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californiacorporate&securities 12/11/2018
NY Courts Disagree On California Demand Requirement

Unlike the federal courts and Delaware's Court of Chancery, California has a statutory demand requirement.  Section 800(b)(2) of the Corporations Code provides:

californiacorporate&securities 12/10/2018
Why Your Next Director Might Not Be An LLC

From time to time the question arises about whether a limited liability company, corporation or some other form of entity might serve as a director.  This is, in fact, a question that I tackled four years ago in this post.  The short answer is that the corporate laws of California, Delaware and Nevada require that directors be natural persons.  Cal. Corp. Code § 164, 8 Del. Code § 141(b), and NRS 78.115.  Nevada, moreover, prohibits directors in their nonage, requiring that they be at least 18 years of age.

californiacorporate&securities 12/7/2018
DBO Seeks Comments On Commercial Loan Disclosure Rules

This September, Governor Jerry Brown signed SB 1235 (Stats. 2018, Ch. 1011) into law.  In a nutshell, SB 1235 adds a new division to the Financial Code imposing specific loan disclosure requirements on providers of commercial financings.  These disclosures include:

californiacorporate&securities 12/6/2018
It's A Brand New Biennium!

The California legislature reconvened on Monday.  Cal. Const. Art. IV, § 3(a).  Over 100 bills have already been introduced in the Assembly.  The Senate is far behind with just 51 bills introduced thus far.  The first day business in both houses involved adopting rules and appointing officers of the house.  Having accomplished these tasks, the legislature will be in recess until January 7, 2019.  Joint Rule 51(a)(1).  In the meantime, some committees will meet. 

californiacorporate&securities 12/5/2018
A "Criminal Waste Of Space" Foments Concern About Possible Vestiarian Crisis

This month's issue of Orange County Lawyer includes another entertaining column by Court of Appeal Justice William D. Bedsworth.  He points out that Government Code Section 68110 requires every judge in open court during the presentation of causes before him or her "to wear a judicial robe, which the judge shall furnish at his or her own expense."  

californiacorporate&securities 12/4/2018
Do Ineffective Internal Controls Expand A Shareholder's Right Of Inspection?

Section 1601 of the California Corporations Code establishes a shareholder's right to inspect the "accounting books and records and minutes of proceedings of the shareholders and the board and committees of the board".  A shareholder's inspection, however, must be for a "purpose reasonably related" to the shareholder's interest as a shareholder. Id.  This is commonly referred to as a "proper purpose" requirement.

californiacorporate&securities 12/3/2018
SEC Is On The Look Out For Touts

Last week, the Securities and Exchange Commission announced settled charges against professional boxer Floyd Mayweather Jr. and music producer Khaled Khaled, known as DJ Khaled.  Notably, the SEC's orders did not use the words "false", "misleading" or "omission".  Instead, the SEC relied on Section 17(b) of the Securities Act which makes it unlawful to:

californiacorporate&securities 11/30/2018
Why Sign Annual Meeting Minutes?

Over at The Mentor Blog, Broc Romanek recently addressed the question of whether minutes of an annual meeting must be signed.  Broc's post provides John Jenkins' answer under Delaware law.  For those interested in California law, I provided three reasons why you might want to sign the minutes.

californiacorporate&securities 11/28/2018
Commissioner Jackson Writes In Support of Political Spending Disclosure Rule

Seven years ago, Professor Robert Jackson joined 9 other academics in petitioning the SEC to adopt a rule requiring disclosure of political spending.  Professor Jackson is now an SEC Commissioner.  Not surprisingly, Commissioner Jackson supports the SEC's adoption of a political spending disclosure rule.

californiacorporate&securities 11/27/2018
Need A Legal Opinion - Why Not Ask The Attorney General?

The California Attorney General is the state's "chief legal officer".  Cal. Const. Art. V, § 13.  One of the Attorney General's statutory duties is to provide written legal opinions.  Cal. Gov't Code § 12519.  Not everyone, however, is entitled to the Attorney General's opinion.  The Attorney General is permitted only to provide opinions only to specified categories of persons - generally, state constitutional officers, legislators, state agencies, and certain county and city officials. Id.  

californiacorporate&securities 11/26/2018
ISS And The Unruh Civil Rights Act

Jesse Unruh was born to an impoverished immigrant couple and rose to become a legendary figure in Sacramento politics.  He is credited with the oft-heard aphorism "Money is the mother's milk of politics".  In 1959, Unruh authored a bill that enacted the "Unruh Civil Rights Act" (Stats. 1959, ch. 1866).  Although eponymously and immodestly named, the bill was not entirely novel.  In fact, the Unruh Civil Rights Act expanded California Civil Rights Statute of 1879, which was in turn based on the National Civil Rights Act of 1875 (18 Stat. 335, ch. 114).

californiacorporate&securities 11/20/2018
Cryptocurrency Is Now A Cartoon
For those still in the dark about cryptocurrency, the North American Securities Administrators Association (aka NASAA) has released an animated video on the subject.  According to NASAA, the video " focuses on concerns individuals should consider before investing in any crypto-related offering, including the three “U’s” (untraceable, uninsured, unregulated), volatility and liquidity risks, and the very real potential for fraud."  This video is actually a sequel to the debut video "Get in the Know about ICOs".  Unfortunately, it appears that NASAA's latest offering has missed the Documentary Short Subject deadline (Oct. 1, 2018) for consideration at the 91st Oscars.
californiacorporate&securities 11/19/2018
Why Be Wary Of Section 11 Liability?

Last Friday's post discussed the possibility of avoiding potential liability under Section 11 of the Securities Act by relying on the Section 3(a)(10) exemption from registration.  Eliminating Section 11 liability does not eliminate liability under other anti-fraud statutes or rules, such as SEC Rule 10b-5 and California Corporations Code Section 25401.  So why be concerned about Section 11 liability?

californiacorporate&securities 11/16/2018
How To Avoid A Section 11 Liability In A Stock-For-Stock Merger

John Jenkins at recently wrote about Section 11 claims being filed in state court by purchasers in stock-for-stock mergers.  Section 11 of the Securities Act of 1933 authorizes a cause of action against specified persons "in case any part of the registration statement, when such part became effective, contained an untrue statement of material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading . . . ".  

californiacorporate&securities 11/15/2018
How A Voting Shift Can Cut Short A Director's Term

Upon hearing that a "voting shift" has occurred, one might infer that there has been some change in the historical voting patterns.  The California General Corporation Law, however, defines the term very differently:

californiacorporate&securities 11/13/2018
You Might Be A Member Of The California Militia And Not Even Know It

Veterans Day falls on November 11 of each year because the First World War famously ended at the 11th hour of the 11th day of the 11th month.  California public offices, however, were closed yesterday on November 12.  Why?  The answer can be found in Government Code Section 6700(b) which provides that if November 11 falls on a Sunday, state offices will be closed on Monday.  The same statute provides that if November 11 falls on a Saturday, state offices will be closed on the preceding Friday.  The analogous provision in federal law is 5 U.S.C. § 6103.

californiacorporate&securities 11/12/2018
New California Labor Code Statute Results In Enforceable Covenant Not To Compete

In October 2016, I wrote about a newly enacted statute, Labor Code Section 925.  That statute prohibits an employer from requiring an employee who primarily resides and works in California, as a condition of employment, to agree to a provision that would do either of the following:

California Wireless Law Blog 11/9/2018
Lawsuit Challenges California Net Neutrality Law by Alan Hearty
californiacorporate&securities 11/9/2018
California Court Tackles Question Of When An Amendment Is A New Agreement

The parties to an agreement agree upon a change to the terms.  Should the change be labeled an "amendment" or a "new agreement".  Often this will simply be a question of nomenclature.  Sometimes, however, more the difference between an amendment and a new agreement can have substantive consequences.  Such was the case in Citizens for Amending Proposition L v. City of Pomona, Cal. Ct. Appeal Case No. B283740 (Nov. 7, 2018).  

californiacorporate&securities 11/8/2018
Exchange Reorganizations Versus Share Exchange Tender Offers

The last several posts have been devoted to exploring the differences between an "exchange reorganization" and a "share exchange tender offer" under the California General Corporation Law.  Below is a chart that summarizes the differences between these two types of transactions:

californiacorporate&securities 11/7/2018
Are Share Exchange Tender Offers Limited Only To Acquisitions Of California Corporations?

Recent posts have been discussing  California's regulation of "share exchange tender offers".  Corporations Code Section 183.5 defines a "share exchange tender offer" as:

californiacorporate&securities 11/6/2018
Shareholder Approval And Share Exchange Tender Offers

Yesterday's post delved into the difference between a "share exchange tender offer" (Section 183.5) and an "exchange reorganization" (Section 181(b)) under the California General Corporation Law.  Briefly, both involve the exchange of equity securities by one corporation for the equity securities of another corporation, but the former does not result in the acquisition of control while the latter does.  The legislature created the concept of a "share exchange tender offer" as a means of imposing a shareholder approval requirement on an acquiring corporation.  As noted, however, shareholder approval is not required in every "share exchange tender offer".

californiacorporate&securities 11/5/2018
California's Obscure Regulation of Share Exchange Tender Offers

In 1989, the California legislature decided to define "share exchange tender offer" in the General Corporation Law.  Section 183.5 defines the term to mean:

California Wireless Law Blog 11/5/2018
Pacific Grove Votes to Allow Wireless Installation by Alan Hearty
californiacorporate&securities 11/2/2018
Court Of Appeal Upholds Injunction Restraining Enforcement Of Non-Solicitation Agreement

California Business & Professions Code Section 16600 is particularly tough on covenants not to compete declaring, with certain exceptions, "every contract by which anyone is restrained from engaging in a lawful profession trade, or business of any kind is to that extent void".  Nonetheless, the statute does seem to leave some room for agreements not to solicit employees.  After all, such an agreement does not preclude a promisor from engaging in a business nor does it prohibit a promisor from hiring an employee.  

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