BILL ANALYSIS
SENATE JUDICIARY COMMITTEE
Senator Ellen M. Corbett, Chair
2009-2010 Regular Session
AB 285
Assemblymember Tran
As Amended May 12, 2009
Hearing Date: June 9, 2009
Corporations Code
GMO:jd
SUBJECT
Corporations: Electronic Transmissions to Shareholder or Member
DESCRIPTION
This bill would prohibit an electronic transmission by a
corporation to an individual shareholder or member who is a
natural person unless, in addition to current requirements for
electronic transmissions, the consent given by the shareholder
or member to receipt of an electronic transmission was preceded
by or includes a clear written statement to the recipient of:
(1) a right to have the record provided or made available on
paper or in nonelectronic form; (2) whether the consent applies
only to that specific transmission, to specified categories of
communications, or to all communications from the corporation;
and (3) the procedures the recipient must use to withdraw
consent.
BACKGROUND
Sponsored by the Nonprofit and Unincorporated Organizations
Committee of the Business Law Section of the State Bar, AB 285
aims to clarify the rules for the use of electronic
communications between corporations (including public benefit
corporations and mutual benefit corporations) and their
shareholders and members. At present, Section 20 of the
Corporations Code permits the use of electronic transmissions as
a means of communication between a corporation and its
shareholders. However, Section 20 also requires compliance
with, or satisfaction of, requirements of the federal Electronic
Signatures in Global and National Commerce Act (the E-SIGN Act)
relating to consumer consent to electronic records. Also
(more)
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affected is California's Uniform Electronic Transactions Act,
which set standards for the use of electronic signatures and
gives them the same effect as signatures on paper documents when
properly executed.
CHANGES TO EXISTING LAW
Existing law establishes the Uniform Electronic Transactions Act
(UETA) that establishes procedures and safeguards for the use of
electronic records and electronic signatures in business and
governmental activities. (Civ. Code Sec. 1633.1 et seq.)
Existing federal law establishes the E-SIGN Act (15 U.S.C.
Section 7001 et seq.), that makes electronic signatures and
records valid for all types of transactions that occur in
interstate and foreign commerce, unless the transactions are
specifically exempted. The E-SIGN Act also establishes specific
standards for any electronic communication that is sent to a
consumer relating to a commercial transaction.
Existing state law defines "electronic transmission" by a
corporation as a communication that meets the requirements
applicable to consumer consent to electronic records as set
forth in the federal E-SIGN Act and that is all of the
following:
(a)It is delivered by facsimile or other electronic means, or
is posted on an electronic message board or network
designated by the corporation for those communications,
together with a separate notice to the recipient of the
posting; or other means of electronic communication.
(b)It is sent to a recipient who has provided an unrevoked
consent to the use of those means of transmission for
communications.
(c)It creates a record that is capable of retention, retrieval,
and review, and that may thereafter be rendered into clearly
legible, tangible form.
This bill would eliminate the requirement that an electronic
transmission by a corporation to an individual shareholder or
member satisfy the requirements applicable to consumer consent
to electronic records as set forth in the federal E-SIGN Act.
This bill would instead provide that such an electronic
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transmission is not authorized unless, in addition to meeting
the other requirements specified above (delivered by electronic
means, unrevoked consent by recipient, and creates a record
capable of retention, review, or retrieval), the consent given
by the recipient was preceded by or includes a clear written
statement regarding: (1) the recipient's right to receive a
paper copy or nonelectronic form of the document; (2) whether
the consent applies to only that specific transmission, to which
categories of communication, or to all communication; and (3)
the procedure for the withdrawal of consent by the recipient.
COMMENT
1. Need for the bill
The sponsor of AB 285 states:
The problem [with having to satisfy the E-SIGN Act
requirements] is ? [that] the constraints of the federal
E-SIGN Act are not quite appropriate for electronic
transmissions by corporations under the [Corporations] Code.
In fact, even if they were, it would be better if the actual
requirements were in the [Corporations] Code rather than
requiring people to go and find and then apply the federal
law.
The bill has been amended to clearly state in the statute what
requirements must be met regarding consent by a recipient of
electronic transmissions prior to or concurrent with the
transmission.
2. E-SIGN Act, UETA and Corporations Code Section 20
The federal E-SIGN Act was enacted, effective October 2000, to
facilitate the use of electronic records and signatures in
interstate commerce by ensuring the validity and legal effect of
transactions and contracts entered into by electronic means.
Prior to enactment of the E-SIGN Act, California adopted the
Uniform Electronic Transactions Act (UETA), which gave effect to
the use of electronic records and signatures in commercial and
governmental activities.
The Corporations Code was later amended to permit the use of
electronic communications by corporations, thereby modernizing
the means of communication between corporations and their
shareholders or members. Corporations Code Section 20 defines
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"electronic transmission by the corporation," referring to a
"recipient" that includes directors, shareholders, and members.
It further provides that any such electronic transmission to a
shareholder or member is not authorized, unless, in addition to
satisfying specified requirements, the transmission also
satisfies the requirements applicable to consumer consent to
electronic records set forth in the federal E-SIGN Act.
According to the sponsor, the reference to satisfying E-SIGN
requirements has impacted many of the possible uses of
electronic transmissions by California corporations. For
example, for profit corporations, public benefit corporations,
mutual benefit corporations, and religious corporations can
allow board members to participate in a meeting through
electronic transmission by and to the corporation (Corp. Code
Secs. 307, 5211, 7211, 9211); authorize notices of member
meetings by electronic transmission by the corporation (Secs.
601, 5511, 7511, 9411); and allow ballots and any related
material to be sent by electronic transmission by the
corporation (Secs. 5513, 7513, 9413). However, because of the
restrictions of the E-SIGN Act, many corporations have not taken
advantage of opportunities for efficiencies and improved
communication between the corporation and its shareholders and
members. Further, they state that Section 20 may be interpreted
to require compliance with the E-SIGN Act for transmissions from
a corporation to its own directors (in their capacity as
directors and in the course of a meeting), just because the
directors are also "members" or "shareholders," thus putting the
legitimacy of board actions in question.
This bill would eliminate from Corporations Code Section 20 the
reference to meeting the requirements of E-SIGN provisions
related to consumer consent to electronic records.
Instead, the bill would provide that such transmissions are not
authorized (rendering them ineffective for all purposes) unless
the consent to the transmission was preceded or accompanied by a
clear written statement of the following:
(1)the recipient's right to receive the communication as a paper
copy or in a nonelectronic form;
(2)whether the consent pertains to only that communication, to
specified categories of communications, or to all
communications; and
(3)what procedures the recipient must use to withdraw consent.
3. Arguments in support of the bill
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According to proponents of AB 285, these changes to Section 20
of the Corporations Code would facilitate the use of electronic
communications by corporations. First, there would be no need
to consult and interpret the E-SIGN Act, since the requirements
would be expressly delineated in the statute. Second, the new
standards would be more workable for communications by
corporations with their shareholders or members, since the
E-SIGN Act was designed to apply to consumer commercial
transactions for goods or services for personal or household
use. Third, it would be very clear that the consent
requirements must be met prior to or at the same time as when
the communication is electronically sent. And fourth, it would
be clear that the consent requirements apply only to
communications between the corporation and its shareholders or
members, even if sent to a director who is also a shareholder or
member.
There is no opposition to the bill.
Support : California Society of Association Executives (CalSAE);
California Association of NonProfits
Opposition : None Known
HISTORY
Source : Nonprofit & Unincorporated Organizations Committee of
the Business Law Section of the State Bar of California
Related Pending Legislation : None Known
Prior Legislation : None Known
Prior Vote :
Assembly Banking and Finance Committee (Ayes 10, Noes 0)
Assembly Judiciary Committee (Ayes 10, Noes 0)
Assembly Floor (Ayes 78, Noes 0)
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