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California Corporate and Securities Law

Blogs 1 - 25 of 1000
californiacorporate&securities 10/16/2018
Nevada's Criminal Gatekeeper Statute

Although much of Nevada is unfenced open range (see yesterday's post), that doesn't mean that the state treats the responsibility of gatekeepers lightly.  More than a century ago, Assemblymember Thomas Hagar introduced legislation criminalizing the failure to close a gate.  This law, now codified at NRS 207.220(1) provides:

californiacorporate&securities 10/15/2018
Home On The Range

This last weekend, I took a hiking trip in central Nevada.  Sadly, there is no escape from traffic (see photo below).

californiacorporate&securities 10/12/2018
Nevada Supreme Court Applies De Facto Merger Doctrine To Debt Forgiveness Transaction

Last month, Professor Stephen Bainbridge posed the question of whether California recognizes the de facto merger doctrine outside of the successor liability context.  Here was my response.  Less than two weeks later, the Nevada Supreme Court addressed the same question under Nevada law in  Peddie v. Spot Devices, Inc., 2018 Nev. Unpub. LEXIS 901.  

californiacorporate&securities 10/11/2018
Who Is A Female? New California Statute Provides An Answer

California's new gender quota law, SB 826, has attracted widespread attention.  The law mandates that a publicly held domestic or foreign corporation with its principal executive offices, according to the corporation’s SEC Form 10-K, located in California must have a minimum of one female director on its board by the close of 2019.  No later than the close of 2021, the corporation must have a minimum of three female directors, if its number of directors is six or more; a minimum of two female directors if its number of directors is five, or a minimum of one female director if its number of directors is four or fewer.  Some readers have questioned the definition of "female" for purposes of the statute.

californiacorporate&securities 10/10/2018
California Will Soon Require Novel Disclosure Requirements Providers Of Commercial Financings

In February, I noted the introduction of a bill that would require any person engaged in the business of commercial financing to provide specified disclosures to prospective borrowers.  On September 30, Governor Brown signed the bill, SB 1235, into law.  Although the law will take effect on January 1, 2019, implementation will require the adoption of regulations by the California Department of Business Oversight.

californiacorporate&securities 10/9/2018
Secretary Of State's Office To Be Tested In Implementing New Gender Quota Law

California's new law imposing gender quotas on boards of publicly held corporations imposes significant new responsibilities on the office of the California Secretary of State.  This will put the office in the difficult position of expending time and resources on a law whose dubious constitutionality was noted by the Governor even as he signed it.  See Does Governor Brown's Signing Message Have Any Legal Effect?

californiacorporate&securities 10/8/2018
Professor Bainbridge Asks "Would They Have Standing?"

As has been widely noted, the constitutionality of SB 826, California's new gender quota law, is questionable.  It remains to be seen who will bring the challenge and where.  Yesterday, Professor Stephen Bainbridge raised the question of whether the challengers will have standing.

californiacorporate&securities 10/5/2018
Departing Is Such Sweet Sorrow: Some Things To Consider When You Leave California

California's recent enactment of a gender quota for boards of publicly held corporations may cause some of foreign corporations to consider moving the location of their principal executive offices.  The new law, Corporations Code Section 301.3, will apply to publicly held foreign corporations having their principal executive offices in California "according to the corporation’s SEC 10-K form".  Before doing so, a foreign corporation might wish to consider the following:

californiacorporate&securities 10/4/2018
Will California's New Gender Quota Law Apply Outside The United States?

Now that Governor Brown has signed SB 826 into law, companies area beginning to ask about its scope and application.  SB 826 imposes quotas on the number of female directors of publicly held corporations.  The law applies to domestic and foreign corporations having their principal executive offices, according to their most recent Form 10-K, in California.  Some have asked whether corporation incorporated in other countries might be subject to this new law.

californiacorporate&securities 10/3/2018
Is Artificial Intelligence The Future Of Rulemaking?

Earlier this year, the Securities and Exchange Commission proposed a new rule establishing a standard of conduct for broker-dealers and natural persons who are associated persons of a broker-dealer when making a recommendation of any securities transaction or investment strategy involving securities to a retail customer.  This proposed so-called "best interest" rule has attracted numerous comments, including several thousand "form type" letters.  The Administrative Procedure Act requires agencies to provide reasoned responses to all significant comments.  In the words of Judge Harold Leventhal, this requires that ”comments must be significant enough to step over a threshold requirement of materiality before any lack of agency response or consideration becomes of concern,” Portland Cement Ass’n v. Ruckelshaus, 486 F.2d 375, 394 (D.C.Cir.1973). 

californiacorporate&securities 10/2/2018
Does Governor Brown's Signing Message Have Any Legal Effect?

In 1968, Richard Nixon campaigned for president claiming to have a secret plan to end the war in Vietnam.  With the war still continuing in 1971, Congress included in the Military Procurement Authorization Act the "Mansfield Amendment" urging President Nixon to establish a "final date" for the withdrawal of all U.S. forces from Indochina, subject only to the release of U.S. prisoners of war and an accounting for the missing in action.  The President wasn't at all happy about this amendment but signed the bill into law anyway.  His signing message included the following statement:

californiacorporate&securities 10/1/2018
Acknowledging Potentially "Fatal" Flaws, Governor Signs Board Gender Quota Bill

When California's board gender quota bill, SB 826, was introduced last January, I raised several questions:

californiacorporate&securities 9/28/2018
Confirmation In California

As in the federal system, gubernatorial appointees to many California state agencies and departments are subject to confirmation by the Senate.  Cal. Gov't Code § 1322.  There are, however, a number of important differences between the federal and state appointments process.

californiacorporate&securities 9/27/2018
Ninth Circuit Holds General Partnership Interests To Be Investment Contracts

The definitions of "security" in Section 2(a)(1) of the Securities Act and Section 3(a)(10) consist of long lists of instruments.  Nowhere in these lists are partnerships interests.  In 1981, the Fifth Circuit Court of Appeals adopted three factors that would establish a general partnership interest as a security.  Williamson v. Tucker, 645 F.2d 404 (5th Cir. 1981).  Yesterday, the Ninth Circuit Court of Appeals applied the Williamson factors to uphold a District Court's determination that the general partnership interests were investment contracts governed by federal securities law.  United States SEC v. Gpc Jma, 2018 U.S. App. LEXIS 27449.  The opening line of Judge N. Randy Smith's opinion provides a succinct summary:

californiacorporate&securities 9/26/2018
Court Of Appeal Finds No Property Transfer In Reverse Triangular Merger

Five years ago, I commented on the dearth of authority on whether a reverse triangular merger constitutes an assignment:

californiacorporate&securities 9/25/2018
As The Clock Winds Down, Criticism Of California's Gender Quota Bill Winds Up

The Governor has until this Sunday to sign or veto bills passed by the legislature before September 1.  Cal. Const. Art. IV, Sec. 10(b)(2).  One bill in the Governor's inbox is SB 826.  If signed by the Governor, SB 826 would impose gender quotas on the boards of directors of publicly held companies headquartered in California.  See California Bill Would Mandate Gender Quotas For Publicly Traded CompaniesImpossibility And California's Proposed Gender Quota Law, and Why California's Gender Quota Bill Is More Likely To Be Unconstitutional Than California's Pseudo-Foreign Corporation Statute.  

californiacorporate&securities 9/24/2018
The General Corporation Law's "25th Amendment"

Generally, a board of directors of a California corporation may not remove one of its members.  Removal of a director is in most cases the province of the shareholders.  Thus, Section 303 of the Corporations Code allows the shareholders to remove any or all of the directors without cause by approval of the outstanding shares (Section 152).  This right of removal is subject to several conditions intended to protect the cumulative voting rights of shareholders.  Section 304 empowers the Superior Court to remove a director for specified causes at the suit of shareholders holding at least 10 percent of the number of outstanding shares of any class.

californiacorporate&securities 9/21/2018
California And Joint Stock Associations

Occasionally, I have devoted space to the topic of unincorporated associations.  See Thinking About Joining A Club? You May Want To Consider These Corporations Code Provisions FirstFederal Court Allows Reverse Veil Piercing Of Unincorporated Association and Court Rules California Unincorporated Association Is A South Dakota Citizen.  California's statutory provisions pertaining to unincorporated associations can be found in Title 3 of the Corporations Code.  Part 3 of Title 3 is devoted to criminalizing various activities on the part of directors, officers and agents of joint stock associations.  Nowhere, however, Part 3 define what constitutes a joint stock association.  Nor does it appear that there are any decisions citing these statutes.  The mystery of what exactly constitutes a joint stock association is deepened by the existence of other provisions within the Corporations Code that refer to joint stock companies (e.g., §§ 5065, 25013, and 29514).  Is a "joint stock association" a "joint stock company" by another name or an entirely different entity?

californiacorporate&securities 9/20/2018
Court Holds "Converted Entity" Is Not "Effectively" The Same Entity

Two years after filing suit, the corporate defendant ("Old Monterey") in a lawsuit converts into an limited liability company ("New Monterey") pursuant to the California Corporations Code. In the parlance of the Code, Old Monterey is a "converting corporation" and New Monterey is a "converted entity".  Cal. Corp. Code § 1150(c) & (b).  The plaintiff amends her complaint to add New Monterey as a defendant but does not drop the Old Monterey from the suit.  The plaintiff, moreover, demands responses to written discovery from Old Monterey, even though that discovery is identical to that propounded upon New Monterey.  This forces Old Monterey to move to substitute out of the case pursuant to Federal Rule of Civil Procedure 25(c).

californiacorporate&securities 9/19/2018
Must An LLC Have At Least Two Members?

Although without a peradventure a general partnership requires at least two persons, is the same true of a California limited liability company?  My answer is "no".  In fact, Section 17704.01(a) of the California Corporations Code expressly contemplates that an LLC may have only a single member:

californiacorporate&securities 9/18/2018
Staff Guidance - What Would California Do?

Recently, Securities and Exchange Commission Chairman Jay Clayton released a public statement emphasizing that "all staff statements are nonbinding and create no enforceable legal rights or obligations of the Commission or other parties."  The Chairman's statement can be seen as part of a broader reevaluation of the deference owed by courts to administrative agencies whether acting formally or informally.

californiacorporate&securities 9/17/2018
Why Is There No "De Facto Asset Sale" Doctrine?

Last Friday's post concerned the status of the de facto merger doctrine in California.  The late Harold Marsh Jr. made the following observation about the de facto merger doctrine in his magnum opus:

californiacorporate&securities 9/14/2018
Does California Recognize The De Facto Merger Doctrine Outside The Successor Liability Context?

Yesterday, Professor Stephen Bainbridge noted that California has applied the de facto merger doctrine to an asset purchase transaction to hold the acquiring corporation liable for tort liabilities of the selling corporation.  Professor Bainbridge in his post tags me with the question of whether California recognizes de facto merger outside the successor liability context.

californiacorporate&securities 9/13/2018
The Answers . . .
The answers to yesterday's trivia questions are:

  • At least five persons are required to form this type of corporation.
Fish Marketing Association.  Fish marketing associations are governed by the General Corporation Law except when in conflict with the Fish Marketing Act. Cal. Corp. Code § 13204.  The Fish Marketing Act authorizes five or more persons , a majority of whom are California residents, engaged in the production of fishery products, to form an association.
  • Within six months of taking office, board members of this type of corporation must receive at least two hours training from a qualified trainer.
Mutual Water Company.  Corporations Code Section 14301.2 requires that each board member of a mutual water company that operates a public water system to comply with the training requirements of Health & Safety Code Section 116755.
  • Any superior court judge in the county in which this type of corporation has its principal office has access "at all times" to its books.
Corporation Sole.  Corporations Code Section 10009 grants this right but provides no explanation as to why.
  • The Bylaws of this type of corporation must authorize the removal of officers only by a two-thirds vote of the directors. 

Nonprofit California Small Business Financial Development Corporation.  Corporations Code Section 14009 imposes this requirement.

  • Any person who willfully and maliciously injures the property of this type of corporation may be liable for three times the amount of actual damages.
Cable Television Corporation.   Part 9, Division 3, Title 1 of the Corporations Code is devoted to cable television corporations.  Part 9, however, consists of a single section - Section 14400.  This statute was transferred from the Civil Code in 1997 as part of a bill that transferred from the Civil Code to the Corporations Code statutes governing, among other things, a variety of specific corporations, including bridge, ferry, wharf, chute and pier corporations, water and canal corporations, societies for the prevention of cruelty to children and animals and nonprofit agricultural marketing associations.  Stats. 1997, c. 598 (S.B. 633 (Ayala)).  

californiacorporate&securities 9/12/2018
Test Your Knowledge Of California Corporate Law!

Over the years, I've made mental notes of some obscure California corporate law questions.  Can you identify the following types of corporations corporations?

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