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California Corporate and Securities Law

Blogs 1 - 25 of 1000
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 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?

 
californiacorporate&securities 9/11/2018
Governor Green Lights Bill Authorizing Immortal Ex Officio Directors

California's Nonprofit Corporation Law embraces several different types of nonprofit corporations.  Part 1 of the Nonprofit Corporation Law includes provisions that are applicable to three categories of nonprofit corporations -  public benefit, mutual benefit, and religious corporations.  Section 5047, which is included in Part 1, contemplates that some directors may hold their seats by virtue of some other office:

 
californiacorporate&securities 9/10/2018
Should One-A-Day Be Once-A-Day?

Miles Laboratories pioneered the concept of daily dosing of multivitamins and minerals in the 1940s with the introduction of its One A Day brand.  Now owned by Bayer AG, the brand encompasses a suite of vitamins for targeted at men, women and children.  Last week, Bayer AG suffered a setback when a California Court of Appeal allowed a class action alleging that the name was misleading to proceed.  Brady v. Bayer Corp., 2018 Cal. App. LEXIS 800.

 
californiacorporate&securities 9/7/2018
Why Is Memoranda Plural And Agenda Singular?

"Memoranda" and "agenda" are both Latin words.  More precisely, they are gerundives.  A gerundive is a verbal adjective.  Perhaps the most famous use of a gerundive is the passive periphrastic phrase Carthago delenda est! (Carthage must be destroyed). 

 
californiacorporate&securities 9/6/2018
New Law Empowers The California Secretary Of State To "Monitor And Counteract" False Or Misleading Information

I have previously noted how state efforts to police "false news" dates to at least colonial times.  See California Considers Following New England Colonists In Outlawing Fake News.  Continuing this trend, Governor Brown last week signed legislation, AB 3075, establishing an Office of Elections Cybersecurity within the California Secretary of State's office.  

 
californiacorporate&securities 9/5/2018
Watch Out, Small Commercial Lending Might Soon Become A lot More Complicated!

Way back in February, I wrote about a bill, SB 1235, that would impose specific disclosure requirements on persons engaged in the business of commercial financing.  In the ensuing months, the bill was amended eight times, including three amendments in the penultimate week of the legislative session.  On the last day of the session, the legislature passed the bill and its fate is now in the hands of Governor Jerry Brown.

 
californiacorporate&securities 9/4/2018
Why California's Gender Quota Bill Is More Likely To Be Unconstitutional Than California's Pseudo-Foreign Corporation Statute

In the waning hours of the current session, the California legislature passed a bill that will impose gender quotas on publicly held domestic or foreign corporations whose principal executive offices, according to the corporation’s SEC 10-K form, are located in California. The bill is attracting some critical attention from some members of the academy.

 
californiacorporate&securities 8/31/2018
More On Corporations Sole and California's Gender Mandate For Public Company Boards

Following yesterday's post, Professor Bainbridge directed me to a 2007 article that he co-wrote with Aaron Cole, The Bishop's Alter Ego: Enterprise Liability and the Catholic Priest Sex Abuse Scandal, 46 J. Catholic Legal Studies 65 (2007).  The article notes that the corporation sole isn't the only entity option available for religious organizations:

 
californiacorporate&securities 8/30/2018
A Corporation May Be A Corporation Sole But It Still Won't Have A Soul

Professor Stephen Bainbridge recently wrote about the nearly fifty year-old case of Roman Catholic Archbishop v. Superior Court, 93 Cal. Rptr. 338 (1971) in which the court rejected the plaintiff's claim that the Archbishop was the alter ego of a monastic order, the Canons Regular of St. Augustine, or vice versa.  What might not have been apparent from Professor's Bainbridge's description is that the Archbishop was sued as a "corporation sole", a type of corporation that may be unfamiliar to many corporate lawyers.

 
californiacorporate&securities 8/29/2018
Did Laban Have An Enforceable Employment Agreement With Jacob?

Chapter 29 of the Book of Genesis recounts Jacob's offer to work for his Uncle Laban for seven years in return for the hand of Laban's younger daughter, Rachel.  I assume that under then applicable choice of law principles the contract was governed by the law of Haran, now in present-day Turkey.  But what if Jacob and Laban had struck their deal in California?  Could Laban have enforced the contract?

 
californiacorporate&securities 8/28/2018
"I Say You Are No Longer A Board"

Several Nevada statutes provide for the appointment of a receiver or custodian of a corporation, including NRS 32.010, NRS 78.347, NRS 78.630 and NRS 78.650.  Yesterday, the Ninth Circuit Court of Appeals addressed whether directors of a Nevada corporation could cause the filing of a voluntary Chapter 11 bankruptcy petition after the appointment of a receiver.  In re Sino Clean Energy, Inc., (9th Cir. Case No. No. 17-15316, Aug. 27, 2018).  The answer was clear that they do not:

 
californiacorporate&securities 8/27/2018
What's With The "O" in Delicto?

Students beginning the study of law almost immediately confront a congeries of Latin phrases, many of which end in the vowel "o".  For example, students will see in pari delicto (in equal fault) and ex delicto (from a wrong).  But they will also run into locus delicti (scene of the crime) and corpus delicti (body of the crime).  This change of endings may seem both mysterious and arbitrary, but it actually follows well-established rules of Latin grammar. 

 
californiacorporate&securities 8/24/2018
Forum Selection Clause Prevails Over State Securities Law Anti-Waiver Statute

The Washington State Securities Act includes the following provision:

 
californiacorporate&securities 8/23/2018
What Does "Reflect Financial Difficulties" Mean To You?

On Monday, the Securities and Exchange Commission announced that it had adopted amendments "to improve municipal securities disclosure".  Specifically, the SEC amended Exchange Act Rule 15c2-12 which requires brokers, dealers, and municipal securities dealers that are acting as underwriters in primary offerings of municipal securities to reasonably determine that the issuer or obligated person has agreed to provide to the Municipal Securities Rulemaking Board timely notice of certain events.  The amended rule will add the following two events to this list:

 
californiacorporate&securities 8/22/2018
California Bill Amended To Impose $100K Penalty For Failure To Report Timely Board Gender To Secretary Of State

I have written several posts about a bill, SB 826, now pending in the California legislature that would impose fines on publicly held corporations that fail to meet prescribed gender quotas.  See California Bill Would Mandate Gender Quotas For Publicly Traded CompaniesState Has No Clue As To How Much Board Gender Mandate Will CostCalifornia Gender Equity Quota Bill AdvancesImpossibility And California's Proposed Gender Quota LawWill California's Board Gender Quota Bill Encourage Corporations To Dump Male Directors, and Increasing The Size Of The Board And Rounding Out The Hours

 
californiacorporate&securities 8/21/2018
Why I Disagree With A Semi-Annual Reporting Mandate (And It Probably Isn't The Reason That You Expect)

Last Friday, President Trump tweeted that he has asked the Securities and Exchange Commission to study stopping quarterly reporting and going to a six-month reporting system.  A few years back, I proposed a more free market approach:

 
californiacorporate&securities 8/20/2018
Is Section 17200 A Case of "Ex Nihilo Nonnihil Fit"?

Last week, I devoted several posts to the California Supreme Court's decision in  De La Torre v. Cashcall Inc., 2018 Cal. LEXIS 5749.  In that opinion, the Court was responding to a question certified to it by the Ninth Circuit Court of Appeals.  De La Torre v. CashCall, Inc., 854 F.3d 1082, 1085 (9th Cir. 2017).  The plaintiffs in the underlying class action did not allege that the defendant's advertising was deceptive nor did they allege that the defendant had failed to disclose accurately the terms of the loan as required by federal law.  Instead, the plaintiffs alleged that the defendants made consumer loans with unconscionably high interest rates and thus violated California's Unfair Competition Law, Cal. Bus. & Prof. Code § 17200.  The UCL defines “unfair competition” to include “any unlawful, unfair or fraudulent business act or practice.”

 
californiacorporate&securities 8/17/2018
California Court Applies California Law To Officer Of Delaware Corporation

Not quite three years ago, I penned the following lines:

 
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