee, the commissioner or any governmental agency, to make any false entry in any of the books, accounts or other records of the licensee, to omit to make any entry in those books, accounts or other records which the person is required to make, or to alter, conceal, or destroy any of those books, accounts, or other records.
ARTICLE 2. Conflicts of Interest [28820. - 28821.]
In this article, unless the context otherwise requires:
“Associate,” when used with respect to a licensee, means all of the following:
Any principal shareholder, director, officer, manager, agent, or adviser of the licensee.
Any director, officer, partner, general manager, agent, employer, or employee of any person referred to in subparagraph (A).
Any person who controls, is controlled by, or is under common control with, any person referred to in subparagraph (A), directly or indirectly, through one or more intermediaries.
Any close relative of any person referred to in subparagraph (A).
Any person of whom any person referred to in subparagraphs (A) to (D), inclusive, is a director or officer.
Any person in whom any person referred to in subparagraphs (A) to (D), inclusive, or any combination of persons acting in concert owns or controls, directly or indirectly, a 10-percent or greater equity interest.
For purposes of this subdivision, any person who is in any of the relationships referred to in subparagraphs (A) to (F), inclusive, of paragraph (1) within six months before or after a licensee provides financing assistance shall be deemed to be in the relationship as of the date when the licensee provides the financing assistance.
For purposes of this subdivision, if a licensee, in order to protect its interests, designates any person to serve as a director of, officer of, or in any capacity in the management of, a small business firm to which the licensee provides financing assistance, the person shall not, on that account, be deemed to have any relationship with the small business firm. However, this paragraph shall not apply in any case where the person has, directly or indirectly, any other financial interest in the small business firm or where the person, at any time before the licensee provides the financing assistance, served as a director of, officer of, or in any other capacity in the management of, the small business firm for a period of 30 days or more.
“Close relative” means ancestor, lineal descendant, brother or sister and lineal descendants of either, spouse, father-in-law, mother-in-law, son-in-law, brother-in-law, daughter-in-law, or sister-in-law.
A licensee shall not provide financial or managerial assistance to, or for the benefit of, any person to the detriment of a small business firm or smaller business firm, the licensee, its shareholders, or partners. Unless a licensee obtains a prior written exemption from the commissioner for special instances in which providing financial assistance may further the purposes of this division despite presenting a conflict of interest, a licensee shall not directly or indirectly do any of the following:
Provide financial assistance to any of the licensee’s associates.
Provide financial assistance to an associate of another licensee, if one of the licensee’s associates has received or will receive any direct or indirect financial assistance or a commitment from that licensee or a third licensee, including financial assistance or commitments received under any understanding, agreement, or cross dealing, reciprocal or circular arrangement.
Borrow money from any of the following:
A small business firm or smaller business firm to which the licensee has provided financial assistance.
An officer, director, or owner of at least a 10-percent equity interest in the business.
A close relative of a person described in subparagraph (B).
Provide financial assistance to a small business firm or smaller business firm to discharge an obligation to a licensee’s associate or to make other funds available to pay the obligation, except if the obligation is to an associate lending institution and is a line of credit or other obligation incurred in the normal course of business.
Provide financial assistance to a small business firm or smaller business firm for the purpose of purchasing property from a licensee’s associate.
Without the commissioner’s prior written approval, a licensee’s associates shall not, directly or indirectly, do either of the following:
Borrow money from any person described in paragraph (3) of subdivision (a).
Receive from a small business firm or smaller business firm any compensation in connection with any financial assistance a licensee provides or anything of value for procuring, attempting to procure, or influencing a licensee’s action with respect to that financial assistance.
Financial assistance that meets either of the following criteria is exempt from the prior approval requirement in paragraph (1) and shall be presumed to be fair and equitable to the licensee for the purposes of paragraph (2):
The licensee’s associate is a lending institution that is providing financing under a credit facility in order to meet the operational needs of a small business firm or smaller business firm, and the terms of that financing are usual and customary.
The licensee’s associate invests in the small business firm or smaller business firm on the same terms and conditions and at the same time as the licensee.
To protect a licensee’s investment, a licensee may designate an associate to serve as an officer, director, or other participant in the management of a small business firm or smaller business firm. The licensee shall identify this associate in the licensee’s records maintained and made available for the commissioner’s review. Without the commissioner’s prior written approval, the associate shall not do any of the following:
ARTICLE 3. Criminal Penalties [28880. - 28881.]
Any person who willfully violates any provision under this chapter shall upon conviction be fined not more than two hundred fifty thousand dollars ($250,000) or be imprisoned pursuant to subdivision (h) of Section 1170 of the Penal Code, or in a county jail for not more than one year, or be punished by both that fine and imprisonment.
Nothing in this division limits the power of the state to punish any person for any act which constitutes a crime under any statute.
CHAPTER 13. Civil Penalties [28900. - 28901.]
If, after notice and a hearing, the commissioner finds that any person has violated any provision of this division or of any regulation or order issued under this division, the commissioner may order the person to pay to the commissioner a civil penalty in that amount as the commissioner may specify. However, the amount of the civil penalty shall not exceed two thousand five hundred dollars ($2,500) for each violation, or in the case of a continuing violation, two thousand five hundred dollars ($2,500) for each day for which the violation continues.
The provisions of Section 28900 are additional to, and not alternative to, other provisions of this division which authorize the commissioner to issue orders or to take other action on account of a violation of any provision of this division or of any regulation or order issued under this division. However, no person who has been finally convicted under Chapter 12 (commencing with Section 28800) of this division on account of a violation of any provision of Chapter 12 (commencing with Section 28800) shall be liable to pay a civil penalty under Section 28900 on account of the violation.
CHAPTER 14. Miscellaneous Provisions [28950. - 28958.]
No provision of this division imposing any liability applies to any act done or omitted in good faith in conformity with any rule, form, permit, order, or written interpretive opinion of the commissioner, or any written interpretive opinion of the Attorney General, notwithstanding that the rule, form, permit, order, or written interpretive opinion may later be amended or rescinded or be determined by judicial or other authority to be invalid for any reason.
The commissioner may from time to time make, amend, and rescind the rules, forms, and orders that are necessary to carry out this law, and define any terms, whether or not used in this law, insofar as the definitions are not inconsistent with this law. For the purpose of rules, the commissioner may, among other things, classify persons within the commissioner’s jurisdiction and may prescribe different requirements for different classes. The commissioner may, in the commissioner’s discretion, waive any requirement of any rule or form in situations where in his or her opinion the requirement is not necessary in the public interest.
The commissioner may, by regulation or order, either unconditionally or upon specified terms and conditions or for specified periods, exempt from the provisions of this division any person or transaction or class of persons or transactions, if the commissioner finds that action to be in the public interest and that the regulation of those persons or transactions is not necessary for the purposes of this division.
The commissioner may honor requests from interested persons for interpretive opinions.
In any proceeding under this law, the burden of proving an exemption or an exception from a definition is upon the person claiming it.
Every final order, decision, license, or other official act of the commissioner is subject to judicial review in accordance with law.
Nothing in this law, shall impair, derogate, or otherwise affect the authority or powers of the commissioner under the Corporate Securities Law of 1968 (Part 3 (commencing with Section 25000)) or the application of any provision thereof to any person or transaction subject thereto.
If any provision of this division , or the application thereof to any person or circumstance, is held invalid, the invalidity shall not affect other provisions or applications of this law that can be given effect without the invalid provision or application, and to this end the provisions of this division are declared to be severable.
Neither the commissioner nor any employee of the commissioner shall use any information which is filed with or obtained by the commissioner which is not public information for personal gain or benefit, nor shall the commissioner nor any employee of the commissioner engage in any securities transaction based on that information, even though public, if there has not been a sufficient period of time for the securities or commodity markets to assimilate that information.
The program established by this division shall be supported from funds appropriated by the Legislature from the State Corporations Fund.
The funds appropriated from the State Corporations Fund and made available for expenditure under subdivision (a) of this section shall come from fees collected under Section 28110, penalties collected under Sections 28880 and 28900, and securities application filing fees collected under subdivisions (e), (f), (h), and (i) of Section 25608 and notice filing fees collected under subdivision (a) of Section 25608.1.
DIVISION 4. BUCKET SHOP LAW [29000. - 29201.]
CHAPTER 1. Definitions [29000. - 29008.]
Unless the provision or the context otherwise requires, the definitions set forth in this chapter govern the construction of this division.
“Person” means an individual, partnership, corporation, limited liability company, or association, either domestic or foreign, whether acting in his or her own right or as the officer, agent, servant, employee, correspondent, or representative of another or as trustee.
“Trustee” means a person executing a trust, as defined in this section.
“Trust” means any voluntary trust expressly created by or declared in an instrument in writing, other than a will or a judicial writ, order, decree, or judgment, to carry on any business or to secure the payment or repayment of money.
“Contract” includes any agreement, trade, or transaction.
“Securities” means all shares in any corporation or association or of trustees, bonds, coupons, scrip, rights, choses in action, and other evidences of debt or property and options for the purchase or sale thereof or of any right entitling the holder thereof to participate in profits or a division of assets.
“Commodities” means anything movable that is bought and sold.
“Bucket shop” means any room, office, store, building, or other place where any bucketing or bucket shopping contract is made or offered to be made.
“Keeper” means any person owning, keeping, managing, operating, or promoting a bucket shop, or assisting to keep, manage, operate, or promote a bucket shop.
“Bucketing” or “bucket shopping” means any of the following:
Making or offering to make any contract respecting the purchase or sale of any securities or commodities, wherein both parties intend, or the keeper intends, that the contract shall be, or may be, terminated, closed, or settled according to or upon the basis of the public market quotations of prices made on any board of trade or exchange upon which the securities or commodities are dealt in, without a bona fide purchase or sale of the securities or commodities.
Making or offering to make any contract respecting the purchase or sale of any securities or commodities, wherein both parties intend, or the keeper intends, that the contract shall be, or may be, deemed terminated, closed, or settled when the public market quotations of prices for the securities or commodities named in the contract reach a certain figure without a bona fide purchase or sale of the securities or commodities.
Making or offering to make any contract respecting the purchase or sale of any securities or commodities, wherein both parties do not intend, or such keeper does not intend, the actual or bona fide receipt or delivery of the securities or commodities, but do intend, or the keeper does intend, a settlement of the contract based upon the differences in the public market quotations of prices at which the securities or commodities are or are asserted to be bought and sold.
The sale by a keeper of any security or commodity purchased by him for the account of or upon the order of another when the proceeds of the sale are not immediately credited by the keeper to the account of the other person and when a report or statement in writing of the sale is not rendered to the other person by the keeper on the next business day following the sale.
CHAPTER 2. Prohibited Activities [29100. - 29105.]
Any person who makes or offers to make any contract constituting bucketing under Section 29008, or who makes any sale constituting bucketing under Section 29008, or who is the keeper of any bucket shop, is guilty of a felony.
Any person who communicates, receives, exhibits, or displays in any manner any statement of quotations of prices of any securities or commodities, with an intent to make, or to offer to make, or to aid in making or offering to make, any contract constituting bucketing under Section 29008 is guilty of a felony.
The felonies specified in this chapter are punishable, for each offense, if the offender is a corporation, by a fine of not less than one thousand dollars ($1,000) nor more than ten thousand dollars ($10,000) or, if the offender is not a corporation, by imprisonment pursuant to subdivision (h) of Section 1170 of the Penal Code, or by a fine of not less than one thousand dollars ($1,000) nor more than ten thousand dollars ($10,000), or by both that imprisonment and fine.
The prosecution, conviction, and punishment of a corporation under any provision of this chapter shall not be deemed to be a prosecution, conviction, or punishment of any of its officers, directors, or shareholders.
All contracts for the purchase or sale of shares of the capital stock of any corporation or association without any intention on the part of one party to deliver and of the other party to receive the shares, and contemplating merely the payment of differences between the contract and market prices on divers days, shall be void, and neither party to any such contract shall be entitled to recover any damages for failure to perform the same, or any money paid thereon, in any court of this state.
It is unlawful for any person to knowingly alter, destroy, mutilate, conceal, cover up, falsify, or make a false entry in any record, document, or tangible object with the intent to impede, obstruct, or influence the administration or enforcement of this division.
It is unlawful for any person to knowingly make an untrue statement to the commissioner during the course of licensing, investigation, or examination, with the intent to impede, obstruct, or influence the administration or enforcement of any provision of this division.
CHAPTER 3. Required Records and Statements [29200. - 29201.]
Every person doing business as a broker or making contracts as a broker or agent for the purchase or sale of any securities or commodities on any board of trade or exchange shall keep or cause to be kept at their office or place of business correct and permanent records or books of account showing each of such transactions as a separate item. The failure so to keep or cause to be kept such records or books of account is prima facie evidence that any such contract was bucketing or bucketshopping.
Such records or books of account shall at all times be open to inspection by the Commissioner of Financial Protection and Innovation or by any deputy, investigator, or auditor of the Department of Financial Protection and Innovation to whom the commissioner may delegate such authority in writing.
Every person shall, upon written demand therefor, furnish to any customer or principal for whom he has executed any order for the actual purchase or sale of any securities or commodities on any board of trade or exchange, either for immediate or future delivery, a written statement showing the name of the person from whom the property was bought or to whom it was sold, as the case may be, and the time when, place where, and the price at which it was either bought or sold. If any such person refuses or neglects to furnish such a statement within forty-eight hours after such demand, the refusal or neglect is prima facie evidence that the transaction was bucketing or bucket shopping within the terms of this division.
DIVISION 4.5. COMMODITIES [29500. - 29567.]
CHAPTER 1. Definitions [29500. - 29516.]
This division shall be known and may be cited as the “California Commodity Law of 1990.” References herein to “this law” refer to the applicable provisions of this division unless the context otherwise requires. The definitions in this chapter govern the construction of this law.
“Board of trade” means any person or group of persons engaged in buying or selling any commodity or receiving the same for sale on consignment, whether the person or group of persons is characterized as a board of trade, exchange, or other form of marketplace.
“Business days” are all days other than every Saturday, every Sunday and such other days as are specified or provided for as holidays in the Government Code.
“Commissioner” means the Commissioner of Financial Protection and Innovation.
“Commodity” means, except as otherwise specified by the commissioner by rule or order, any agricultural, grain, or livestock product or byproduct, any metal or mineral (including a precious metal set forth in Section 29515), any gem or gemstone (whether characterized as precious, semiprecious, or otherwise), any fuel (whether liquid, gaseous, or otherwise), any foreign currency, and all other goods, articles, products, or items of any kind. However, the term “commodity” shall not include (a) a numismatic coin whose fair market value is at least 15 percent higher than the value of the metal it contains, or (b) any work of art offered or sold by art dealers, at public auction, or through a private sale by the owner of the work of art.
“Commodity contract” means any account, agreement, or contract for the purchase or sale, primarily for speculation or investment purposes and not for use or consumption by the offeree or purchaser, of one or more commodities, whether for immediate or subsequent delivery or whether delivery is intended by the parties, and whether characterized as a cash contract, deferred shipment or deferred delivery contract, forward contract, futures contract, installment or margin contract, leverage contract, or otherwise. A “commodity contract” includes a commodity option as defined in Section 29510, unless otherwise specified. Any “commodity contract” offered or sold shall, in the absence of evidence to the contrary, be presumed to be offered or sold for speculation or investment purposes.
A “commodity contract” shall not include any contract or agreement which requires, and under which the purchaser personally receives, or at the request of the purchaser a family member or an individual (which individual is other than the seller or any affiliate of the seller, including any officer, director, or employee of the seller or any affiliate of the seller) with whom the purchaser has a preexisting close personal or preexisting business relationship personally receives, within 28 calendar days from the full payment in good funds of the purchase price, actual physical delivery of the quantity of each commodity purchased under the contract or agreement. In the case of a seller who requires a partial payment of the total purchase price before obligating itself to actually physically deliver the quantity of each commodity purchased under the contract or agreement described in this subdivision, both the amount remaining on the total purchase price shall be paid in good funds and actual physical delivery of the quantity of each commodity purchased under the contract or agreement shall be personally received (by the purchaser or above-described individual) within 28 calendar days from the date of the partial payment in good funds. Otherwise, for the purposes of this exclusion from the definition of a “commodity contract,” a partial payment of, or an installment payment on, the purchase price is not a full payment in good funds of the purchase price.
“Commodity Exchange Act” means the federal statute so named, as amended before or after January 1, 1991.
“Commodity Futures Trading Commission” means the independent regulatory agency established by Congress to administer the Commodity Exchange Act.
“CFTC Rule” means any rule, regulation, or order of the Commodity Futures Trading Commission in effect on January 1, 1991, and all subsequent amendments, additions, or other revisions thereto, unless the commissioner, within 10 days following the effective date of any amendment, addition, or revision, disallows the application thereof to this law or to any provision thereof by rule or order.
“Commodity merchant” means any of the following, as defined or described in the Commodity Exchange Act or by CFTC Rule:
Futures commission merchant.
Commodity pool operator.
Commodity trading advisor.
Introducing broker.
Leverage transaction merchant.
An associated person of any person specified in subdivisions (a) to (d), inclusive.
Floor broker.
Any other person (other than a futures association) required to register with the Commodity Futures Trading Commission.
“Commodity option” means any account, agreement, or contract giving a party thereto the right but not the obligation to purchase or sell one or more commodities or one or more commodity contracts, or both, whether characterized as an option, privilege, indemnity, bid, offer, put, call, advance guaranty, decline guaranty, or otherwise, but shall not include an option traded on a national securities exchange registered with the United States Securities and Exchange Commission.
“Financial institution” means (a) a national bank or a bank or trust company incorporated under the laws of this state, (b) a federal savings and loan association or federal savings bank, or (c) a federally insured bank chartered by a state of the United States when the commodity depository activities of the bank are supervised by the bank regulator of that state.
“Good funds” means the verified receipt of immediately available funds according to the applicable requirements of federal Regulation CC.
“Offer” includes every offer to sell, offer to purchase, or offer to enter into a commodity contract or commodity option.
“Person” means an individual, a corporation, a partnership, a limited liability company, an association, a joint stock company, a trust, an unincorporated organization, a government, or a political subdivision of a government.
“Precious metal” means the following in either coin, bullion, or other form:
Silver.
Gold.
Platinum.
Palladium.
Copper.
Other items that the commissioner may specify by rule or order.
“Purchase price” means all funds paid by or on behalf of a purchaser to a seller of a commodity contract or a commodity option (or to another person at the request or direction of a seller), including, but not limited to, the sale price of a commodity, an administrative charge or fee, assessment, deposit, dues, handling charge or fee, holding charge or fee, membership charge or fee, reservation charge or fee, or any charge, fee, or other payment made or paid in connection with the sale of a commodity contract or a commodity option.
“Sale” or “sell” includes every sale, contract of sale, contract to sell, or disposition, for value.
CHAPTER 2. Unlawful Commodity Transactions [29520. - 29520.]
Except as otherwise provided in Section 29530, 29531, or 29532, no person shall sell or purchase or offer to sell or purchase any commodity under any commodity contract or under any commodity option, or offer to enter into, or enter into, as seller or purchaser any commodity contract or any commodity option.
CHAPTER 3. Exemptions [29530. - 29532.]
The prohibitions in Section 29520 shall not apply to any transaction offered by and in which any of the following persons (or any employee, officer, or director thereof acting solely in that capacity) is the purchaser or seller:
A person registered with the Commodity Futures Trading Commission as a futures commission merchant or as a leverage transaction merchant whose activities require registration.
A person affiliated with, and whose obligations and liabilities under the transaction are guaranteed by, a person referred to in subdivision (a).
A person who is a member of a contract market designated by the Commodity Futures Trading Commission (or any clearinghouse thereof) when the transaction at issue requires membership in and is subject to the regulatory jurisdiction of that contract market.
A financial institution.
A person licensed pursuant to Chapter 14 (commencing with Section 1800) of Division 1 of the Financial Code to receive money for transmittal to foreign countries if (A) the license has not expired or been surrendered, suspended, or revoked, (B) the licensed person has a tangible net worth of at least 3 million dollars ($3,000,000) according to its audited financial statements prepared by an independent certified public accountant for each of the immediately preceding three fiscal years, and (C) pursuant to the provisions of subdivision (b) of Section 29531, the licensed person issues and a purchaser receives a certificate, document of title, confirmation, or other instrument evidencing that the purchased quantity of precious metals or foreign currencies has been delivered to a depository which is a financial institution located in a state of the United States.
The exemption provided by subdivision (a) shall not apply to any transaction or activity which is prohibited by the Commodity Exchange Act or CFTC Rule.
The prohibitions in Section 29520 shall not apply to the following:
An account, agreement, or transaction within the exclusive regulatory jurisdiction of the Commodity Futures Trading Commission as granted under Section 2 of Title 42 of the United States Code (Section 2(a)(1)(A) of the Commodity Exchange Act).
A commodity contract for the purchase of one or more precious metals or foreign currencies which requires full payment in good funds of the purchase price and under which the purchaser receives, within 28 calendar days from the full payment in good funds of the purchase price, substitute delivery of the quantity of the precious metals or foreign currencies purchased, or a commodity contract for the purchase of one or more precious metals or foreign currencies which allows partial payment in good funds of the purchase price and under which the purchaser receives within 28 calendar days from the partial payment in good funds of the purchase price, substitute delivery of the quantity of precious metals or foreign currencies purchased by that payment; provided that, for purposes of this subdivision, substitute delivery shall be deemed to have occurred if, within the 28-day period, the quantity of precious metals or foreign currencies purchased by the full or partial payment is actually physically delivered (whether in specifically segregated or fungible bulk form) into the possession of a depository (other than the seller) which is either (1) a financial institution, (2) a depository, the warehouse receipts of which are recognized for delivery purposes for any commodity on a contract market designated by the Commodity Futures Trading Commission, (3) a storage facility licensed or regulated by the United States or any agency thereof, or (4) a facility for the storage of precious metals or foreign currencies located within a state of the United States and operated by an armored contract carrier defined under subdivision (e), or (5) a depository designated by the commissioner. The depository (or other person which itself qualifies as a depository) enumerated in this subdivision shall issue and the purchaser shall receive a certificate, document of title, confirmation or other instrument evidencing that the quantity of precious metals has been delivered to the depository and is being and will continue to be held by the depository on the purchaser’s behalf, free and clear of all liens and encumbrances, other than liens of the purchaser, tax liens, liens agreed to by the purchaser, or liens of the depository for fees and expenses, which have previously been disclosed to the purchaser.
A commodity contract solely between persons engaged in producing, processing, using commercially or handling as merchants, each commodity subject thereto, or any byproduct thereof.
A commodity contract under which the offeree or the purchaser is a person referred to in Section 29530, an insurance company, or an investment company as defined in Section 80a-3 of Title 15 of the United States Code (Section 3 of Title I of the federal Investment Company Act of 1940).
For the purposes of this section, “armored contract carrier” means a person who: (1) is operating as a carrier transporting coin, currency, precious metals, securities, or negotiable items pursuant to a currently effective permit as a highway contract carrier and a city carrier issued by the Public Utilities Commission of this state and is also operating a facility for the storage of precious metals or foreign currencies pursuant to a commodity contract; (2) has purchased and maintains sufficient amounts of insurance coverage for all risks associated with the operation of a facility for the storage of precious metals or foreign currencies from an insurance company admitted in this state; (3) has continuously operated as a carrier under its permit and has continuously operated a facility for the storage of precious metals or foreign currencies for at least five years; (4) has a tangible net worth of at least five million dollars ($5,000,000) for each of the immediately preceding five fiscal years according to its financial statements prepared on an individual company basis, or on a combining or consolidating basis with any affiliates, which financial statements have been audited by an independent certified public accountant; and (5) provides the following disclosure to a purchaser in 10-point boldface type with the certificate, document of title, confirmation, or other instrument evidencing that the purchased quantity of precious metals or foreign currencies has been delivered to or is on deposit with the storage facility: “(Name of carrier) is not licensed, regulated, or supervised as a depository or storage facility by the United States Government or the State of California.”
The commissioner may by rule or order prescribe the terms and conditions of all transactions and contracts covered by this law and exempt any person or transaction from this law conditionally or unconditionally.
CHAPTER 4. Unlawful Activities and Fraudulent Conduct [29535. - 29538.]
No person shall engage in a trade or business or otherwise act as a commodity merchant unless the person (1) is registered or temporarily licensed with the Commodity Futures Trading Commission for each activity constituting that person as a commodity merchant and the registration or temporary license shall not have expired, been suspended, or revoked; or (2) is exempt from the registration by virtue of the Commodity Exchange Act (7 U.S.C. Sec. 1 et seq.) or of a CFTC rule.
No board of trade shall trade, or provide a place for the trading of, any commodity contract required to be traded on or subject to the rules of a contract market designated by the Commodity Futures Trading Commission, unless the board of trade has been so designated for the commodity contract and that designation shall not have been vacated, suspended, or revoked.
It is unlawful for any person, directly or indirectly, in connection with the purchase or sale of, the offer to sell, the offer to purchase, the offer to enter into, or the entry into, a commodity, commodity contract, or commodity option to do any of the following:
To willfully employ any device, scheme, or artifice to defraud.
To willfully make any false report, enter any false record, make any untrue statement of a material fact, or omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading.
To willfully engage in any transaction, act, practice, or course of business which operates or would operate as a fraud or deceit upon any persons.
To willfully misappropriate or convert the funds, security, or property of any other person.
An offer to sell is made in this state.
An offer to buy is made and accepted in this state.
An offer to buy is made in this state.
An offer to sell is made and accepted in this state.
For the purpose of this section, an offer to sell or to buy is made in this state, whether or not either party is then present in this state, when the offer:
For the purpose of this section, an offer to buy or to sell is accepted in this state when acceptance:
An offer to sell or to buy is not made in this state when either of the following occur:
The publisher circulates or there is circulated on his or her behalf in this state any bona fide newspaper or other publication of general, regular, and paid circulation which is not published in this state, or which is published in this state but has had more than two-thirds of its circulation outside this state during the past 12 months.
A radio or television program originating outside this state is received in this state.
It is unlawful for any person to knowingly alter, destroy, mutilate, conceal, cover up, falsify, or make a false entry in any record, document, or tangible object with the intent to impede, obstruct, or influence the administration or enforcement of this division.
It is unlawful for any person to knowingly make an untrue statement to the commissioner during the course of licensing, investigation, or examination, with the intent to impede, obstruct, or influence the administration or enforcement of any provision of this division.
CHAPTER 5. Powers of the Commissioner [29540. - 29546.]
Whenever it appears to the commissioner that any person has engaged, or is about to engage, in any act or practice constituting a violation of any provision of this law or any rule or order under this law, the commissioner may in his or her discretion bring an action in the name of the people of the State of California in the superior court to enjoin the acts or practices or to enforce compliance with this law or any rule or order under this law. Upon a proper showing, a permanent or preliminary injunction, restraining order, or writ of mandate shall be granted and a monitor, receiver, conservator, or other designated fiduciary or officer of the court may be appointed for the defendant or the defendant’s assets, or other ancillary relief may be granted as appropriate.
A receiver, monitor, conservator, or other designated fiduciary or officer of the court appointed by the superior court pursuant to this section may, with the approval of the court, exercise all of the powers of the defendant’s officers, directors, partners, trustees, or persons who exercise similar powers and perform similar duties, including the filing of a petition for bankruptcy. No action at law or in equity may be maintained by any party against the commissioner, or a receiver, monitor, conservator, or other designated fiduciary or officer of the court by reason of their exercising these powers or performing these duties pursuant to the order of, or with the approval of, the superior court.
If the commissioner determines it is in the public interest, the commissioner may include in any action authorized by subdivision (a) a claim for ancillary relief, including, but not limited to, a claim for restitution, disgorgement, or damages on behalf of the person injured by the act or practice constituting the subject matter of the action, and the court shall have jurisdiction to award additional relief.
The commissioner in his or her discretion (1) may make public or private investigations within or outside of this state that the commissioner deems necessary to determine whether any person has violated or is about to violate any provision of this law or any rule or order hereunder, or to aid the enforcement of this law or in the prescribing of rules and forms under this law, and (2) may publish information concerning any violation of this law or a rule or order hereunder.
For the purpose of any investigation or proceeding under this law, the commissioner or any officer designated by the commissioner may administer oaths and affirmations, subpoena witnesses, compel their attendance, take evidence, and require the production of any books, papers, correspondence, memoranda, agreements, or other documents or records which the commissioner deems relevant or material to the inquiry.
In case of contumacy by, or refusal to obey a subpoena issued to, any person, the superior court, upon application by the commissioner, may issue to the person an order requiring him or her to appear before the commissioner or the officer designated by the commissioner, to produce documentary evidence, if so ordered, or to give evidence touching the matter under investigation or in question. Failure to obey the order of the court may be punished by the court as a contempt.
No person is excused from attending and testifying or from producing any document or record before the commissioner, or in obedience to the subpoena of the commissioner or any officer designated by the commissioner or in any proceeding instituted by the commissioner, on the ground that the testimony or evidence (documentary or otherwise) required of him or her may tend to incriminate him or her or subject him or her to a penalty or forfeiture. However, no individual may be prosecuted or subjected to any penalty or forfeiture for or on account of any transaction, matter, or thing concerning which he or she is compelled, after validly claiming his or her privilege against self-incrimination, to testify or produce evidence (documentary or otherwise), except that the individual testifying is not exempt from prosecution and punishment for perjury or contempt committed in testifying.
If, in the opinion of the commissioner, any person is engaging or has engaged in any activity in violation of any provision of this law, or rule or order under this law, the commissioner may order the person to desist and refrain from the activity unless and until the activity will not be in violation of any provision of this law or any rule or order under this law.
If after an order has been made under subdivision (a), a request for hearing is filed in writing within 30 days of the date of service of the order by the person to whom the order was directed, a hearing shall be held in accordance with the Administrative Procedure Act (Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code), and the commissioner shall have all of the powers granted under the Administrative Procedure Act. Unless the hearing is commenced within 15 business days after the request is filed (or the person affected consents to a later date), the order is rescinded.
If that person fails to file a written request for a hearing within 30 days from the date of service of the order, the order shall be deemed a final order of the commissioner and shall not be subject to review by any court or agency, notwithstanding Section 29563.
The commissioner may refer the evidence that is available concerning any violation of this law, or of any rule or order under this law, to the Attorney General or the district attorney of the county in which the violation occurred, who may, with or without such a reference, institute appropriate criminal proceedings under this law. The commissioner and the commissioner’s counsel, deputies, or assistants may, upon request of the Attorney General or the district attorney, assist the prosecutor in presenting the law or facts at the trial.
Any person who willfully violates any provision of this law, or who willfully violates any rule or order under this law, shall be liable for a civil penalty not to exceed twenty-five thousand dollars ($25,000) for each violation, which shall be assessed and recovered in a civil action brought in the name of the people of the State of California by the commissioner in any court of competent jurisdiction.
The penalty collected shall be paid to the State Corporations Fund to be used for the support of this division.
As applied to the penalties for acts in violation of this division, the remedies provided by this section and by other sections of this division are not exclusive, and may be sought and employed in any combination to enforce this division.
No action shall be maintained to enforce any liability created under subdivision (a) unless brought before the expiration of four years after the act or transaction constituting the violation.
The commissioner may take actions that are authorized by Section 13a-2 of Title 7 of the United States Code (Section 6d of the federal Commodity Exchange Act) as amended before or after the effective date of this section.
Nothing in this section shall be construed as a limitation on the powers of the commissioner under this act or any other law administered by the commissioner.
The commissioner in his or her discretion may honor requests from interested parties for interpretive opinions.
CHAPTER 6. Crimes and Civil Liability [29550. - 29555.]
Except as provided in subdivision (b), any person who willfully violates any provision of this law, or who willfully violates any rule or order under this law, shall upon conviction be fined not more than two hundred fifty thousand dollars ($250,000) or imprisoned pursuant to subdivision (h) of Section 1170 of the Penal Code, or in a county jail for not more than one year, or be punished by both a fine and imprisonment; but no person may be imprisoned for the violation of any rule or order if that person proves that he or she had no knowledge of the rule or order.
One-half of the fines collected under this section shall be paid to the State Corporations Fund to be used for the support of this division. The remainder of the fines collected under this section shall be paid to the state or local agency which brought the criminal prosecution.
Nothing in this law limits the power of the state to punish any person for any conduct which constitutes a crime under any other statute.
Any person who materially assists in any violation of this law, or any rule or order of the commissioner under this law, is jointly and severally liable with any other person liable under this law for the violation.
No action shall be maintained to enforce any liability under Section 29552 unless brought before the expiration of four years after the act or transaction constituting the violation or within one year after the discovery by the plaintiff of the facts constituting the violation, whichever occurs last.
Every cause of action under this law survives the death of any person who might have been a plaintiff or defendant.
Except as explicitly provided in this law, no civil liability in favor of any private party shall arise against any person by implication from, or as a result of, the violation of any provision of this law or any rule or order under this law. Nothing in this law shall limit any liability which may exist by virtue of any other statute or under common law if this law were not in effect.
CHAPTER 7. Miscellaneous Provisions [29560. - 29567.]
No provision of this law imposing any liability applies to any act done or omitted in good faith in conformity with any rule, form, permit, order, or written interpretive opinion of the commissioner, or any written interpretive opinion of the Attorney General, notwithstanding that the rule, form, permit, order, or written interpretive opinion may later be amended or rescinded or be determined by judicial or other authority to be invalid for any reason.
The commissioner may from time to time make, amend, and rescind the rules, forms, and orders that are necessary to carry out this law, and define any terms, whether or not used in this law, insofar as the definitions are not inconsistent with this law. For the purpose of rules, the commissioner may classify commodities, commodity contracts, commodity options, and persons within the commissioner’s jurisdiction and may prescribe different requirements for different classes. The commissioner may, in the commissioner’s discretion, waive any requirement of any rule or form in situations where in his or her opinion the requirement is not necessary in the public interest.
In any proceeding under this law, the burden of proving an exemption or an exception from a definition is upon the person claiming it.
Every final order, decision, certificate, registration, or other official act of the commissioner is subject to judicial review in accordance with law.
Nothing in this law, shall impair, derogate, or otherwise affect the authority or powers of the commissioner under the Corporate Securities Law of 1968 (Part 3 (commencing with Section 25000)) or the application of any provision thereof to any person or transaction subject thereto.
If any provision of this law or the application thereof to any person or circumstance is held invalid, the invalidity shall not affect other provisions or applications of this law which can be given effect without the invalid provision or application, and to this end this law is declared to be severable.
Neither the commissioner nor any employee of the commissioner shall use any information which is filed with or obtained by the commissioner which is not public information for personal gain or benefit, nor shall the commissioner nor any employee of the commissioner engage in any securities or commodity transaction based on that information, even though public, if there has not been a sufficient period of time for the securities or commodity markets to assimilate that information.
The program established by this division shall be supported from funds appropriated by the Legislature from the State Corporations Fund.
The funds appropriated from the State Corporations Fund and made available for expenditure under subdivision (a) of this section shall come from securities application filing fees collected under subdivisions (e), (f), (h), and (i) of Section 25608 of the Corporations Code.
DIVISION 5. FRANCHISE INVESTMENT LAW [31000. - 31528.]
PART 1. DEFINITIONS [31000. - 31020.]
This division may be known as the “Franchise Investment Law.” References in this division to “this law” refer to the applicable provisions of this division.
The Legislature hereby finds and declares that the widespread sale of franchises is a relatively new form of business which has created numerous problems both from an investment and a business point of view in the State of California. Prior to the enactment of this division, the sale of franchises was regulated only to the limited extent to which the Corporate Securities Law of 1968 applied to those transactions. California franchisees have suffered substantial losses where the franchisor or his or her representative has not provided full and complete information regarding the franchisor-franchisee relationship, the details of the contract between franchisor and franchisee, and the prior business experience of the franchisor.
It is the intent of this law to provide each prospective franchisee with the information necessary to make an intelligent decision regarding franchises being offered. Further, it is the intent of this law to prohibit the sale of franchises where the sale would lead to fraud or a likelihood that the franchisor’s promises would not be fulfilled, and to protect the franchisor and franchisee by providing a better understanding of the relationship between the franchisor and franchisee with regard to their business relationship.
To enhance the uniform and efficient administration, and the effective enforcement, of this division, it is the intent of the Legislature that the commissioner shall maintain a risk-based process of reviewing franchise applications as described in this section.
Under the risk-based review process, the commissioner shall focus on reviewing application information posing the most risk to prospective franchisees in accordance with Section 31115, with emphasis on risks associated with the franchisor’s financial condition, the franchisor’s compliance record, and significant deficiencies with the franchisor’s application.
When reviewing franchise filings under this section, the commissioner shall concentrate on helping to prevent misappropriation, mismanagement, and misrepresentation in connection with the offer or sale of any franchise subject to this division.
The commissioner shall consider guidelines, or other information developed by the North American Securities Administrators Association that are in effect, to assist in the implementation of the risk-based review process. The risk-based review procedures implemented by the commissioner shall be considered internal management criteria and guidelines within the meaning of subdivisions (d) and (e) of Section 11340.9 of the Government Code.
Unless the context otherwise requires, the definitions in this part apply throughout this division.
“Advertisement” means any written or printed communication or any communication by means of recorded telephone messages or spoken on radio, television, or similar communications media, published in connection with an offer or sale of a franchise.
“Business days” are all days other than every Saturday, every Sunday, and such other days as are specified or provided for as holidays in the Government Code.
“Commissioner” means the Commissioner of Financial Protection and Innovation.
“Franchise” means a contract or agreement, either expressed or implied, whether oral or written, between two or more persons by which:
A franchisee is granted the right to engage in the business of offering, selling or distributing goods or services under a marketing plan or system prescribed in substantial part by a franchisor; and
The operation of the franchisee’s business pursuant to such plan or system is substantially associated with the franchisor’s trademark, service mark, trade name, logotype, advertising or other commercial symbol designating the franchisor or its affiliate; and
The franchisee is required to pay, directly or indirectly, a franchise fee.
For the purposes of this division, the term “franchise” also means the following:
Any contractual agreement between a petroleum corporation or distributor and a gasoline dealer, or between a petroleum corporation and distributor, under which the petroleum distributor or the gasoline dealer is granted the right to use a trademark, trade name, service mark, or other identifying symbol or name owned by the other party to the agreement, or any agreement between a petroleum corporation or distributor and a gasoline dealer, or between a petroleum corporation and distributor, under which the petroleum distributor or the gasoline dealer is granted the right to occupy premises owned, leased, or controlled by the other party to the agreement, for the purposes of engaging in the retail sale of petroleum and other products of the other party to the agreement.
Any contract between a refiner and a petroleum distributor, between a refiner and a petroleum retailer, between a petroleum distributor and another petroleum distributor, or between a petroleum distributor and a petroleum retailer, under which a refiner or petroleum distributor authorizes or permits a petroleum retailer or petroleum distributor to use, in connection with the sale, consignment, or distribution of gasoline, diesel, gasohol, or aviation fuel, a trademark which is owned or controlled by such refiner or by a refiner which supplies fuel to the petroleum distributor which authorizes or permits such use. The term “franchise” as defined in this paragraph includes the following:
Any contract under which a petroleum retailer or petroleum distributor is authorized or permitted to occupy leased marketing premises, which premises are to be employed in connection with the sale, consignment, or distribution of fuel under a trademark which is owned or controlled by such refiner or by a refiner which supplies fuel to the petroleum distributor which authorizes or permits such occupancy.
Any contract pertaining to the supply of fuel which is to be sold, consigned, or distributed under a trademark owned or controlled by a refiner, or under a contract which has existed continuously since May 15, 1973, and pursuant to which, on May 15, 1973, fuel was sold, consigned, or distributed under a trademark owned and controlled on such date by a refiner.
The unexpired portion of any franchise, as defined by the preceding provisions of this subdivision, which is transferred or assigned as authorized by the provisions of such franchise or by any applicable provision of state law which permits such transfer or assignment without regard to any provision of the franchise.
For purposes of this division, the term “franchise” does not include a nonprofit organization operated on a cooperative basis by and for independent retailers which wholesales goods and services primarily to its member retailers and to which all of the following is applicable:
Transfer of ownership is prohibited or limited.
Capital investment receives no return.
Substantially equal benefits pass to the members on the basis of patronage of the organization.
Members are not personally liable for obligations of the organization in the absence of a direct undertaking or authorization by them.
Services of the organization are furnished primarily for the use of the members.
Each member and prospective member is provided with an offering circular which complies with the specifications of Section 31111.
No part of the receipts, income, or profit of the organization is paid to any profitmaking entity, except for arms-length payments for necessary goods and services, and members are not required to purchase goods or services from any designated profitmaking entity.
The nonprofit organization is subject to an action for rescission or damages under Section 3343.7 of the Civil Code if the organization fraudulently induced the plaintiff to join the organization.
For the purposes of this division and in respect only to a franchise as defined in subdivision (b) of Section 31005, the following terms shall have the following meanings:
“Franchisor” means a refiner or petroleum distributor who authorizes or permits, under a franchise, a petroleum retailer or petroleum distributor to use a trademark in connection with the sale, consignment, or distribution of fuel.
“Franchisee” means a petroleum retailer or petroleum distributor who is authorized or permitted, under a franchise, to use a trademark in connection with the sale, consignment, or distribution of fuel.
“Refiner” means any person engaged in the refining of crude oil to produce fuel, and includes any affiliate of such person.
“Petroleum distributor” means any person, including any affiliate of such person, who either purchases fuel for sale, consignment, or distribution to another, or receives fuel on consignment for consignment or distribution to his or her own fuel accounts or to accounts of his or her supplier, but shall not include a person who is an employee of, or merely serves as a common carrier providing transportation service for, such supplier.
“Petroleum retailer” means any person who purchases fuel for sale to the general public for ultimate consumption.
“Marketing premises” means, in the case of any franchise, premises which, under such franchise, are to be employed by the franchisee in connection with the sale, consignment, or distribution of fuel.
“Leased marketing premises” means marketing premises owned, leased, or in any way controlled by a franchisor and which the franchisee is authorized or permitted, under the franchise, to employ in connection with the sale, consignment, or distribution of fuel.
“Contract” means any oral or written agreement. For supply purposes, delivery levels during the same month of the previous year shall be prima facie evidence of an agreement to deliver such levels.
“Trademark” means any trademark, trade name, service mark, or other identifying symbol or name.
“Fuel” means gasoline, diesel, gasohol, or aviation fuel.
“Affiliate” means any person who, other than by means of a franchise, controls, is controlled by, or is under common control with, any other person.
“Petroleum corporation” means any corporation or person owning, managing, or controlling the exploration, production, processing, transportation, or sale of crude or refined petroleum or any petroleum product.
A “franchisee” is a person to whom a franchise is granted.
A “franchisor” is a person who grants a franchise.
“Area franchise” means any franchise between a franchisor and a franchisee whereby the franchisee is granted the right to operate more than one unit within a specified geographical area.
“Subfranchise” means any contract or agreement between a franchisor and a subfranchisor whereby the subfranchisor is granted the right, for consideration given in whole or in part for that right, to sell or negotiate the sale of franchises in the name or on behalf of the franchisor. A contract or agreement which is a franchise does not become a subfranchise merely because under its terms a person is granted the right to receive compensation for referrals to a franchisor or subfranchisor or to receive compensation for acting as a sales representative on their behalf.
A “subfranchisor” is a person to whom a subfranchise is granted.
Where used in this law, unless specifically stated otherwise, “franchise” includes “area franchise” and “subfranchise.”
“Franchise fee” means any fee or charge that a franchisee or subfranchisor is required to pay or agrees to pay for the right to enter into a business under a franchise agreement, including, but not limited to, any payment for goods and services.
However, the following shall not be considered the payment of a franchise fee:
The purchase or agreement to purchase goods at a bona fide wholesale price if no obligation is imposed upon the purchaser to purchase or pay for a quantity of the goods in excess of that which a reasonable businessperson normally would purchase by way of a starting inventory or supply or to maintain a going inventory or supply.
The payment of a reasonable service charge to the issuer of a credit card by an establishment accepting or honoring that credit card.
Amounts paid to a trading stamp company under Chapter 3 (commencing with Section 17750) of Part 3 of Division 7 of the Business and Professions Code by a person issuing trading stamps in connection with the retail sale of merchandise or service.
“Fraud” and “deceit” are not limited to common law fraud or deceit.
An offer or sale of a franchise is made in this state when an offer to sell is made in this state, or an offer to buy is accepted in this state, or if the franchise business is intended to or will be operated in this state.
An offer to sell is made in this state when the offer either originates from this state or is directed by the offeror to this state and received at the place to which it is directed. An offer to sell is accepted in this state when acceptance is communicated to the offeror in this state, and acceptance is communicated to the offeror in this state when the offeree directs it to the offeror in this state reasonably believing the offeror to be in this state and it is received at the place to which it is directed.
An offer to sell is not made in this state merely because (1) the publisher circulates or there is circulated on their behalf in this state any bona fide newspaper or other publication of general, regular, and paid circulation that has had more than two-thirds of its circulation outside this state during the past 12 months, or (2) a radio or television program originating outside this state is received in this state.
“Order” means a consent, authorization, approval, prohibition or requirement applicable to a specific case issued by the commissioner.
“Person” means an individual, a corporation, a partnership, a limited liability company, a joint venture, an association, a joint stock company, a trust or an unincorporated organization.
“Publish” means publicly to issue or circulate by newspaper, mail, radio or television, or otherwise to disseminate to the public.
“Rule” means any published regulation or standard of general application issued by the commissioner.
“Sale” or “sell” includes every contract or agreement of sale of, a contract to sell, or disposition of, a franchise or interest in a franchise for value.
“Offer” or “offer to sell” includes every attempt to dispose of, or solicitation of an offer to buy, a franchise or interest in a franchise for value.
The terms defined in this section do not include the renewal or extension of an existing franchise where there is no interruption in the operation of the franchised business by the franchisee; provided, that a material modification of an existing franchise, whether upon renewal or otherwise, is a “sale” within the meaning of this section.
“State” means any state, territory, or possession of the United States, the District of Columbia and Puerto Rico.
“Franchise broker” means a person who directly or indirectly engages in the business of the offer or sale of a franchise, regardless of the title used by the person or any organization with which they are affiliated, and receives or is promised a fee, commission, or other form of consideration from a franchisor, subfranchisor, franchisee, or affiliate of a franchisor, subfranchisor, or franchisee. Common titles franchise brokers use include, but are not limited to, franchise seller, broker network, broker organization, franchise sales organization, consultant, and coach.
A “franchise broker” does not include any of the following:
A franchisor or its officers, directors, or employees.
A subfranchisor or its officers, directors, or employees.
An area representative or its officers, directors, or employees.
An employee of an affiliate of a franchisor or subfranchisor.
A franchisee of the franchise offering being presented to a prospective franchisee, unless the franchisee operates a franchised broker business.
PART 2. REGULATION OF THE SALE OF FRANCHISES [31100. - 31158.]
CHAPTER 1. Exemptions [31100. - 31109.1.]
There shall be exempted from any or all of the provisions of Chapter 2 (commencing with Section 31110) any other transaction which the commissioner by rule exempts as not being comprehended within the purposes of this law and the registration of which the commissioner finds is not necessary or appropriate in the public interest or for the protection of investors.
There shall be exempted from the provisions of Chapter 2 (commencing with Section 31110) of this part the offer and sale of a franchise if the franchisor complies with each of the following minimum net worth, experience, disclosure, and notice filing requirements:
Net worth. The franchisor and, when necessary, a corporation owning at least 80 percent of the franchisor (parent) meet one of the following net worth requirements, according to financial statements for the fiscal year just ended. The franchisor and the parent, when necessary, may rely upon the immediately preceding fiscal year’s audited financial statement for 15 months from that fiscal year end date.
The franchisor has a net worth on a consolidated basis of not less than five million dollars ($5,000,000), according to its audited financial statement.
The franchisor has a net worth of not less than one million dollars ($1,000,000) and its parent has a net worth of five million dollars ($5,000,000), according to the audited financial statements of the franchisor and its parent, respectively.
The franchisor has a net worth of one million dollars ($1,000,000), according to its unaudited financial statement, and the parent has a net worth on a consolidated basis of not less than five million dollars ($5,000,000), according to its audited financial statement, and the parent absolutely and unconditionally guarantees to assume the duties and obligations of the franchisor under the franchise agreement should the franchisor become unable to perform its duties and obligations.
Experience. The franchisor or a corporation owning at least 80 percent of the franchisor (parent) complies with one or more of the following conditions throughout the five-year period immediately preceding the offer and sale of the franchise, or complies with one of the following conditions during part of the period and one or more of the following conditions during the balance of the period:
The franchisor has had at least 25 franchisees conducting business which is the subject of the franchise.
The franchisor has conducted business which is the subject of the franchise.
The parent has had at least 25 franchisees conducting business which is the subject of the franchise.
The parent has conducted business which is the subject of the franchise.
Disclosure. (1) Except as provided in paragraph (2), the franchisor discloses in writing to each prospective franchisee, at least 14 days prior to the execution by the prospective franchisee of any binding franchise or other agreement, or at least 14 days prior to the receipt of any consideration, the following information:
The name of the franchisor, the name under which the franchisor is doing or intends to do business, and the name of any parent or affiliated company that will engage in business transactions with franchisees.
The franchisor’s principal business address and the name and address of its agent in the State of California authorized to receive service of process.
The business form of the franchisor, whether corporate, partnership, or otherwise.
The business experience of the franchisor, including the length of time the franchisor (i) has conducted a business of the type to be operated by the franchisees, (ii) has granted franchises for such business, and (iii) has granted franchises in other lines of business.
A copy of the typical franchise contract or agreement proposed for use or in use in this state.
A statement of the franchise fee charged, the proposed application of the proceeds of such fee by the franchisor, and the formula by which the amount of the fee is determined if the fee is not the same in all cases.
A statement describing any payments or fees other than franchise fees that the franchisee or subfranchisor is required to pay to the franchisor, including royalties and payments or fees which the franchisor collects in whole or in part on behalf of a third party or parties.
A statement of the conditions under which the franchise agreement may be terminated or renewal refused, or repurchased at the option of the franchisor.
A statement as to whether, by the terms of the franchise agreement or by other device or practice, the franchisee or subfranchisor is required to purchase from the franchisor or his or her designee services, supplies, products, fixtures, or other goods relating to the establishment or operation of the franchise business, together with a description thereof.
A statement as to whether, by the terms of the franchise agreement or other device or practice, the franchisee is limited in the goods or services offered by him or her to his or her customers.
A statement of the terms and conditions of any financing arrangements when offered directly or indirectly by the franchisor or his or her agent or affiliate.
A statement of any past or present practice or of any intent of the franchisor to sell, assign, or discount to a third party any note, contract, or other obligation of the franchisee or subfranchisor in whole or in part.
If any statement of estimated or projected franchisee earnings is used, a statement of such estimation or projection and the data upon which it is based.
A statement as to whether franchisees or subfranchisors receive an exclusive area or territory.
A copy of the financial statement or statements required by subdivision (a).
A copy of the unconditional guaranty, if applicable, required by paragraph (3) of subdivision (a).
Notice filing. The franchisor has filed with the commissioner a notice of exemption and paid the fee required by subdivision (f) of Section 31500 prior to an offer or sale of a franchise in this state during any calendar year in which one or more franchises are sold, excluding any material modification.
The offer or sale of a franchise by a franchisee for his own account or the offer or sale of the entire area franchise owned by a subfranchisor for his own account, is exempted from the provisions of Section 31110 if the sale is not effected by or through a franchisor. A sale is not effected by or through a franchisor merely because a franchisor has a right to approve or disapprove a different franchisee.
This division shall not be applicable to any transaction relating to a bank credit card plan. “Bank credit card plan” means a credit card plan in which the issuers of credit cards, as defined in subdivision (a) of Section 1747.02 of the Civil Code are only: banks regulated by or under the supervision of the Federal Reserve Board, the Federal Deposit Insurance Corporation, the Comptroller of the Currency of the United States, or the Commissioner of Financial Institutions of this state under Division 1 (commencing with Section 99) of the Financial Code; or, persons controlling these banks, provided that the assets of such a bank or banks represent a majority of the assets on a consolidated basis of any holding company system of which the card issuers may be a party; or, persons controlled by these banks.
There shall be exempted from the provisions of Chapter 2 (commencing with Section 31110) of this part the offer and sale of a franchise if the franchisor:
Is a petroleum corporation or distributor who is a wholesale distributor or marketer of petroleum products; doing business continuously for the past five years and who does not require an advance of funds in the nature of a fee or lease for such franchise agreements; not engaged in the production or the refining of petroleum; and
Complies with the provisions of subdivisions (c) and (d) of Section 31101.
For the purposes of subdivision (a) of this section:
A “wholesale distributor” or “marketer” means any entity which, for wholesale, purchases or receives through transfer, or otherwise obtains, by consignment or otherwise, refined petroleum products and resells or otherwise transfers such products, without substantially changing their form, to other purchasers.
An “advance of funds” means (A) a fee or lease for a franchise agreement, and (B) does not mean rent for the possession or use, or both, of premises or property, the purchase of inventory for resale or supplies, utility deposits, and other consideration or expenditures for the formation or operation, or both, of a wholesale distributor or marketer entity.
Any offer, sale, or other transfer of a franchise, or any interest in a franchise, to a resident of another state or any territory or foreign country, shall be exempted from the provisions of Chapter 2 (commencing with Section 31110) of this part, if all locations from which sales, leases or other transactions between the franchised business and its customers are made, or goods or services are distributed, are physically located outside this state.
There shall be exempted from the provisions of Chapter 2 (commencing with Section 31110) of this part, any offer, sale, or other transfer of a franchise or any interest in a franchise, provided that the offer, sale or transfer meets the requirements in subdivisions (a) and (b):
Any of the following conditions apply:
One or more of the owners of the prospective franchisee owning at least a 50 percent interest in the prospective franchisee meet both of the following:
The owner or owners have had, within the seven years before the date of the sale or other transaction, at least 24 months’ experience being responsible for the financial and operational aspects of a business offering products or services substantially similar to those offered by the franchised business.
The owner or owners are not controlled by the franchisor.
One or more of the owners of the prospective franchisee owning at least a 50 percent interest in the prospective franchisee meet both of the following:
The owner or owners are, or have been within 60 days prior to the sale or other transaction, an officer, director, managing agent, or an owner of at least a 25 percent interest in the franchisor for at least 24 months.
The owner or owners are not controlled by the franchisor.
The offer, sale, or other transfer is of an additional franchise to an existing franchisee of the franchisor, or to an entity, one or more of the officers, directors, managing agents or owners of at least a 25 percent interest of which is an existing franchisee of the franchisor; provided that, in either case, for 24 months or more the franchisee, or the qualifying person, has been engaged in a business offering products or services substantially similar to those to be offered by the franchise being sold, or otherwise transferred.
The franchisor files with the commissioner a notice of exemption and pays the fee prescribed in subdivision (f) of Section 31500 no later than 15 calendar days after the sale of a franchise in this state pursuant to this section.
There shall be exempted from the provisions of Chapter 2 (commencing with Section 31110) of this part, any offer (but not the sale) by a franchisor of a franchise while an application for renewal or amendment is pending if the prospective franchisee receives all of the following:
The franchise disclosure document and its exhibits as filed with the commissioner with the application for renewal or amendment.
A written statement from the franchisor that (1) the filing has been made but is not effective, (2) the information in the franchise disclosure document and exhibits has not been reviewed by the commissioner, and (3) the franchisor will deliver to the prospective franchisee an effective franchise disclosure document and exhibits at least 14 days prior to execution by the prospective franchisee of a binding agreement or payment of any consideration to the franchisor, or any person affiliated with the franchisor, whichever occurs first, showing all material changes from the franchise disclosure document and exhibits received by the prospective franchisee under subdivision (a) of this section.
The franchise disclosure document and exhibits in accordance with paragraph (3) of subdivision (b) of this section.
There shall be exempted from the provisions of Chapter 2 (commencing with Section 31110), any offer or sale of a franchise if the franchise involves the adding of a new product or service line to the existing business of a prospective franchisee, provided all of the following requirements are met:
For at least the last 24 months prior to the date of sale of the franchise, the prospective franchisee, or if the prospective franchisee is not a natural person, an existing officer, director, or managing agent of the prospective franchisee who has held that position with the prospective franchisee for at least the last 24 months, has been engaged in a business offering products or services substantially similar or related to those to be offered by the franchised business.
The new product or service is substantially similar or related to the product or service being offered by the prospective franchisee’s existing business.
The franchised business is to be operated from the same business location as the prospective franchisee’s existing business.
The parties anticipated, in good faith, at the time the agreement establishing the franchise relationship was reached, that sales resulting from the franchised business will not represent more than 20 percent of the total sales in dollar volume of the franchisee on an annual basis.
The prospective franchisee is not controlled by the franchisor.
The franchisor files with the commissioner a notice of exemption and pays the fee prescribed in subdivision (f) of Section 31500 prior to an offer or sale of such a franchise in this state during any calendar year in which one or more of those franchises are sold.
Any offer or sale of a franchise that meets all of the following requirements shall be exempt from Chapter 2 (commencing with Section 31110):
Each and every purchaser of the franchise is one of the following:
Any partner, executive officer, or director of the franchisor, or any executive officer of its corporate general partner if the franchisor is a partnership, or any manager if the franchisor is a limited liability company.
Any entity with total assets exceeding five million dollars ($5,000,000) according to its most recent financial statements and not specifically formed for the purpose of acquiring the franchise offered. For purposes of this section, “entity” shall mean an organization described in Section 501(c)(3) of the Internal Revenue Code, a corporation, Massachusetts or similar business trust, limited liability company, or partnership. The financial statements referred to in this paragraph shall meet both of the following requirements:
Be as of date not more than 90 days prior to the earlier of either the date on which the first prospective purchaser signs any binding franchise or other agreement with the franchisor in connection with the award of the franchise, or the date on which the franchisor receives any consideration from the first prospective purchaser in connection with the award of the franchise.
Be prepared in accordance with either of the following:
Generally accepted accounting principles and, if the entity has consolidated subsidiaries, on a consolidated basis.
The rules and requirements of the Securities and Exchange Commission, whether or not required by law to be prepared in accordance with those rules and requirements.
Any natural person whose net worth, or joint net worth with that person’s spouse, exceeds one million dollars ($1,000,000) at the time of his or her purchase of the franchise, excluding the value of that person’s personal residence, any and all retirement or pension plan accounts or benefits, home furnishings, and automobiles.
Any natural person whose gross income exceeds three hundred thousand dollars ($300,000) per year in each of the two most recent years, or whose joint gross income with that person’s spouse exceeds five hundred thousand dollars ($500,000) per year in each of those years, and who reasonably expects to reach the same income level in the current year.
Any entity, in which all of the equity owners are persons or entities described in either paragraph (1), (2), (3), or (4).
Each and every purchaser of the franchise has knowledge and experience in financial and business matters, either alone or with professional advisers of the purchaser who are unaffiliated with, and not directly or indirectly compensated by, the franchisor or an affiliate or selling agent of the franchisor, such that the franchisor reasonably believes, based on reasonable inquiry before the sale, that each and every purchaser has the capacity to evaluate the merits and risks of, and protect their own interests in, the franchise investment.
Each and every purchaser of the franchise purchases the franchise for the purchaser’s own account, or a trust account if the purchaser is a trustee, for the purpose of conducting the business as a franchise and not with a view to, or for a sale in connection with, any resale or distribution of the franchise or any interest in the franchise.
The immediate cash payment required from a purchaser of the franchise who is a natural person, upon the purchase of the franchise, shall not exceed 10 percent of that person’s net worth or joint net worth with that person’s spouse, exclusive of that person’s personal residence, any and all retirement or pension accounts or benefits, home furnishings and automobiles.
The franchisor files with the commissioner a notice of exemption and pays the fee prescribed in subdivision (f) of Section 31500 prior to any offer or sale of a franchise in this state for which the exemption is claimed during any calendar year in which one or more franchises are sold, excluding any material modification.
No franchisor or any of its officers, directors, employees, or agents shall form, organize, engage, or assist any person to purchase a franchise for resale or distribution to avoid the registration requirements of Chapter 2 (commencing with Section 31110).
The prospective franchisee receives all of the following in a separate written appendix to the franchise disclosure document:
A summary description of each material negotiated term that was negotiated by the franchisor for a California franchise during the 12-month period ending in the calendar month immediately preceding the month in which the negotiated offer or sale is made under this section.
A statement indicating that copies of the negotiated terms are available upon written request.
The name, telephone number, and address of the representative of the franchisor to whom requests for a copy of the negotiated terms may be obtained.
The franchisor certifies or declares in an appendix to its application for renewal that it has complied with all of the requirements of this section, in the event this exemption is claimed.
The negotiated terms, on the whole, confer additional benefits on the franchisee.
The franchisor shall provide a copy of the negotiated terms described in subdivision (a) to the prospective franchisee within five business days following the request of the franchisee.
The franchisor shall maintain copies of all material negotiated terms for which this exemption is claimed for a period of five years from the effective date of the first agreement containing the relevant negotiated term. Upon the request of the commissioner, the franchisor shall make the copies available to the commissioner for review. For purposes of this section, the commissioner may prescribe by rule or order the format and content of the summary description of the negotiated terms required by subparagraph (A) of paragraph (2) of subdivision (a).
For purposes of this section, “material” means that a reasonable franchisee would view the terms as important in negotiating the franchise.
CHAPTER 2. Disclosure [31110. - 31126.]
On and after April 15, 1971, it shall be unlawful for any person to offer or sell any franchise in this state unless the offer of the franchise has been registered under this part or exempted under Chapter 1 (commencing with Section 31100) of this part.
The application for registration of an offer shall be filed with the commissioner upon the Uniform Franchise Registration Application, as identified, modified, and supplemented by rule of the commissioner.
An authorization for the commissioner to examine the registrant’s financial records of the sale of the franchise pursuant to Section 7473 of the Government Code shall be filed with the application.
Any application or amendment under this law shall be signed and verified by the franchisor or by the subfranchisor. Such verification shall be in the same manner provided in the Code of Civil Procedure for the verification of pleadings.
If the commissioner finds that it is necessary and appropriate for the protection of prospective franchisees or subfranchisors because the applicant has failed to demonstrate that adequate financial arrangements have been made to fulfill the franchisor’s obligations to provide real estate, improvements, equipment, inventory, training, or other items included in the offering, the commissioner may by rule or order require the escrow or impound of franchisee fees and other funds paid by the franchisee or subfranchisor until such obligations have been satisfied. At the option of the franchisor, the franchisor may furnish a surety bond as provided by rule of the commissioner.
The application for registration shall be accompanied by a proposed franchise disclosure document, which shall contain the material information set forth in the application for registration, as specified by rule of the commissioner, and such additional disclosures as the commissioner may require. The franchise disclosure document shall recite in bold type of not less than 10-point type that registration does not constitute approval, recommendation, or endorsement by the commissioner.
The commissioner may summarily issue a stop order denying the effectiveness of or suspending or revoking effectiveness of any registration if the commissioner finds any of the following:
That there has been a failure to comply with any of the provisions of this law or the rules of the commissioner pertaining thereto.
That the offer or sale of the franchise would constitute misrepresentation to, or deceit or fraud of the purchasers, or that, in the case of a franchise other than a subfranchise, a major inducement to prospective franchisees is fees or other compensation from participation in the sale of additional franchises.
That the applicant has failed to comply with any rule or order of the commissioner issued pursuant to Section 31113.
That any person identified in the application or any officer or director of the franchisor, whether or not identified in the application, meets one or more of the following conditions, and the involvement of this person in the sale or management of the franchise creates an unreasonable risk to prospective franchisees:
Has been convicted of a felony, or pleaded nolo contendere to a felony charge, or held liable in a civil action by final judgment if the felony or civil action involved fraud, embezzlement, fraudulent conversion, or misappropriation of property.
Is subject to any currently effective order of the United States Securities and Exchange Commission or the securities administrator of any state denying registration to or revoking or suspending the registration of the person as a securities broker or dealer or investment adviser or is subject to any currently effective order of any national securities association or national securities exchange (as defined in the Securities Exchange Act of 1934) suspending or expelling the person from membership in the association or exchange.
Is subject to any currently effective order or ruling of the Federal Trade Commission.
Is subject to any currently effective injunctive or restrictive order relating to business activity as a result of an action brought by any public agency or department, including, without limitation, actions affecting a license as a real estate broker or sales person.
The franchisor’s method of business includes or would include activities that are or would be illegal where performed.
The franchise agreement contains a provision that is contrary to law.
Except as provided in subdivision (b), if no stop order under Section 31115 is in effect under this law, registration of the offer of franchises automatically becomes effective at 12 p.m., California time, of the 30th business day after the filing of a complete application for registration or the last preeffective amendment thereto, or at an earlier time that the commissioner determines.
With respect to any application for registration or the last amendment thereto filed between January 1, 1971, and March 15, 1971, if no stop order under Section 31115 is in effect under this law, registration becomes effective on April 15, 1971; with respect to any application filed after March 15, 1971, and before May 10, 1971, if no stop order under Section 31115 is in effect under this law, registration becomes effective on June 1, 1971, or the 15th business day after the filing, whichever is the later, or at an earlier time that the commissioner determines.
For purposes of this section, “complete application” means an application that contains the appropriate filing fee, Uniform Franchise Disclosure Document, and all additional exhibits, including financial statements in conformity with regulations of the commissioner. “Preeffective amendment” means an amendment to an application that is filed before the effective date of the registration of the sale of franchises.
Upon the entry of a stop order under Section 31115 the commissioner shall promptly notify the applicant that it has been entered and of the reasons therefor and that upon receipt of written request the matter will be set down for hearing to commence within 15 business days after such receipt unless the applicant consents to a later date. If no hearing is requested within 30 days after receipt of the notice and none is ordered by the commissioner, the order will remain in effect until it is modified or vacated by the commissioner. If a hearing is requested or ordered, the commissioner, after notice and hearing in accordance with the provisions of Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, in connection with which the commissioner shall have all of the powers granted thereunder, may modify or vacate the order or extend it until its final determination.
The commissioner may vacate or modify a stop order if he or she finds that the conditions which caused its entry have changed or that it is otherwise in the public interest to do so.
It is unlawful to sell any franchise in this state that is subject to registration under this law without first providing to the prospective franchisee, at least 14 days prior to the execution by the prospective franchisee of any binding franchise or other agreement, or at least 14 days prior to the receipt of any consideration, whichever occurs first, a copy of the franchise disclosure document, together with a copy of all proposed agreements relating to the sale of the franchise.
Nothing in this division shall be construed to prevent a franchisor from providing copies of the franchise disclosure documents to prospective franchisees through electronic means pursuant to any requirements or conditions that may be imposed by rule or order of the commissioner.
A franchise offering shall be deemed duly registered for a period of one year from the effective date of the registration, unless the commissioner by order or rule specifies a different period.
The registration may be renewed for additional periods of one year each, unless the commissioner by rule or order specifies a different period, by submitting to the commissioner a renewal application before the expiration of the registration. If no stop order or other order under Section 31115 is in effect under this law, registration of the offer of the franchises automatically becomes renewed effective at 12 p.m., California time, of the 30th business day after the filing of a complete application for registration or the last preeffective amendment or at an earlier time that the commissioner determines.
For purposes of this section, “complete application” means an application that contains the appropriate filing fee, Uniform Franchise Disclosure Document, and all additional exhibits, including financial statements in conformity with regulations of the commissioner. “Preeffective amendment” means an amendment to an application that is filed before the effective date of the registration of the sale of franchises.
The registration renewal statement shall be in the form and content prescribed by the commissioner, and shall be accompanied by a proposed offering prospectus. Each such registration renewal statement shall be accompanied by the fee prescribed in Part 5 (commencing with Section 31500) of this division.
A franchisor shall promptly notify the commissioner in writing, by an application to amend the registration, of any material change in the information contained in the application as originally submitted, amended or renewed. The commissioner may by rule further define what shall be considered a material change for such purposes, and the circumstances under which a revised offering prospectus must accompany such application.
An amendment to an application filed after the effective date of the registration of the sale of franchises, if such amendment is approved by the commissioner, shall become effective on such date as the commissioner may determine, having due regard for the public interest and the protection of franchisees.
An application for registration of a material modification of an existing franchise or of existing franchises shall be in a form and contain information as the commissioner may by rule prescribe, and shall be accompanied by a proposed disclosure form as specified in subdivision (b). The application may be included with an application pursuant to Section 31111 or 31121.
Except as provided in subdivisions (c) and (d), it is unlawful to solicit the agreement of a franchisee to a proposed material modification of an existing franchise without first delivering to the franchisee a written disclosure, in a form and containing information as the commissioner may by rule or order require, identifying the proposed modification, either five business days prior to the execution of any binding agreement by the franchisee to the modification or containing a statement that the franchisee may, by written notice mailed or delivered to the franchisor or a specified agent of the franchisor within not less than five business days following the execution of the agreement, rescind the agreement to the material modification.
Any modification of a franchise agreement with an existing franchisee of a franchisor shall be exempted from the provisions of this chapter, if all of the following are met:
The franchisee receives the complete written modification at least five business days prior to the execution of a binding agreement, or providing that the franchisee may, by written notice mailed or delivered to the franchisor or a specified agent of the franchisor within not less than five business days following the execution of the agreement, rescind the agreement to the material modification; provided (A) the agreement is not executed within 12 months after the date of the franchise agreement, and (B) the modification does not waive any right of the franchisee under the California Franchise Relations Act (Chapter 5.5 (commencing with Section 20000) of Division 8 of the Business and Professions Code), but the modification may include a general release of all known and unknown claims by a party to the modification.
The modification meets one of the following:
The proposed modification is in connection with the resolution of a bona fide dispute between the franchisor and the franchisee or the resolution of a claimed or actual franchisee or franchisor default, and the modification is not applied on a franchise systemwide basis at or about the time the modification is executed. A modification shall not be deemed to be made on a franchise systemwide basis if it is offered on a voluntary basis to fewer than 25 percent of the franchisor’s California franchises within any 12-month period.
The proposed modification is offered on a voluntary basis to fewer than 25 percent of the franchisor’s California franchises within any 12-month period, provided each franchisee is given a right to rescind the modification agreement if the modification is not made in compliance with paragraph (1) of subdivision (c).
Any modification of a franchise agreement with an existing franchise of a franchisee shall be exempted from this chapter if the modification is offered on a voluntary basis and does not substantially and adversely impact the franchisee’s rights, benefits, privileges, duties, obligations, or responsibilities under the franchise agreement.
For purposes of this section, “California franchise” means: (1) an existing franchise of a franchisee with any location in this state from which sales, leases, or other transactions between the franchised business and its customers are made or goods or services are distributed, or (2) an existing franchise of a franchisee that is a resident of this state and that owns, controls, or has an equity interest in the franchise.
A franchisor shall not make modifications in consecutive years for the purpose of evading the 25 percent requirements set forth above.
A prospective franchisee seeking to buy an existing franchise, all or substantially all of the assets of an existing franchise business, or an interest in an existing franchise business shall do all of the following when applying with the franchisor to buy that franchise, those assets, or that interest:
Provide their name and address to the franchisor.
Provide to the franchisor a copy of all agreements related to the sale, assignment, or transfer of the franchise, the assets of the franchise business, or the interest in the franchise business.
Provide an application to the franchisor for approval of the transfer, which shall include all forms, financial disclosures, and related information required by the franchisor in reviewing prospective franchisees.
If a form or document required to be submitted with an application pursuant to paragraph (3) of subdivision (a) is not reasonably available to the prospective franchisee, the prospective franchisee may make a written request for the form or document to the franchisor, and the franchisor shall deliver the form or document to the prospective franchisee by email, courier, or certified mail within 15 calendar days of receiving the request.
If the franchisor’s then-existing standards for approval of an application required by paragraph (3) of subdivision (a) are not reasonably available to the prospective franchisee, the prospective franchisee may make a written request for the standards to the franchisor, and the franchisor shall communicate the standards to the prospective franchisee within 15 calendar days of receiving the request.
As soon as practicable after receiving the application required by paragraph (3) of subdivision (a), the franchisor shall notify the prospective franchisee in writing of any additional information or documentation necessary to complete the application.
This section neither prohibits a franchisor from exercising nor requires a franchisor to exercise a contractual right of first refusal to purchase an existing franchise, all or substantially all of the assets of an existing franchise business, or an interest in an existing franchise business.
This section shall not be interpreted to prevent the franchisor, in connection with a proposed sale under subdivision (a), from requiring that the prospective franchisee and the prospective seller comply with the transfer conditions specified in the franchise agreement.
CHAPTER 3. General Provisions [31150. - 31158.]
Every franchisor or subfranchisor offering franchises for sale in this state shall at all times keep and maintain a complete set of books, records, and accounts of such sales.
The commissioner may accept and act upon the opinions, appraisements and reports of any engineers, appraisers, or other experts which may be presented by an applicant or any interested party, on any question of fact concerning or affecting the franchises proposed to be offered and sold. In lieu of, or in addition to, such opinions, appraisements, and reports, the commissioner may have any or all matters concerning or affecting such franchises investigated, appraised, passed upon and certified to him by engineers, appraisers or other experts selected by him.
Any document filed under this law or under the Corporate Securities Law of 1968 or a predecessor statute thereto may be incorporated by reference in a subsequent application filed under this law if it was filed within four years prior to the filing of such application, or is otherwise available in the files of the commissioner, to the extent that the document is currently accurate.
In any proceeding under this law, the burden of proving an exemption or an exception from a definition is upon the person claiming it.
Neither (1) the fact that an application for registration under this law has been filed, nor (2) the fact that such registration has become effective constitutes a finding by the commissioner that any document filed under this law is true, complete or not misleading. Neither any such fact nor the fact that an exemption is available for a transaction means that the commissioner has passed in any way upon the merits or qualifications of, or recommended or given approval to, any person, franchise or transaction.
It is unlawful to make or cause to be made to any prospective purchaser or offeree any representation inconsistent with subdivision (a) of this section.
Every applicant for registration of an offer to sell franchises under this law, by other than a California corporation, California limited partnership, or California limited liability company, shall file with the commissioner, in such form as he or she by rule prescribed, an irrevocable consent appointing the commissioner or his or her successor in office to be his or her attorney to receive service of any lawful process in any noncriminal suit, action or proceeding against him or her or his or her successor, executor or administrator, which arises under this law or any rule or order hereunder after the consent has been filed, with the same force and validity as if served personally on the person filing the consent. A person who has filed such a consent in connection with a previous registration under this law need not file another. Service may be made by leaving a copy of the process in the office of the commissioner but it is not effective unless (a) the plaintiff, who may be the commissioner in a suit, action, or proceeding instituted by him or her, forthwith sends notice of the service and a copy of the process by registered or certified mail to the defendant or respondent at his or her last address on file with the commissioner, and (b) the plaintiff’s affidavit of compliance with this section is filed in the case on or before the return day of the process, if any, or within such further time as the court allows.
No person shall publish in this state any advertisement offering a franchise subject to the registration requirements of this law unless a true copy of the advertisement has been filed in the office of the commissioner at least three business days prior to the first publication or such shorter period as the commissioner by rule or order may allow, or unless such advertisement has been exempted by rule of the commissioner.
No person shall publish any advertisement concerning any franchise in this state after the commissioner finds that the advertisement contains any statement that is false or misleading or omits to make any statement necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading and so notifies the person in writing. Such notification may be given summarily without notice of hearing. At any time after the issuance of a notification under this section, the person desiring to use the advertisement may in writing request that the order be rescinded. Upon the receipt of such a written request, the matter shall be set down for hearing to commence within 15 business days after such receipt unless the person making the request consents to a later date. After such hearing, which shall be conducted in accordance with the provisions of Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, the commissioner shall determine whether to affirm and continue or to rescind such order, and the commissioner shall have all the powers granted under such act.
Notwithstanding any other law, the commissioner may by rule or order prescribe circumstances under which to accept electronic records or electronic signatures. This section does not require the commissioner to accept electronic records or electronic signatures.
For purposes of this section, the following terms have the following meanings:
“Electronic record” means an initial registration application, registration renewal statement, preeffective amendment, posteffective amendment, or material modification and any other record created, generated, sent, communicated, received, or stored by electronic means. “Electronic record” also includes, but is not limited to, all of the following:
An application, amendment, supplement, and exhibit, filed for any registration, order, license, consent, or other authority.
A financial statement, report, or advertising.
An order, license, consent, or other authority.
A notice of public hearing, accusation, and statement of issues in connection with any application, registration, order, license, consent, or other authority.
A proposed decision of a hearing officer and a decision of the commissioner.
The transcripts of a hearing.
A release, newsletter, interpretive opinion, determination, or specific ruling.
Correspondence between a party and the commissioner directly relating to any document listed in subparagraphs (A) to (G), inclusive.
“Electronic signature” means an electronic sound, symbol, or process attached to or logically associated with an electronic record and executed or adopted by a person with the intent to sign the electronic record.
The Legislature finds and declares that the Department of Financial Protection and Innovation has continuously implemented methods to accept records filed electronically, including broker-dealer and investment adviser applications, and is encouraged to continue to expand its use of electronic filings to the extent feasible, as budget, resources, and equipment are made available to accomplish that goal.
PART 3. FRAUDULENT AND PROHIBITED PRACTICES [31200. - 31221.]
CHAPTER 1. Fraudulent Practices [31200. - 31204.]
It is unlawful for any person willfully to make any untrue statement of a material fact in any application, notice or report filed with the commissioner under this law, or willfully to omit to state in any such application, notice, or report any material fact which is required to be stated therein, or fail to notify the commissioner of any material change as required by Section 31123.
It is unlawful for any person to offer or sell a franchise in this state by means of any written or oral communication not enumerated in Section 31200 which includes an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading.
It is unlawful for any person willfully to make any untrue statement of a material fact in any statement required to be disclosed in writing pursuant to Section 31101, or willfully to omit to state in any such statement any material fact which is required to be stated therein.
It is unlawful for any person to violate any order of the commissioner or condition to the effectiveness of the registration of the offer or sale of franchises.
It is unlawful for any person to knowingly alter, destroy, mutilate, conceal, cover up, falsify, or make a false entry in any record, document, or tangible object with the intent to impede, obstruct, or influence the administration or enforcement of any provision of this division.
It is unlawful for any person to knowingly make an untrue statement to the commissioner during the course of licensing, investigation, or examination, with the intent to impede, obstruct, or influence the administration or enforcement of any provision of this division.
CHAPTER 2. Prohibited Practices [31210. - 31212.]
It is unlawful for any person to effect or attempt to effect a sale of a franchise in this state, except in transactions exempted under Chapter 1 (commencing with Section 31100) of Part 2 of this division, unless that person is any of the following:
Identified in Item 2 of a franchise disclosure document submitted with an application or amended application filed with the commissioner pursuant to Part 2 (commencing with Section 31100) of this division.
Licensed by the Department of Real Estate as a real estate broker or real estate salesperson.
Licensed by the commissioner as a broker-dealer or agent pursuant to the Corporate Securities Law of 1968.
Registered as a franchise broker pursuant to Part 7 (commencing with Section 31520).
If in the opinion of the commissioner any person is acting in violation of Section 31210, the commissioner may order such person to desist and refrain from further activity. If, after such an order has been made, a request for a hearing is filed in writing by the person to whom such order was directed, a hearing shall be held in accordance with the provisions of Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, and the commissioner shall have all of the powers granted thereunder; unless such hearing is commenced within 15 business days after the request is made (or the person affected consents to a later date), such order shall be deemed rescinded.
No franchisor shall refuse to grant a franchise, or refuse to provide financial assistance, to a franchisee or prospective franchisee that has been granted or provided to other similarly situated franchisees or prospective franchisees based solely on any characteristic of the franchisee or prospective franchisee, or any characteristic of the composition of the neighborhood or geographic area where the franchise is located or the proposed franchise would be located, listed or defined in subdivision (b) or (e) of Section 51 of the Civil Code. Nothing in this section shall be interpreted to prohibit a franchisor from granting a franchise to a prospective franchisee as part of a program to make franchises available to persons lacking the capital, training, business experience, or other qualifications ordinarily required of franchisees, or any other affirmative action program adopted by the franchisor.
CHAPTER 3. Unfair Practices [31220. - 31221.]
It shall be a violation of this division for any franchisor, directly or indirectly, through any officer, agent or employee, to restrict or inhibit the right of franchisees to join a trade association or to prohibit the right of free association among franchisees for any lawful purposes. Notwithstanding Section 31410, a violation of this section shall not constitute a crime.
It shall be a violation of this division for any franchisor, directly or indirectly, through any officer, agent, or employee, to violate the provisions of Section 31126.
PART 4. ENFORCEMENT [31300. - 31420.]
CHAPTER 1. Civil Liability [31300. - 31306.]
Any person who offers or sells a franchise in violation of Section 31101, 31110, 31119, 31200, or 31202, or in violation of any provision of this division that provides an exemption from the provisions of Chapter 2 (commencing with Section 31110) of Part 2 or any portions of Part 2, shall be liable to the franchisee or subfranchisor, who may sue for damages caused thereby, and if the violation is willful, the franchisee may also sue for rescission, unless, in the case of a violation of Section 31200 or 31202, the defendant proves that the plaintiff knew the facts concerning the untruth or omission, or that the defendant exercised reasonable care and did not know, or, if they had exercised reasonable care, would not have known, of the untruth or omission.
Any franchise broker who offers or sells a franchise in violation of Part 7 (commencing with Section 31520) or Chapter 1 (commencing with Section 31200) of Part 3 shall be liable to the franchisor, who may sue for damages or may assert claims of indemnity against the franchise broker caused by the violation, including, but not limited to, indemnity for any damages awarded in connection with rescission awarded to the franchisee.
Any person who violates Section 31201 shall be liable to any person (not knowing or having cause to believe that such statement was false or misleading) who, while relying upon such statement shall have purchased a franchise, for damages, unless the defendant proves that the plaintiff knew the facts concerning the untruth or omission or that the defendant exercised reasonable care and did not know, (or if he had exercised reasonable care would not have known) of the untruth or omission.
Every person who directly or indirectly controls a person liable under Section 31300 or 31301, every partner in a firm so liable, every principal executive officer or director of a corporation so liable, every person occupying a similar status or performing similar functions, every employee of a person so liable who materially aids in the act or transaction constituting the violation, are also liable jointly and severally with and to the same extent as such person, unless the other person who is so liable had no knowledge of or reasonable grounds to believe in the existence of the facts by reason of which the liability is alleged to exist.
Any person who violates Section 31220 may be sued in the superior court in the county in which the defendant resides or where a franchise affected by the violation does business, for temporary and permanent injunctive relief and for damages, if any, and the costs of suit, including reasonable attorneys’ fees. A plaintiff shall not be required to allege or prove that actual damages have been suffered in order to obtain injunctive relief.
No action shall be maintained to enforce any liability created under Section 31220 unless brought before the expiration of two years after the violation upon which it is based or the expiration of one year after the discovery by the plaintiff of the facts constituting such violation, whichever occurs first.
No action shall be maintained to enforce any liability created under Section 31300 unless brought before the expiration of four years after the act or transaction constituting the violation, the expiration of one year after the discovery by the plaintiff of the fact constituting the violation, or 90 days after delivery to the franchisee of a written notice disclosing any violation of Section 31110 or 31200, which notice shall be approved as to form by the commissioner, whichever shall first expire.
No action shall be maintained to enforce any liability created under Section 31301 unless brought before the expiration of two years after the violation upon which it is based, expiration of one year after the discovery by the plaintiff of the facts constituting such violation, or 90 days after delivery to the franchisee of a written notice disclosing any violation of Section 31201 or 31202 which notice shall be approved as to form by the commissioner, whichever shall first expire.
Every cause of action under this chapter survives the death of any person who might have been a plaintiff or defendant.
Nothing in this chapter shall limit any liability which may exist by virtue of any other statute or under common law if this law were not in effect.
CHAPTER 2. Powers of the Commissioner [31400. - 31408.]
Whenever it appears to the commissioner that any person has engaged or is about to engage in any act or practice constituting a violation of any provision of this law or any rule or order hereunder, the commissioner may in the commissioner’s discretion bring an action, or the commissioner may request the Attorney General to bring an action in the name of the people of the State of California, in the superior court to enjoin the acts or practices or to enforce compliance with this law or any rule or order hereunder. Upon a proper showing a permanent or preliminary injunction, restraining order or writ of mandate shall be granted and a receiver or conservator may be appointed for the defendant or the defendant’s assets.
If the commissioner determines it is in the public interest, the commissioner may include in any action authorized by subdivision (a) a claim for ancillary relief, including, but not limited to, a claim for restitution or disgorgement or damages on behalf of the persons injured by the act or practice constituting the subject matter of the action, and the court shall have jurisdiction to award that additional relief.
In any proceeding under Section 31400, the court may prohibit, conditionally or unconditionally, and permanently or for such period of time as it shall determine, any person who violated Section 31200, 31201, or 31202 from acting as an officer or director of any franchisor if the person’s conduct demonstrates unfitness to serve as an officer or director of the franchisor.
The commissioner may in his discretion (1) make such public or private investigations within or outside of this state as he deems necessary to determine whether any person has violated or is about to violate any provision of this law or any rule or order hereunder or to aid in the enforcement of this law or in the prescribing of rules and forms hereunder, and (2) publish information concerning the violation of this law or any rule or order hereunder.
For the purpose of any investigation or proceeding under this law, the commissioner or any officer designated by him may administer oaths and affirmations, subpoena witnesses, compel their attendance, take evidence, and require the production of any books, papers, correspondence, memoranda, agreements, or other documents or records which the commissioner deems relevant or material to the inquiry.
In case of contumacy by, or refusal to obey a subpoena issued to, any person, the superior court, upon application by the commissioner, may issue to the person an order requiring him to appear before the commissioner, or the officer designated by him, there to produce documentary evidence, if so ordered, or to give evidence touching the matter under investigation or in question. Failure to obey the order of the court may be punished by the court as a contempt.
No person is excused from attending and testifying or from producing any document or record before the commissioner, or in obedience to the subpoena of the commissioner or any officer designated by him, or in any proceeding instituted by the commissioner, on the ground that the testimony or evidence (documentary or otherwise) required of him may tend to incriminate him or subject him to a penalty or forfeiture; but no individual may be prosecuted or subjected to any penalty or forfeiture for or on account of any transaction, matter, or thing concerning which he is compelled, after validly claiming his privilege against self-incrimination, to testify or produce evidence (documentary or otherwise), except that the individual testifying is not exempt from prosecution and punishment for perjury or contempt committed in testifying.
If, in the opinion of the commissioner, the offer of any franchise is subject to registration under this law and it is being, or it has been, offered for sale without the offer first being registered, the commissioner may order the franchisor or offeror of that franchise to desist and refrain from the further offer or sale of that franchise unless and until the offer has been duly registered under this law. If, after that order has been made, a request for a hearing is filed in writing within 60 days from the date of service of the order by the person to whom the order was directed, a hearing shall be held in accordance with Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, and the commissioner shall have all of the powers granted under that chapter. Unless that hearing is commenced within 15 business days after the request is made (or the person affected consents to a later date), the order shall be deemed rescinded.
If that person fails to file a written request for a hearing within 60 days from the date of service of the order, the order shall be deemed a final order of the commissioner and shall not be subject to review by any court or agency, notwithstanding Section 31501.
If, in the opinion of the commissioner, the offer of any franchise exempt from registration under this law is being or has been offered for sale without complying with Section 31201, or any other provision that provides an exemption from Chapter 2 (commencing with Section 31110) of Part 2, the commissioner may order the franchisor or offeror of the franchise to desist and refrain from the further offer or sale of the franchise unless and until the offer is made in compliance with this law. If, after that order has been made, a request for a hearing is filed in writing within 60 days from the date of service of the order by the person to whom the order was directed, a hearing shall be held in accordance with Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code and the commissioner shall have all of the powers granted under that chapter. Unless that hearing is commenced within 15 business days after the request is made, or the person affected consents to a later date, the order shall be deemed rescinded.
If that person fails to file a written request for a hearing within 60 days from the date of service of the order, the order shall be deemed a final order of the commissioner and shall not be subject to review by any court or agency, notwithstanding Section 31501.
The commissioner may refer evidence that is available concerning any violation of this law or of any rule or order hereunder to the district attorney of the county in which the violation occurred, who may, with or without such a reference, institute appropriate criminal proceedings under this law. Upon request of the district attorney, the commissioner and the counsel, deputies, or assistants of the commissioner may assist the district attorney in presenting the law or facts at the trial.
Any person who violates any provision of this law, or who violates any rule or order made under this law, shall be liable for a civil penalty not to exceed ten thousand dollars ($10,000) for each violation, which shall be assessed and recovered in a civil action brought in the name of the people of the State of California by the commissioner in any court of competent jurisdiction.
As applied to the penalties for acts in violation of this division, the remedies provided by this section and by other sections of this division are not exclusive, and may be sought and employed in any combination to enforce the provisions of this division.
No action shall be maintained to enforce any liability created under subdivision (a) unless brought before the expiration of four years after the act or transaction constituting the violation.
If, upon inspection or investigation, based upon a complaint or otherwise, the commissioner has cause to believe that a person is violating or has violated any provision of this division or any rule or order promulgated pursuant to this division, the commissioner may issue a citation to that person in writing describing with particularity the basis of the citation. Each citation may contain an order to desist and refrain and an assessment of an administrative penalty not to exceed two thousand five hundred dollars ($2,500) per violation and shall contain reference to this section, including the provisions of subdivision (c). All penalties collected under this section shall be deposited in the State Corporations Fund.
The sanctions authorized under this section shall be separate from, and in addition to, all other administrative, civil, or criminal remedies.
If within 60 days from the receipt of the citation, the person cited fails to notify the commissioner that the person intends to request a hearing as described in subdivision (d), the citation shall be deemed final.
Any hearing under this section shall be conducted in accordance with Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code.
After the exhaustion of the review procedures provided for in this section, the commissioner may apply to the appropriate superior court for a judgment in the amount of the administrative penalty and order compelling the cited person to comply with the order of the commissioner. The application shall include a certified copy of the final order of the commissioner and shall constitute a sufficient showing to warrant the issuance of the judgment and order.
If, after examination or investigation, the commissioner has reasonable grounds to believe that any person is conducting or has conducted business in violation of any provision of this division or related rule or order binding upon it, the commissioner may, by written order addressed to the person, direct the discontinuance of the violation. The order shall be effective immediately, but shall not become final except in accordance with subdivision (b).
An order issued pursuant to this section shall not become final except after notice to the affected person of the commissioner’s intention to make the order final and of the reasons for the finding. The commissioner shall also notify the person that upon receiving a request the matter shall be set for hearing to commence within 15 business days after receipt of the request. The person may consent to have the hearing commence at a later date. If no hearing is requested within 60 days after the mailing or service of the required notice, and none is ordered by the commissioner, the order may become final without a hearing and that person shall immediately discontinue the practices named in the order. If a hearing is requested or ordered it shall be held in accordance with Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, and the commissioner shall have all of the powers granted under that chapter. If, upon the conclusion of the hearing, it appears to the commissioner that the person is violating or has violated any provision of this division or any related rule or order binding upon it, the commissioner shall make the order of discontinuance final and the person shall immediately discontinue the practices named in the order.
If the commissioner determines it is in the public interest, the commissioner may include in any administrative action brought under this division, including a stop order, a claim for ancillary relief, including, but not limited to, a claim for rescission, restitution or disgorgement or damages on behalf of the persons injured by the act or practice constituting the subject matter of the action, and the administrative law judge shall have jurisdiction to award additional relief. The person affected may be required to attend remedial education, as directed by the commissioner.
In an administrative action brought under this part the commissioner is entitled to recover costs, which in the discretion of the administrative law judge may include any amount representing reasonable attorney’s fees and investigative expenses for the services rendered, for deposit into the State Corporations Fund for the use of the Department of Financial Protection and Innovation.
CHAPTER 3. Crimes [31410. - 31412.]
Any person who willfully violates any provision of this law, or who willfully violates any rule or order under this law, shall upon conviction be fined not more than one hundred thousand dollars ($100,000) or imprisoned pursuant to subdivision (h) of Section 1170 of the Penal Code, or in a county jail for not more than one year, or be punished by both that fine and imprisonment; but no person may be imprisoned for the violation of any rule or order if he or she proves that he or she had no knowledge of the rule or order.
Any person who willfully employs, directly or indirectly, any device, scheme, or artifice to defraud in connection with the offer or sale of any franchise or willfully engages, directly or indirectly, in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person in connection with the offer, purchase, or sale of any franchise shall upon conviction be fined not more than one hundred thousand dollars ($100,000) or imprisoned pursuant to subdivision (h) of Section 1170 of the Penal Code, or in a county jail for not more than one year, or be punished by both that fine and imprisonment.
Nothing in this law limits the power of the state to punish any person for any conduct which constitutes a crime under any other statute.
CHAPTER 4. Service of Process [31420. - 31420.]
When any person, including any nonresident of this state, engages in conduct prohibited or made actionable by this law or any rule or order hereunder, whether or not he has filed a consent to service of process under Section 31155, and personal jurisdiction over him cannot otherwise be obtained in this state, that conduct shall be considered equivalent to his appointment of the commissioner or his successor in office to be his attorney to receive service of any lawful process in any noncriminal suit, action, or proceeding against him or his successor, executor, or administrator which grows out of that conduct and which is brought under this law or any rule or order hereunder, with the same force and validity as if served on him personally. Service may be made by leaving a copy of the process in the office of the commissioner, but it is not effective unless (a) the plaintiff, who may be the commissioner in a suit, action, or proceeding instituted by him, forthwith sends notice of the service and a copy of the process by registered or certified mail to the defendant or respondent at his last known address or takes other steps which are reasonably calculated to give actual notice, and (b) the plaintiff’s affidavit of compliance with this section is filed in the case on or before the return day of the process, if any, or within such further time as the court allows.
PART 5. ADMINISTRATION [31500. - 31506.]
The commissioner shall charge and collect the fees fixed by this section. All fees and charges collected under this section shall be transmitted to the Treasurer at least weekly, accompanied by a detailed statement thereof and shall be credited to the Financial Protection Fund.
The fee for filing an application for registration of the offer of franchises under Section 31111 is one thousand eight hundred sixty-five dollars ($1,865).
The fee for filing an application for renewal of a registration under Section 31121 is one thousand two hundred forty-five dollars ($1,245).
The fee for filing the initial notice of exemption under Section 31101 is one thousand two hundred forty-five dollars ($1,245) and the fee for filing each consecutive subsequent notice of exemption under these provisions is four hundred fifteen dollars ($415).
The fee for filing an application for registration as a franchise broker under Part 7 (commencing with Section 31520) is four hundred fifty dollars ($450).
The fee for filing an application for amendment of a registration as a franchise broker under Part 7 (commencing with Section 31520) is fifty dollars ($50).
Every final order, decision, license, or other official act of the commissioner is subject to judicial review in accordance with law.
The commissioner may from time to time make, amend and rescind such rules, forms, and orders as are necessary to carry out the provisions of this law, including rules and forms governing applications and reports, and defining any terms, whether or not used in this law, insofar as the definitions are not inconsistent with the provisions of this law.
All rules of the commissioner, other than those relating solely to the internal administration of the Department of Financial Protection and Innovation, shall be made, amended, or rescinded in accordance with the provisions of Chapter 4.5 (commencing with Section 11371) of Part 1 of Division 3 of Title 2 of the Government Code.
All applications, reports and other papers and documents filed with the commissioner under this law shall be open to public inspection, except that the commissioner may, in his discretion, withhold from public inspection any information the disclosure of which is, in the judgment of the commissioner, not necessary in the public interest or for the protection of investors. The commissioner may publish any information filed with him or obtained by him, if, in the judgment of the commissioner, such action is in the public interest. No provision of this law authorizes the commissioner or any of his assistants, clerks, or deputies to disclose any information withheld from public inspection except among themselves or when necessary or appropriate in a proceeding or investigation under this law or to other federal or state regulatory agencies. No provision of this law either creates or derogates from any privilege which exists at common law or otherwise when documentary or other evidence is sought under a subpoena directed to the commissioner or any of his assistants, clerks, or deputies.
It is unlawful for the commissioner or any of his assistants, clerks, or deputies to use for personal benefit any information which is filed with or obtained by the commissioner and which is not then generally available to the public.
Upon request and at such reasonable charges as he prescribes by rule, the commissioner shall furnish to any person photostatic or other copies (certified under his seal of office if requested) of any document which is retained as a matter of public record, except that he shall not charge or collect any fee for photostatic or other copies of any document furnished to public officers for use in their official capacity. In any judicial proceeding or prosecution, any copy so certified is prima facie evidence of the contents of the document certified.
The commissioner may destroy any applications or orders, together with the files and folders, as useless or obsolete, four years after the date of filing or issuance, with the approval of the Department of General Services; provided that a permanent record shall be maintained of any disciplinary action taken by the commissioner.
Copies on microfilm or in other form which may be retained by the commissioner in his discretion of any records destroyed under this section shall be accepted for all purposes as equivalent to the original when certified by the commissioner.
PART 6. GENERAL PROVISIONS [31510. - 31516.]
The commissioner in his discretion may honor requests from interested persons for interpretive opinions.
No provision of this law imposing any liability applies to any act done or omitted in good faith in conformity with any rule, form, order, or any written interpretive opinion of the commissioner, or any opinion of the Attorney General, notwithstanding that the rule, form, order, or written interpretive opinion may later be amended or rescinded or be determined by judicial or other authority to be invalid for any reason.
Any condition, stipulation or provision purporting to bind any person acquiring any franchise to waive compliance with any provision of this law or any rule or order hereunder is void.
Any provision of a franchise agreement, franchise disclosure document, acknowledgment, questionnaire, or other writing, including any exhibit thereto, disclaiming or denying any of the following shall be deemed contrary to public policy and shall be void and unenforceable:
Representations made by the franchisor or its personnel or agents to a prospective franchisee.
Reliance by a franchisee on any representations made by the franchisor or its personnel or agents.
Reliance by a franchisee on the franchise disclosure document, including any exhibit thereto.
Violations of any provision of this division.
Whenever a person is entitled under this law to a hearing in accordance with the provisions of Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, a formal hearing before the Department of Financial Protection and Innovation may be substituted with the consent of such person and of the commissioner for such hearing before an independent hearing officer; and in that case after such hearing before the Department of Financial Protection and Innovation such person shall not be entitled to any further administrative remedy.
If any provision of this law or the application thereof to any person or circumstance is held invalid, the invalidity shall not affect other provisions or applications of this law which can be given effect without the invalid provision or application, and to this end the provisions of this law are declared to be severable.
Prior law exclusively governs all suits, actions, prosecutions or proceedings which are pending or may be initiated on the basis of facts or circumstances occurring before the effective date of this law.
Nothing in this law is intended to preclude the applicability of the Real Estate Law, Part 1 (commencing with Section 10000), Division 4 of the Business and Professions Code, to any sale or lease of real property.
PART 7. FRANCHISE BROKERS [31520. - 31528.]
A franchise broker shall register by filing online all of the following with the commissioner:
A completed Uniform Franchise Broker Disclosure Document, as created and modified by the commissioner, that is signed and verified as true and correct by the filer.
Any additional documents or exhibits prescribed by the commissioner.
The required registration fee, as set forth in Section 31500.
Copies of financial securities and insurance policies the commissioner requires the franchise broker to obtain and maintain.
Subject to Section 31522, the registration shall be effective upon filing a complete application, including all required documents, and paying all applicable fees.
Subject to Section 31522, a registration pursuant to this section shall expire on December 31 of the year in which the registration became effective.
A registered franchise broker shall promptly notify the commissioner in writing by an application to amend the registration of any material change in the information contained in the latest Uniform Franchise Broker Disclosure Document filed by the franchise broker.
The commissioner may by rule further define what shall be considered a material change for those purposes, and the circumstances under which an amended Uniform Franchise Broker Disclosure Document must be filed.
The commissioner may issue a stop order pursuant to Section 31522 if the commissioner finds that any of the material changes provided pursuant to this section constitute a failure to comply with any of the provisions of this division or any rule issued by the commissioner pertaining to this division.
The commissioner may summarily issue a stop order suspending or revoking any registration under this part if the commissioner finds that the franchise broker has failed to comply with any of the provisions of this division or any rule issued by the commissioner pertaining to this division.
A franchise broker shall not offer or sell a franchise in this state while a stop order issued pursuant to subdivision (a) is in effect.
Upon issuance of a stop order, the commissioner shall promptly provide a notice to the franchise broker that contains all of the following:
Notice that the stop order has been issued.
The reasons for issuance of the stop order.
Notice that the matter will be set for hearing within 15 business days after the commissioner receives a written request for hearing from the franchise broker, unless the franchise broker consents to a later date.
The commissioner may modify, vacate, or extend a stop order until there has been a final determination of the matter at the hearing.
A hearing under this section shall be conducted pursuant to Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, and the commissioner shall have all the powers granted under those provisions.
If the franchise broker does not request a hearing within 30 days after receipt of the notice required by subdivision (c), the stop order shall remain in effect until it is modified or vacated by the commissioner.
A registered franchise broker offering a franchise for sale in this state shall keep and maintain a complete set of books, records, and accounts of that offer for a period of five calendar years.
A registered franchise broker is subject to, and shall comply with, all of the following:
Section 31154.
Section 31155.
Section 31156.
Section 31157.
Section 31158.
It is unlawful for a franchise broker to offer or sell a franchise in this state unless the franchise broker is registered pursuant to this part.
For purposes of this section, an offer or sale of a franchise is made in this state if any of the following apply:
The prospective franchisee resides in this state.
The prospective franchisee has its principal place of business in this state.
The franchised business will be located in this state.
It is unlawful for a franchise broker to communicate with a prospective franchisee about investing in a franchise opportunity that is subject to registration pursuant to this division unless the franchise broker first provides to the prospective franchisee a copy of the completed Uniform Franchise Broker Disclosure Document.
A franchise broker may provide the Uniform Franchise Broker Disclosure Document to a prospective franchisee through electronic means, subject to any requirements or conditions imposed by the commissioner.
For purposes of this part, the Uniform Franchise Broker Disclosure Document shall contain all of the following information:
A franchise broker cover page, as created and modified by the commissioner, that contains standardized language regarding franchise brokers, including, but not limited to, all of the following:
The types of sellers.
The franchise brokers’ role in the franchise sales process.
Services a franchise broker might provide.
Different ways a franchise broker might be compensated for its services.
Examples of questions a prospective franchisee might ask a franchise broker.
All of the following information about the franchise broker:
Legal name.
Trade name.
Year and state of formation.
Principal place of business.
Owners.
Directors and officers.
Contact information.
The franchise broker’s broker network or franchise sales organization.
The franchise broker’s professional experience during the last five years, including, but not limited to, employers, principal positions, each position’s location, and the month and year of each position’s start date and end date.
Administrative, civil, or criminal actions alleging that the franchise broker, or an owner, officer, or director of the franchise broker, violated any franchise, antitrust, or securities law, or committed fraud, unfair or deceptive practices, or similar violations, whether pending or resolved, within the last five years.
The industries of the brands the franchise broker represents and how many brands within each industry the franchise broker represents.
A description of the services performed by the franchise broker.
How the franchise broker is compensated, including, but not limited to, how the amount of any consideration the franchise broker receives is calculated.
Whether a broker network, broker organization, or franchise sales organization may receive any additional consideration.
The brands for whom the franchise broker sold a franchise anywhere in the United States or its territories during the last calendar year for which the franchise broker received or is entitled to receive compensation, including, but not limited to, the total number of units sold for the brand.
The implementation of this part is contingent upon an appropriation for its purposes by the Legislature in the annual Budget Act or other statute. This part shall become operative on the later of: (1) July 1, 2026, or (2) the first anniversary of the date on which the appropriation is made.
TITLE 10. REPEALS [100000. - 100008.]
The following acts and sections are repealed:
Corporations formed and existing before 12 o’clock, noon, of January 1, 1873, which have not elected to continue their existence under the provisions of the Civil Code repealed by this code or under this code are not affected by the repeal of any act or section by this section. The acts and sections repealed by this section continue to apply to all such corporations, notwithstanding their repeal by this section.
The following acts and sections are repealed:
The following acts and code sections are repealed:
The following acts and code sections are repealed:
Chapter 183 of the Statutes of 1941 is repealed.
The Corporate Securities Act (Chapter 532 of the Statutes of 1917) is repealed.
Chapter 784 of the Statutes of 1937 is repealed.
Chapter 1035 of the Statutes of 1945 is repealed.
Chapter 226 of the Statutes of 1923 is repealed.