BILL ANALYSIS �
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|SENATE RULES COMMITTEE | AB 457|
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THIRD READING
Bill No: AB 457
Author: Torres (D)
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 : 75-0, 4/11/13 - See last page for vote
SUBJECT : Shareholders
SOURCE : Corporations Committee of the Business Law Section
of the
California State Bar
DIGEST : This bill eliminates the 10-day waiting period that
currently applies for corporate reorganizations in which
shareholders have the right under dissenters rights to demand
payment of cash for their shares.
ANALYSIS :
Existing law:
1. States that, unless otherwise provided, any action that may
be taken by a corporation at any annual or special meeting of
shareholders may be taken without a meeting and without prior
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notice, if a consent in writing, setting forth the action, is
provided by holders of outstanding shares equal to or greater
than the minimum number of votes that would have been
necessary to authorize or take that action at a meeting.
(The actions include corporate reorganizations, conversions
of corporations into domestic other business entities,
shareholder distributions upon dissolution, indemnification
of directors and officers, and agreements between directors
and corporations).
2. Requires corporations to solicit the consent of all
shareholders or subject certain proposed corporate actions to
a 10-day waiting period.
3. Prohibits shareholders with dissenters' rights from attacking
the validity of the transaction and it prohibits any suit for
an injunction to stop the reorganization.
This bill eliminates the 10-day waiting period that currently
applies for corporate reorganizations in which shareholders have
the right under dissenters' rights to demand payment of cash for
their shares.
Background
The ability of California corporations to obtain shareholder
consent for certain actions outside of shareholder meetings has
been recognized in state law since 1977. Under existing law, a
corporation may solicit shareholder consent for an action
outside of an annual or special shareholder meeting, and may act
based on consent received for that action, as long as consent,
in writing, setting forth the proposed action, is received from
a percentage of shareholders that is at least as large as the
percentage of shareholders that have been required to authorize
or take that action, if it had been voted on at a shareholder
meeting.
State law does not require a corporation that seeks shareholder
approval for actions outside of a shareholder meeting to solicit
the approval of all of its shareholders for those actions; as
long as the corporation receives enough votes in support of its
proposed actions, it can choose to solicit a subset of its
shareholders for the necessary approval. When fewer than all
shareholders are solicited for approval of an action, state law
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requires that a corporation notify those shareholders whose
written consent was not received for that action about the
action that was approved. State law also requires a 10-day
waiting period between the required notice and the ability of a
corporation to consummate approved actions in certain cases.
These special cases, where actions require a 10-day waiting
period, include corporate reorganizations, conversions of
corporations into domestic other business entities, shareholder
distributions upon dissolution, indemnification of directors and
officers, and agreements between directors and corporations.
This bill removes the 10-day waiting period for corporate
reorganizations with respect to which shareholders are entitled
to demand cash for their shares pursuant to California's
dissenters' rights statute.
Dissenters' rights laws acknowledge the possibility that some
shareholders who hold shares in a company that is merging with
or becoming acquired by another company may wish to divest
themselves of their shares, and be compensated for those shares
at their fair market value. In California, shareholders of both
publicly-traded and privately-held corporations are entitled to
demand cash for their shares pursuant to California's
dissenters' rights statute. This bill only impacts
privately-held corporations.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No Local:
No
SUPPORT : (Verified 6/6/13)
Corporations Committee of the Business Law Section of the
California State
Bar (source)
ARGUMENTS IN SUPPORT : The bill's sponsor, the Corporations
Committee of the Business Law Section of the California State
Bar, observes that this bill does nothing to alter the time
periods built into California's dissenters' right statute. Even
if this bill is enacted, California corporations whose
shareholders have approved reorganizations subject to
dissenters' rights will still be required to notify their
shareholders of the approval, provide them with copies of the
dissenters' rights statutes, inform them of the procedure that
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must be followed by a shareholder wishing to exercise his/her
dissenters' rights, and state the price that the corporation
deems to be the fair market value of the shares. Dissenting
shareholders will continue to have 30 days in which to demand an
independent appraisal of their company shares, and will continue
to have six months in which to commence an appraisal action in
Superior Court.
The sponsor also observes that this bill does not propose to
alter the fiduciary duty owed by a board of directors to all
shareholders, and by majority shareholders to minority
shareholders. These fiduciary duties provide direct recourse
for aggrieved shareholders who disagree with an action that was
approved via consent from a subset of shareholders. A minority
shareholder whose written consent was not solicited will retain
the ability to sue members of the board of majority shareholders
for cash damages.
Finally, the sponsor observes that nothing prevents a
shareholder or a group or shareholders from requiring, as a
condition of their investment in a corporation, that the
corporation and other shareholders contractually agree to obtain
the approval of the shareholder or group of shareholders prior
to specified corporate actions, including reorganizations with
dissenters' rights.
ASSEMBLY FLOOR : 75-0, 4/11/13
AYES: Achadjian, Alejo, Allen, Ammiano, Atkins, Bigelow, Bloom,
Blumenfield, Bocanegra, Bonilla, Bonta, Bradford, Brown,
Buchanan, Ian Calderon, Campos, Chau, Ch�vez, Chesbro, Conway,
Cooley, Dahle, Daly, Dickinson, Eggman, Fong, Fox, Frazier,
Beth Gaines, Garcia, Gatto, Gomez, Gordon, Gorell, Gray,
Grove, Hagman, Hall, Roger Hern�ndez, Holden, Jones,
Jones-Sawyer, Levine, Linder, Logue, Maienschein, Mansoor,
Medina, Melendez, Mitchell, Morrell, Mullin, Muratsuchi,
Nazarian, Nestande, Olsen, Pan, Perea, V. Manuel P�rez, Quirk,
Quirk-Silva, Rendon, Salas, Skinner, Stone, Ting, Torres,
Wagner, Waldron, Weber, Wieckowski, Wilk, Williams, Yamada,
John A. P�rez
NO VOTE RECORDED: Donnelly, Harkey, Lowenthal, Patterson,
Vacancy
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MW:d 6/6/13 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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