BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 434|
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CONSENT
Bill No: AB 434
Author: Hagman (R)
Amended: As introduced
Vote: 21
SENATE BANKING & FINANCIAL INSTITUTIONS COMM. : 8-0, 6/5/13
AYES: Correa, Berryhill, Beall, Hill, Hueso, Lara, Roth,
Walters
NO VOTE RECORDED: Calderon
ASSEMBLY FLOOR : 77-0, 5/6/13 (Consent) - See last page for vote
SUBJECT : Preferred shares: rights and preferences
distributions
SOURCE : Conference of California Bar Associations
DIGEST : This bill provides that a distribution to a
corporations shareholders may be made without regard to the
preferential dividends arrears amount or any preferential rights
amount, or both. This bill corrects a code section reference
that was inadvertently not corrected by AB 571 (Hagman, Chapter
203, Statutes of 2011).
ANALYSIS :
Existing law:
1. Pursuant to changes made by AB 571 (Hagman), prohibits a
California corporation or any of its subsidiaries from making
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any distribution to the corporation's shareholders, unless
the board of directors of that corporation determines either
(a) the amount of retained earnings of the corporation
immediately prior to the distribution equals or exceeds the
sum of the amount of the proposed distribution plus the
preferential dividends arrears amount; or (b) the value of
the corporation's assets, immediately after the distribution,
equals or exceeds the sum of its total liabilities plus the
preferential rights amount.
2. Defines "preferential dividends arrears" as the amount, if
any, of cumulative dividends in arrears on all shares having
a preference with respect to payment of dividends over the
class or series to which the applicable distribution is being
made, as specified; and "preferential rights amount" as the
amount needed if the corporation were to be dissolved at the
time of the distribution to satisfy the preferential rights,
including accrued but unpaid dividends, of other shareholders
upon dissolution that are superior to the rights of the
shareholders receiving the distribution, as specified.
3. Provides that neither a corporation nor any of its
subsidiaries shall make any distribution to the corporation's
shareholders, if the corporation or the subsidiary making the
distribution is, or as a result of the distribution would be,
likely to be unable to meet its liabilities, as specified.
This bill provides that, notwithstanding Corporations Code
Section 500(a), a distribution to a corporation's shareholders
may be made without regard to the preferential dividends arrears
amount or any preferential rights amount, or both.
Background
AB 571 updated sections of the Corporations Code governing the
issuance of dividends and redemption of shares by California
corporations. According to the sponsor of AB 571, the
Corporations Committee of the Business Law Section of the
California State Bar, the bill (1) simplified and clarified the
formula pursuant to which California corporations may make
distributions to shareholders; (2) removed unnecessarily rigid
restrictions on the ability of financial healthy California
corporations to make distributions to shareholders; (3)
eliminated material differences between the standards relating
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to dividends and distributions by California corporations and
the standards relating to dividends and distributions by
California limited liability companies (LLCs) and limited
partnerships (LPs); (4) enabled shareholders of S-Corporations
to receive dividends and/or distributions to satisfy their tax
obligations, just as partners or members of LLCs and LPs are
able to do; and (5) aligned the approach used by California to
restrict the issuance of dividends and distributions with the
approach used by other states, and, in doing so, removed an
existing competitive disadvantage experienced by California
corporations. AB 571 did not make a conforming change to
Corporations Code Section 402.5. This bill corrects that
drafting oversight.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No Local:
No
SUPPORT : (Verified 6/6/13)
Conference of California Bar Associations (source)
ARGUMENTS IN SUPPORT : According to the author, "Documents
filed by businesses with the Secretary of State are being
rejected because they include language with references to code
sections that are now nonexistent or incorrect. AB 434 would
correct the improper references in California's Corporations
Code to alleviate this additional burden on our state's
businesses."
The Conference of California Bar Associations (CCBA) is
sponsoring this bill to correct the drafting oversight as
referenced. According to CCBA, this bill "makes no substantive
changes to shareholder rights, but only corrects and clarifies
rights the Legislature has already endorsed."
ASSEMBLY FLOOR : 77-0, 5/6/13
AYES: Achadjian, Alejo, Allen, Ammiano, Atkins, Bigelow, Bloom,
Blumenfield, Bocanegra, Bonilla, Bonta, Bradford, Brown,
Buchanan, Ian Calderon, Campos, Chau, Chávez, Chesbro, Conway,
Cooley, Dahle, Daly, Dickinson, Donnelly, Eggman, Fong, Fox,
Frazier, Beth Gaines, Garcia, Gatto, Gomez, Gordon, Gorell,
Gray, Grove, Hagman, Harkey, Roger Hernández, Jones,
Jones-Sawyer, Levine, Linder, Logue, Lowenthal, Maienschein,
Mansoor, Medina, Melendez, Mitchell, Morrell, Mullin,
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Muratsuchi, Nazarian, Nestande, Olsen, Pan, Patterson, Perea,
V. Manuel Pérez, Quirk, Quirk-Silva, Rendon, Salas, Skinner,
Stone, Ting, Torres, Wagner, Waldron, Weber, Wieckowski, Wilk,
Williams, Yamada, John A. Pérez
NO VOTE RECORDED: Hall, Holden, Vacancy
MW:k 6/5/13 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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