BILL NUMBER: AB 2158 AMENDED
AMENDED IN ASSEMBLY MAY 18, 2010
AMENDED IN ASSEMBLY APRIL 22, 2010
INTRODUCED BY Assembly Member Hagman
FEBRUARY 18, 2010
An act to amend Sections 154, 202, 203, 204, 300, 418,
602, 902, 1001, 1100, 1152, 1201, 1300, 1800, 1900, 1901, 1902, 1904,
2000, and 25103 of, to amend and repeal Section 307 of, to add
Chapter 24 (commencing with Section 2400) to Division 1 of Title 1
of, and to repeal Sections 158, 186, 421, and 1111 of, the
Corporations Code, An act to amend and repeal Section
307 of the Corporations Code, relating to corporations.
LEGISLATIVE COUNSEL'S DIGEST
AB 2158, as amended, Hagman. Corporations.
(1) Existing law, the General Corporation Law, regulates
corporations, including close corporations. Under existing law, a
close corporation is a corporation whose articles contain, among
other things, a provision that all of the corporation's issued shares
of all classes shall be held of record by not more than 35 persons,
and a statement describing itself as a close corporation. Existing
law authorizes these provisions to be deleted from the articles or
for the number of shareholders to be changed by amendment pursuant to
specified voting requirements. Existing law prescribes how to
determine the number of shareholders for the purposes of these
provisions. Under existing law, a corporation ceases to be a close
corporation upon the filing of a specified amendment to its articles
or under certain circumstances as a result of a specified transfer of
shares. Under existing law, any attempted voluntary inter vivos
transfer of the shares of a close corporation resulting in the number
of holders of record of its shares exceeding the maximum specified
in the articles is void if the certificate contains a specified
More generally, existing law governing corporations, including
close corporations, requires that the business and affairs of the
corporation be managed and all corporate powers be exercised by or
under the direction of a board and authorizes offices to be held by
the same person. Existing law also prohibits a shareholders'
agreement relating to the affairs of a close corporation from being
construed as invalid because it relates to corporate affairs or it is
an attempt to treat the corporation as if it were a partnership.
Existing law also requires shareholders to have an annual meeting.
Existing law authorizes a corporation to voluntarily dissolve by the
vote of shareholders representing 50% or more of the voting power.
For involuntary dissolution, existing law authorizes a verified
complaint to be filed by any shareholder of a close corporation.
This bill would replace the term "close corporation" with
"statutory close corporation" and would revise and recast those
provisions governing these corporations by consolidating them into a
chapter limited exclusively to statutory close corporations.
Specifically, the bill would modify the statement required to be
included in the articles and share certificates of a statutory close
corporation and would set forth a more detailed scheme for
determining the number of persons who are shareholders of record. The
bill would authorize shareholders to agree in writing pursuant to a
shareholders' agreement to dispense with the board, subject to
specified requirements. The bill would also authorize the
shareholders to dispense with the annual meeting requirement and
permit individuals with more than one office to execute, acknowledge,
or verify documents in more than one capacity.
The bill would authorize a statutory close corporation to only be
terminated by amending its articles in accordance with certain
requirements and, if the corporation eliminated or dispensed with the
board, would require the amendment to provide for a board, as
The bill would additionally authorize a statutory close
corporation's articles to contain a provision authorizing one or more
shareholders to elect to dissolve the corporation at will or upon
the occurrence of a certain event. The bill would also authorize the
articles to require a verified complaint for involuntary dissolution
to be filed by more than one shareholder.
The bill would specify that these provisions are applicable to
close corporations meeting certain requirements, prior to January 1,
2011, as well as those corporations meeting the requirements for a
statutory close corporation. The bill would make other conforming
Existing law, the General Corporation Law, provides
that an action required or permitted to be taken by the board of a
corporation may be taken without a meeting if all members of the
board consent in writing to that action. Existing law, until January
1, 2011, provides that "all members of the board" includes an
"interested director" or a "common director" who abstains in writing
from providing consent if specified disclosures have been made to
certain directors, the disclosures are included in the written
consent, and these directors approve the action by a specified vote.
This bill would extend the operation of that provision
Vote: majority. Appropriation: no. Fiscal committee: no.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 154 of the Corporations Code
is amended to read:
154. "Articles" includes the articles of incorporation,
amendments thereto, amended articles, restated articles, certificate
of incorporation and certificates of determination.
SEC. 2. Section 158 of the Corporations Code is
SEC. 3. Section 186 of the Corporations Code is
SEC. 4. Section 202 of the Corporations Code is
amended to read:
202. The articles of incorporation shall set forth:
(a) The name of the corporation; provided, however, that in order
for the corporation to be a statutory close corporation pursuant to
Chapter 24 (commencing with Section 2400), the name of the
corporation shall comply with subdivision (b) of Section 2404.
(b) (1) The applicable one of the following statements:
(i) 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
(ii) 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.
(2) In case the corporation is a corporation subject to the
Banking Law, the articles shall set forth a statement of purpose
which is prescribed in the applicable provision of the Banking Law.
(3) 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.
(4) 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
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).
(c) The name and address in this state of the corporation's
initial agent for service of process in accordance with subdivision
(b) of Section 1502.
(d) If the corporation is authorized to issue only one class of
shares, the total number of shares which the corporation is
authorized to issue.
(e) 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:
(1) 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;
(2) The designation of each class, and the designation of each
series or that the board may determine the designation of any such
(3) 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 prior to the adoption
of the resolution originally fixing the number of shares of such
SEC. 5. Section 203 of the Corporations Code is
amended to read:
203. Except as specified in the articles or in any shareholders'
agreement pursuant to Section 2408, no distinction shall exist
between classes or series of shares or the holders thereof.
SEC. 6. Section 204 of the Corporations Code is
amended to read:
204. The articles of incorporation may set forth:
(a) Any or all of the following provisions, which shall not be
effective unless expressly provided in the articles:
(1) Granting, with or without limitations, the power to levy
assessments upon the shares or any class of shares.
(2) Granting to shareholders preemptive rights to subscribe to any
or all issues of shares or securities.
(3) Special qualifications of persons who may be shareholders.
(4) A provision limiting the duration of the corporation's
existence to a specified date.
(5) 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.
(6) A provision limiting or restricting the business in which the
corporation may engage or the powers that the corporation may
exercise or both.
(7) 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.
(8) A provision conferring upon shareholders the right to
determine the consideration for which shares shall be issued.
(9) A provision requiring the approval of the shareholders
(Section 153) or the approval of the outstanding shares (Section 152)
for any corporate action, even though not otherwise required by this
(10) 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
(11) 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
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.
(b) 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.
(c) The names and addresses of the persons appointed to act as
(d) 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.
SEC. 7. Section 300 of the Corporations Code is
amended to read:
300. 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. The business and affairs of a statutory close
corporation, as described in Section 2404, may be managed as provided
in Chapter 24 (commencing with Section 2400).
SEC. 8. SECTION 1. Section 307 of
the Corporations Code, as amended by Section 1 of Chapter 102 of the
Statutes of 2005, is amended to read:
307. (a) 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:
(1) 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
(2) 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.
(3) 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.
(4) 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.
(5) 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.
(6) 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:
(A) Each member participating in the meeting can communicate with
all of the other members concurrently.
(B) 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.
(7) 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.
(8) 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.
(b) 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.
(c) This section applies also to committees of the board and
incorporators and action by those committees and incorporators,
SEC. 9. SEC. 2. Section 307 of the
Corporations Code, as added by Section 2 of Chapter 102 of the
Statutes of 2005, is repealed. All matter omitted in this version of
the bill appears in the bill as amended in the Assembly, April 22,