Senate Bill No. 1301

Introduced by Senator DeSaulnier

February 21, 2014

An act to amend Sections 107, 158, 171.08, 1100, 1112.5, 1113, 1151, 1152, 1155, 1201, 2500, 2501, 2502, 2502.01, 2502.03, 2502.04, 2502.05, 2502.06, 2503.1, 2504, 2506, 2507, 2509, 2510, 2510.1, 2511, 2512, 2513, 2514, 2515, 2516, 2517, 2600, 2600.5, 2601, 2602, 2603, 2604, 2605, 2700, 2701, 2702, 2800, 2900, 3000, 3001, 3002, 3100, 3200, 3201, 3202, 3203, 3300, 3301, 3302, 3303, 3304, 3305, 3400, 3401, 3500, 3501, 3502, and 3503 of, and to amend the heading of Division 1.5 (commencing with Section 2500) of Title 1 of, the Corporations Code, relating to corporations.

LEGISLATIVE COUNSEL’S DIGEST

SB 1301, as introduced, DeSaulnier. Corporate Flexibility Act of 2011: Socially Responsible Corporations Act.

The Corporate Flexibility Act of 2011 authorizes and regulates the formation and operation of flexible purpose corporations.

This bill would rename the act as the Socially Responsible Corporations Act and rename the type of corporation authorized and regulated under that act as a socially responsible corporation.

Under the act, an existing business association organized as a trust under the laws of this state or of a foreign jurisdiction may incorporate under the act upon approval by its board of trustees or similar governing body and approval by the affirmative vote of a majority of the outstanding voting shares of beneficial interest, and the filing of articles with a certificate.

This bill would revise the approval by the affirmative vote of a majority of the outstanding voting shares of beneficial interest requirement to approval by the affirmative vote of 2⁄3 of those shares.

Under the act, the articles of incorporation are required to set forth specified statements, including the name of the corporation.

This bill would revise the statements that are required to be contained in the articles of incorporation. This bill would provide that any reference to a “flexible purpose corporation” or any abbreviation in the articles of incorporation of a corporation formed pursuant to this act before January 1, 2015, is also a reference to “socially responsible corporation.” This bill would provide that a corporation formed pursuant to this act as a “flexible purpose corporation” before January 1, 2015, continues its existence as a socially responsible corporation.

Under the act, the director, in discharging his or her duties, may consider those factors, and give weight to those factors, as the director deems relevant, including the short-term and long-term prospects of the corporation, the best interests of the corporation and its shareholders, and the purposes of the corporation as set forth in its articles.

This bill would require the director to consider those factors.

Under the act, certificates representing the shares of a corporation formed under the act are required to contain specified statements.

This bill would revise the statements required to be on those certificates. This bill would provide that the certificates representing shares of a corporation formed pursuant to this act as a “flexible purpose corporation” before January 1, 2015, continue to be valid, and that any reference to a “flexible purpose corporation” or any abbreviation of that term in those certificates is also a reference to “socially responsible corporation.”

Under the act, a corporation formed under the act may, by amendment of its articles as specified in the act, convert to a domestic corporation.

This bill would provide that if the conversion is approved, shareholders with dissenting shares may exercise dissenters’ rights set forth in the General Corporation Law.

Under the act certain mergers require approval by an affirmative vote of at least 2⁄3 of the outstanding shares of each class, or a greater vote if required in the articles, regardless of whether that class is entitled to vote thereon by the provisions of the articles, of the disappearing corporation.

This bill would provide that if the merger is approved, shareholders with dissenting shares may exercise dissenters’ rights set forth in the General Corporation Law.

Under the act, a corporation formed under the act may be converted into a domestic other business entity if specified conditions are met. The act requires the approval of a plan of conversion.

This bill would provide that if the plan is approved, shareholders with dissenting shares may exercise dissenters’ rights set forth in the General Corporation Law.

Under the act, the principal terms of a reorganization are required to be approved by the outstanding shares of any class of a corporation formed under that act that is a party to a merger or sale-of-assets reorganization if holders of shares of that class receive shares of the surviving or acquiring corporation formed under that act or parent party having different rights, preferences, privileges, or restrictions than those surrendered.

This bill would instead require the principal terms of a reorganization to be approved by the affirmative vote of at least 2⁄3 of each class, or a greater vote if required in the articles, of the outstanding shares of any class of a corporation formed under that act that is a party to a merger or sale-of-assets reorganization if holders of shares of that class receive shares of the surviving or acquiring corporation formed under that act or parent party having different rights, preferences, privileges, or restrictions than those surrendered.

This bill would make other changes to correct erroneous cross references.

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 107 of the Corporations Code is amended
to read:

107.  

No corporation, begin delete flexible purpose end delete begin insert socially responsible end insert
corporation, association or individual shall issue or put in
circulation, as money, anything but the lawful money of the United
States.

SEC. 2.  

Section 158 of the Corporations Code is amended to
read:

158.  

(a) “Close corporation” means a corporation, including
a close begin delete flexible purpose end delete begin insert socially responsible end insert corporation, whose
articles contain, in addition to the provisions required by Section
202, a provision that all of the corporation’s issued shares of all
classes shall be held of record by not more than a specified number
of persons, not exceeding 35, and a statement “This corporation
is a close corporation.”

(b) The special provisions referred to in subdivision (a) may be
included in the articles by amendment, but if such amendment is
adopted after the issuance of shares only by the affirmative vote
of all of the issued and outstanding shares of all classes.

(c) The special provisions referred to in subdivision (a) may be
deleted from the articles by amendment, or the number of
shareholders specified may be changed by amendment, but if such
amendment is adopted after the issuance of shares only by the
affirmative vote of at least two-thirds of each class of the
outstanding shares; provided, however, that the articles may
provide for a lesser vote, but not less than a majority of the
outstanding shares, or may deny a vote to any class, or both.

(d) In determining the number of shareholders for the purposes
of the provision in the articles authorized by this section, a husband
and wife and the personal representative of either shall be counted
as one regardless of how shares may be held by either or both of
them, a trust or personal representative of a decedent holding shares
shall be counted as one regardless of the number of trustees or
beneficiaries and a partnership or corporation or business
association holding shares shall be counted as one (except that any
such trust or entity the primary purpose of which was the
acquisition or voting of the shares shall be counted according to
the number of beneficial interests therein).

(e) A corporation shall cease to be a close corporation upon the
filing of an amendment to its articles pursuant to subdivision (c)
or if it shall have more than the maximum number of holders of
record of its shares specified in its articles as a result of an inter
vivos transfer of shares which is not void under subdivision (d) of
Section 418, the transfer of shares on distribution by will or
pursuant to the laws of descent and distribution, the dissolution of
a partnership or corporation or business association or the
termination of a trust which holds shares, by court decree upon
dissolution of a marriage or otherwise by operation of law.
Promptly upon acquiring more than the specified number of holders
of record of its shares, a close corporation shall execute and file
an amendment to its articles deleting the special provisions referred
to in subdivision (a) and deleting any other provisions not
permissible for a corporation which is not a close corporation,
which amendment shall be promptly approved and filed by the
board and need not be approved by the outstanding shares.

(f) Nothing contained in this section shall invalidate any
agreement among the shareholders to vote for the deletion from
the articles of the special provisions referred to in subdivision (a)
upon the lapse of a specified period of time or upon the occurrence
of a certain event or condition or otherwise.

(g) The following sections contain specific references to close
corporations: Sections 186, 202, 204, 300, 418, 421, 1111, 1201,
1800 and 1904.

SEC. 3.  

Section 171.08 of the Corporations Code is amended
to read:

171.08.  

begin delete “Flexible purpose end delete begin insert “Socially responsible end insert corporation”
means any begin delete flexible purpose end delete begin insert socially responsible end insert corporation formed
under Division 1.5 (commencing with Section 2500).

SEC. 4.  

Section 1100 of the Corporations Code is amended to
read:

1100.  

Any two or more corporations may be merged into one
of those corporations. A corporation may merge with one or more
domestic corporations (Section 167), begin delete flexible purpose end delete begin insert socially
responsible end insert corporations (Section 171.08), foreign corporations
(Section 171), or other business entities (Section 174.5) pursuant
to this chapter. Mergers in which a foreign corporation but no other
business entity is a constituent party are governed by Section 1108,
mergers in which a begin delete flexible purpose end delete begin insert socially responsible end insert
corporation but no other business entity is a constituent party are
governed by Section 1112.5, and mergers in which an other
business entity is a constituent party are governed by Section 1113.

SEC. 5.  

Section 1112.5 of the Corporations Code is amended
to read:

1112.5.  

If a disappearing corporation in a merger is a
corporation governed by this division and the surviving corporation
is a begin delete flexible purpose end delete begin insert socially responsible end insert corporation, both of the
following shall apply:

(a) The merger shall be approved by the affirmative vote of at
least two-thirds of each class, or a greater vote if required in the
articles, of the outstanding shares (Section 152) of the disappearing
corporation, notwithstanding any provision of Chapter 12
(commencing with Section 1200).

(b) The shareholders of the disappearing corporation shall have
all of the rights under Chapter 13 (commencing with Section 1300)
of the shareholders of a corporation involved in a reorganization
requiring the approval of its outstanding shares (Section 152), and
the disappearing corporation shall have all of the obligations under
Chapter 13 (commencing with Section 1300) of a corporation
involved in the reorganization.

SEC. 6.  

Section 1113 of the Corporations Code is amended to
read:

1113.  

(a) Any one or more corporations may merge with one
or more other business entities (Section 174.5). One or more
domestic corporations (Section 167) not organized under this
division and one or more foreign corporations (Section 171) may
be parties to the merger. Notwithstanding the provisions of this
section, the merger of any number of corporations with any number
of other business entities may be effected only if:

(1) In a merger in which a domestic corporation not organized
under this division or a domestic other business entity is a party,
it is authorized by the laws under which it is organized to effect
the merger.

(2) In a merger in which a foreign corporation is a party, it is
authorized by the laws under which it is organized to effect the
merger.

(3) In a merger in which a foreign other business entity is a
party, it is authorized by the laws under which it is organized to
effect the merger.

(b) Each corporation and each other party that desires to merge
shall approve, and shall be a party to, an agreement of merger.
Other persons, including a parent party (Section 1200), may be
parties to the agreement of merger. The board of each corporation
that desires to merge and, if required, the shareholders shall
approve the agreement of merger. The agreement of merger shall
be approved on behalf of each party by those persons required to
approve the merger by the laws under which it is organized. The
agreement of merger shall state:

(1) The terms and conditions of the merger.

(2) The name and place of incorporation or organization of each
party to the merger and the identity of the surviving party.

(3) The amendments, if any, subject to Sections 900 and 907,
to the articles of the surviving corporation, if applicable, to be
effected by the merger. If any amendment changes the name of
the surviving corporation, if applicable, the new name may be,
subject to subdivision (b) of Section 201, the same as or similar
to the name of a disappearing party to the merger.

(4) The manner of converting the shares of each constituent
corporation into shares, interests, or other securities of the surviving
party. If any shares of any constituent corporation are not to be
converted solely into shares, interests or other securities of the
surviving party, the agreement of merger shall state (i) the cash,
rights, securities, or other property which the holders of those
shares are to receive in exchange for the shares, which cash, rights,
securities, or other property may be in addition to or in lieu of
shares, interests or other securities of the surviving party, or (ii)
that the shares are canceled without consideration.

(5) Any other details or provisions required by the laws under
which any party to the merger is organized, including, if a public
benefit corporation or a religious corporation is a party to the
merger, Section 6019.1, or, if a mutual benefit corporation is a
party to the merger, Section 8019.1, or, if a consumer cooperative
corporation is a party to the merger, Section 12540.1, or if an
unincorporated association is a party to the merger, Section 18370,
or, if a domestic limited partnership is a party to the merger,
Section 15911.12, or, if a domestic partnership is a party to the
merger, Section 16911, or, if a domestic limited liability company
is a party to the merger, Section 17710.12.

(6) Any other details or provisions as are desired, including,
without limitation, a provision for the payment of cash in lieu of
fractional shares or for any other arrangement with respect thereto
consistent with the provisions of Section 407.

(c) Each share of the same class or series of any constituent
corporation (other than the cancellation of shares held by a party
to the merger or its parent, or a wholly owned subsidiary of either,
in another constituent corporation) shall, unless all shareholders
of the class or series consent and except as provided in Section
407, be treated equally with respect to any distribution of cash,
rights, securities, or other property. Notwithstanding paragraph
(4) of subdivision (b), the unredeemable common shares of a
constituent corporation may be converted only into unredeemable
common shares of a surviving corporation or a parent party
(Section 1200) or unredeemable equity securities of a surviving
party other than a corporation if another party to the merger or its
parent owns, directly or indirectly, prior to the merger shares of
that corporation representing more than 50 percent of the voting
power of that corporation, unless all of the shareholders of the
class consent and except as provided in Section 407.

(d) Notwithstanding its prior approval, an agreement of merger
may be amended prior to the filing of the agreement of merger or
the certificate of merger, as is applicable, if the amendment is
approved by the board of each constituent corporation and, if the
amendment changes any of the principal terms of the agreement,
by the outstanding shares (Section 152), if required by Chapter 12
(commencing with Section 1200), in the same manner as the
original agreement of merger. If the agreement of merger as so
amended and approved is also approved by each of the other parties
to the agreement of merger, the agreement of merger as so amended
shall then constitute the agreement of merger.

(e) The board of a constituent corporation may, in its discretion,
abandon a merger, subject to the contractual rights, if any, of third
parties, including other parties to the agreement of merger, without
further approval by the outstanding shares (Section 152), at any
time before the merger is effective.

(f) Each constituent corporation shall sign the agreement of
merger by its chairperson of the board, president or a vice president,
and also by its secretary or an assistant secretary acting on behalf
of their respective corporations.

(g) (1) If the surviving party is a corporation or a foreign
corporation, or if a begin delete flexible purpose end delete begin insert socially responsible end insert
corporation (Section 171.08), a public benefit corporation (Section
5060), a mutual benefit corporation (Section 5059), a religious
corporation (Section 5061), or a corporation organized under the
Consumer Cooperative Corporation Law (Section 12200) is a party
to the merger, after required approvals of the merger by each
constituent corporation through approval of the board (Section
151) and any approval of the outstanding shares (Section 152)
required by Chapter 12 (commencing with Section 1200) and by
the other parties to the merger, the surviving party shall file a copy
of the agreement of merger with an officers’ certificate of each
constituent domestic and foreign corporation attached stating the
total number of outstanding shares or membership interests of each
class entitled to vote on the merger (and identifying any other
person or persons whose approval is required), that the agreement
of merger in the form attached or its principal terms, as required,
were approved by that corporation by a vote of a number of shares
or membership interests of each class that equaled or exceeded the
vote required, specifying each class entitled to vote and the
percentage vote required of each class and, if applicable, by that
other person or persons whose approval is required, or that the
merger agreement was entitled to be and was approved by the
board alone (as provided in Section 1201, in the case of
corporations subject to that section). If equity securities of a parent
party (Section 1200) are to be issued in the merger, the officers’
certificate of that controlled party shall state either that no vote of
the shareholders of the parent party was required or that the
required vote was obtained. In lieu of an officers’ certificate, a
certificate of merger, on a form prescribed by the Secretary of
State, shall be filed for each constituent other business entity. The
certificate of merger shall be executed and acknowledged by each
domestic constituent limited liability company by all managers of
the limited liability company (unless a lesser number is specified
in its articles of organization or operating agreement) and by each
domestic constituent limited partnership by all general partners
(unless a lesser number is provided in its certificate of limited
partnership or partnership agreement) and by each domestic
constituent general partnership by two partners (unless a lesser
number is provided in its partnership agreement) and by each
foreign constituent limited liability company by one or more
managers and by each foreign constituent general partnership or
foreign constituent limited partnership by one or more general
partners, and by each constituent reciprocal insurer by the
chairperson of the board, president, or vice president, and by the
secretary or assistant secretary, or, if a constituent reciprocal insurer
has not appointed those officers, by the chairperson of the board,
president, or vice president, and by the secretary or assistant
secretary of the constituent reciprocal insurer’s attorney-in-fact,
and by each other party to the merger by those persons required
or authorized to execute the certificate of merger by the laws under
which that party is organized, specifying for that party the provision
of law or other basis for the authority of the signing persons. The
certificate of merger shall set forth, if a vote of the shareholders,
members, partners, or other holders of interests of the constituent
other business entity was required, a statement setting forth the
total number of outstanding interests of each class entitled to vote
on the merger and that the agreement of merger in the form
attached or its principal terms, as required, were approved by a
vote of the number of interests of each class that equaled or
exceeded the vote required, specifying each class entitled to vote
and the percentage vote required of each class, and any other
information required to be set forth under the laws under which
the constituent other business entity is organized, including, if a
domestic limited partnership is a party to the merger, subdivision
(a) of Section 15911.14, if a domestic partnership is a party to the
merger, subdivision (b) of Section 16915, and, if a domestic limited
liability company is a party to the merger, subdivision (a) of
Section 17710.04. The certificate of merger for each constituent
foreign other business entity, if any, shall also set forth the statutory
or other basis under which that foreign other business entity is
authorized by the laws under which it is organized to effect the
merger. The merger and any amendment of the articles of the
surviving corporation, if applicable, contained in the agreement
of merger shall be effective upon filing of the agreement of merger
with an officer’s certificate of each constituent domestic and
foreign corporation and a certificate of merger for each constituent
other business entity, subject to subdivision (c) of Section 110 and
subject to the provisions of subdivision (j), and the several parties
thereto shall be one entity. If a domestic reciprocal insurer
organized after 1974 to provide medical malpractice insurance is
a party to the merger, the agreement of merger or certificate of
merger shall not be filed until there has been filed the certificate
issued by the Insurance Commissioner approving the merger
pursuant to Section 1555 of the Insurance Code. The Secretary of
State may certify a copy of the agreement of merger separate from
the officers’ certificates and certificates of merger attached thereto.

(2) If the surviving entity is an other business entity, and no
public benefit corporation (Section 5060), mutual benefit
corporation (Section 5059), religious corporation (Section 5061),
or corporation organized under the Consumer Cooperative
Corporation Law (Section 12200) is a party to the merger, after
required approvals of the merger by each constituent corporation
through approval of the board (Section 151) and any approval of
the outstanding shares (Section 152) required by Chapter 12
(commencing with Section 1200) and by the other parties to the
merger, the parties to the merger shall file a certificate of merger
in the office of, and on a form prescribed by, the Secretary of State.
The certificate of merger shall be executed and acknowledged by
each constituent domestic and foreign corporation by its
chairperson of the board, president or a vice president, and also
by its secretary or an assistant secretary and by each domestic
constituent limited liability company by all managers of the limited
liability company (unless a lesser number is specified in its articles
of organization or operating agreement) and by each domestic
constituent limited partnership by all general partners (unless a
lesser number is provided in its certificate of limited partnership
or partnership agreement) and by each domestic constituent general
partnership by two partners (unless a lesser number is provided in
its partnership agreement) and by each foreign constituent limited
liability company by one or more managers and by each foreign
constituent general partnership or foreign constituent limited
partnership by one or more general partners, and by each
constituent reciprocal insurer by the chairperson of the board,
president, or vice president, and by the secretary or assistant
secretary, or, if a constituent reciprocal insurer has not appointed
those officers, by the chairperson of the board, president, or vice
president, and by the secretary or assistant secretary of the
constituent reciprocal insurer’s attorney-in-fact. The certificate of
merger shall be signed by each other party to the merger by those
persons required or authorized to execute the certificate of merger
by the laws under which that party is organized, specifying for
that party the provision of law or other basis for the authority of
the signing persons. The certificate of merger shall set forth all of
the following:

(A) The name, place of incorporation or organization, and the
Secretary of State’s file number, if any, of each party to the merger,
separately identifying the disappearing parties and the surviving
party.

(B) If the approval of the outstanding shares of a constituent
corporation was required by Chapter 12 (commencing with Section
1200), a statement setting forth the total number of outstanding
shares of each class entitled to vote on the merger and that the
principal terms of the agreement of merger were approved by a
vote of the number of shares of each class entitled to vote and the
percentage vote required of each class.

(C) The future effective date or time, not more than 90 days
subsequent to the date of filing of the merger, if the merger is not
to be effective upon the filing of the certificate of merger with the
office of the Secretary of State.

(D) A statement, by each party to the merger which is a domestic
corporation not organized under this division, a foreign corporation,
or an other business entity, of the statutory or other basis under
which that party is authorized by the laws under which it is
organized to effect the merger.

(E) Any other information required to be stated in the certificate
of merger by the laws under which each party to the merger is
organized, including, if a domestic limited liability company is a
party to the merger, subdivision (a) of Section 17710.14, if a
domestic partnership is a party to the merger, subdivision (b) of
Section 16915, and, if a domestic limited partnership is a party to
the merger, subdivision (a) of Section 15911.14.

(F) Any other details or provisions that may be desired.

Unless a future effective date or time is provided in a certificate
of merger, in which event the merger shall be effective at that
future effective date or time, a merger shall be effective upon the
filing of the certificate of merger in the office of the Secretary of
State and the several parties thereto shall be one entity. The
surviving other business entity shall keep a copy of the agreement
of merger at its principal place of business which, for purposes of
this subdivision, shall be the office referred to in Section 17710.13
if a domestic limited liability company, at the business address
specified in paragraph (5) of subdivision (a) of Section 17710.14
if a foreign limited liability company, at the office referred to in
subdivision (a) of Section 16403 if a domestic general partnership,
at the business address specified in subdivision (f) of Section 16911
if a foreign partnership, at the office referred to in subdivision (a)
of Section 15901.14 if a domestic limited partnership, or at the
business address specified in paragraph (3) of subdivision (a) of
Section 15909.02 if a foreign limited partnership. Upon the request
of a holder of equity securities of a party to the merger, a person
with authority to do so on behalf of the surviving other business
entity shall promptly deliver to that holder, a copy of the agreement
of merger. A waiver by that holder of the rights provided in the
foregoing sentence shall be unenforceable. If a domestic reciprocal
insurer organized after 1974 to provide medical malpractice
insurance is a party to the merger the agreement of merger or
certificate of merger shall not be filed until there has been filed
the certificate issued by the Insurance Commissioner approving
the merger in accordance with Section 1555 of the Insurance Code.

(h) (1) A copy of an agreement of merger certified on or after
the effective date by an official having custody thereof has the
same force in evidence as the original and, except as against the
state, is conclusive evidence of the performance of all conditions
precedent to the merger, the existence on the effective date of the
surviving party to the merger, and the performance of the
conditions necessary to the adoption of any amendment to the
articles, if applicable, contained in the agreement of merger.

(2) For all purposes for a merger in which the surviving entity
is a domestic other business entity and the filing of a certificate of
merger is required by paragraph (2) of subdivision (g), a copy of
the certificate of merger duly certified by the Secretary of State is
conclusive evidence of the merger of the constituent corporations,
either by themselves or together with the other parties to the
merger, into the surviving other business entity.

(i) (1) Upon a merger pursuant to this section, the separate
existences of the disappearing parties to the merger cease and the
surviving party to the merger shall succeed, without other transfer,
to all the rights and property of each of the disappearing parties to
the merger and shall be subject to all the debts and liabilities of
each in the same manner as if the surviving party to the merger
had itself incurred them.

(2) All rights of creditors and all liens upon the property of each
of the constituent corporations and other parties to the merger shall
be preserved unimpaired, provided that those liens upon property
of a disappearing party shall be limited to the property affected
thereby immediately prior to the time the merger is effective.

(3) Any action or proceeding pending by or against any
disappearing corporation or disappearing party to the merger may
be prosecuted to judgment, which shall bind the surviving party,
or the surviving party may be proceeded against or substituted in
its place.

(4) If a limited partnership or a general partnership is a party to
the merger, nothing in this section is intended to affect the liability
a general partner of a disappearing limited partnership or general
partnership may have in connection with the debts and liabilities
of the disappearing limited partnership or general partnership
existing prior to the time the merger is effective.

(j) (1) The merger of domestic corporations with foreign
corporations or foreign other business entities in a merger in which
one or more other business entities is a party shall comply with
subdivision (a) and this subdivision.

(2) If the surviving party is a domestic corporation or domestic
other business entity, the merger proceedings with respect to that
party and any domestic disappearing corporation shall conform to
the provisions of this section. If the surviving party is a foreign
corporation or foreign other business entity, then, subject to the
requirements of subdivision (c), and of Section 407 and Chapter
12 (commencing with Section 1200) and Chapter 13 (commencing
with Section 1300), and, if applicable, corresponding provisions
of the Nonprofit Corporation Law or the Consumer Cooperative
Corporation Law, with respect to any domestic constituent
corporations, Article 11 (commencing with Section 17711.01) of
Title 2.6 with respect to any domestic constituent limited liability
companies, Article 6 (commencing with Section 16601) of Chapter
5 of Title 2 with respect to any domestic constituent general
partnerships, and Article 11.5 (commencing with Section 15911.20)
of Chapter 5.5 of Title 2 with respect to any domestic constituent
limited partnerships, the merger proceedings may be in accordance
with the laws of the state or place of incorporation or organization
of the surviving party.

(3) If the surviving party is a domestic corporation or domestic
other business entity, the certificate of merger or the agreement of
merger with attachments shall be filed as provided in subdivision
(g) and thereupon, subject to subdivision (c) of Section 110 or
paragraph (2) of subdivision (g), as is applicable, the merger shall
be effective as to each domestic constituent corporation and
domestic constituent other business entity.

(4) If the surviving party is a foreign corporation or foreign
other business entity, the merger shall become effective in
accordance with the law of the jurisdiction in which the surviving
party is organized, but, except as provided in paragraph (5), the
merger shall be effective as to any domestic disappearing
corporation as of the time of effectiveness in the foreign jurisdiction
upon the filing in this state of a copy of the agreement of merger
with an officers’ certificate of each constituent foreign and
domestic corporation and a certificate of merger of each constituent
other business entity attached, which officers’ certificates and
certificates of merger shall conform to the requirements of
paragraph (1) of subdivision (g). If one or more domestic other
business entities is a disappearing party in a merger pursuant to
this subdivision in which a foreign other business entity is the
surviving entity, a certificate of merger required by the laws under
which that domestic other business entity is organized, including
subdivision (a) of Section 15911.14, subdivision (b) of Section
16915, or subdivision (a) of Section 17710.14, as is applicable,
shall also be filed at the same time as the filing of the agreement
of merger.

(5) If the date of the filing in this state pursuant to this
subdivision is more than six months after the time of the
effectiveness in the foreign jurisdiction, or if the powers of a
domestic disappearing corporation are suspended at the time of
effectiveness in the foreign jurisdiction, the merger shall be
effective as to the domestic disappearing corporation as of the date
of filing in this state.

(6) In a merger described in paragraph (3) or (4), each foreign
disappearing corporation that is qualified for the transaction of
intrastate business shall by virtue of the filing pursuant to this
subdivision, subject to subdivision (c) of Section 110, automatically
surrender its right to transact intrastate business in this state. The
filing of the agreement of merger or certificate of merger, as is
applicable, pursuant to this subdivision, by a disappearing foreign
other business entity registered for the transaction of intrastate
business in this state shall, by virtue of that filing, subject to
subdivision (c) of Section 110, automatically cancels the
registration for that foreign other business entity, without the
necessity of the filing of a certificate of cancellation.

SEC. 7.  

Section 1151 of the Corporations Code is amended to
read:

1151.  

(a) A corporation may be converted into a domestic
other business entity begin insert , including, but not limited to, a limited liability
company, a partnership or a socially responsible corporation, end insert
pursuant to this chapter if, pursuant to the proposed conversion,
(1) each share of the same class or series of the converting
corporation shall, unless all the shareholders of the class or series
consent, be treated equally with respect to any cash, rights,
securities, or other property to be received by, or any obligations
or restrictions to be imposed on, the holder of that share, and (2)
nonredeemable common shares of the converting corporation shall
be converted only into nonredeemable equity securities of the
converted entity unless all of the shareholders of the class consent;
provided, however, that clause (1) shall not restrict the ability of
the shareholders of a converting corporation to appoint one or
more managers, if the converted entity is a limited liability
company, or one or more general partners, if the converted entity
is a limited partnership, in the plan of conversion or in the
converted entity’s governing documents.

(b) Notwithstanding this section, the conversion of a corporation
into a domestic other business entity begin insert , including, but not limited to,
a limited liability company, a partnership or a socially responsible
corporation, end insert may be effected only if both of the following
conditions are complied with:

(1) The law under which the converted entity will exist expressly
permits the formation of that entity pursuant to a conversion.

(2) The corporation complies with any and all other requirements
of any other law that applies to conversion to the converted entity.

SEC. 8.  

Section 1152 of the Corporations Code is amended to
read:

1152.  

(a) A corporation that desires to convert to a domestic
other business entity shall approve a plan of conversion. The plan
of conversion shall state all of the following:

(1) The terms and conditions of the conversion.

(2) The jurisdiction of the organization of the converted entity
and of the converting corporation and the name of the converted
entity after conversion.

(3) The manner of converting the shares of each of the
shareholders of the converting corporation into securities of, or
interests in, the converted entity.

(4) The provisions of the governing documents for the converted
entity, including the partnership agreement or limited liability
company articles of organization and operating agreement, to
which the holders of interests in the converted entity are to be
bound.

(5) Any other details or provisions that are required by the laws
under which the converted entity is organized, or that are desired
by the converting corporation.

(b) The plan of conversion shall be approved by the board of
the converting corporation (Section 151), and the principal terms
of the plan of the conversion shall be approved by the outstanding
shares (Section 152) of each class of the converting corporation.
The approval of the outstanding shares may be given before or
after approval by the board. Notwithstanding the foregoing, if a
converting corporation is a close corporation, the conversion shall
be approved by the affirmative vote of at least two-thirds of each
class, or a greater vote if required in the articles, of outstanding
shares (Section 152) of that converting corporation; provided,
however, that the articles may provide for a lesser vote, but not
less than a majority of the outstanding shares of each class.

(c) If the corporation is converting into a general or limited
partnership or into a limited liability company, then in addition to
the approval of the shareholders set forth in subdivision (b), the
plan of conversion shall be approved by each shareholder who will
become a general partner or manager, as applicable, of the
converted entity pursuant to the plan of conversion unless the
shareholders have dissenters’ rights pursuant to Section 1159 and
Chapter 13 (commencing with Section 1300).

(d) If the corporation is converting into a begin delete flexible purpose end delete
begin insert socially responsible end insert corporation, both of the following shall apply:

(1) Notwithstanding subdivision (b), the plan of conversion
shall be approved by the affirmative vote of at least two-thirds of
each class, or a greater vote if required in the articles, of
outstanding shares (Section 152) of that converting corporation.

(2) The shareholders of the converting corporation shall have
all of the rights under Chapter 13 (commencing with Section 1300)
of the shareholders of a corporation involved in a reorganization
requiring the approval of its outstanding shares (Section 152), and
the converting corporation shall have all of the obligations under
Chapter 13 (commencing with Section 1300) of a corporation
involved in a reorganization, without regard to whether the
conversion constitutes a reorganization requiring a shareholder
vote under Chapter 12 (commencing with Section 1200).

(e) Upon the effectiveness of the conversion, all shareholders
of the converting corporation, except those that exercise dissenters’
rights as provided in Section 1159 and Chapter 13 (commencing
with Section 1300), shall be deemed parties to any agreement or
agreements constituting the governing documents for the converted
entity adopted as part of the plan of conversion, irrespective of
whether or not a shareholder has executed the plan of conversion
or those governing documents for the converted entity. Any
adoption of governing documents made pursuant thereto shall be
effective at the effective time or date of the conversion.

(f) Notwithstanding its prior approval by the board and the
outstanding shares or either of them, a plan of conversion may be
amended before the conversion takes effect if the amendment is
approved by the board and, if it changes any of the principal terms
of the plan of conversion, by the shareholders of the converting
corporation in the same manner and to the same extent as was
required for approval of the original plan of conversion.

(g) A plan of conversion may be abandoned by the board of a
converting corporation, or by the shareholders of a converting
corporation if the abandonment is approved by the outstanding
shares, in each case in the same manner as required for approval
of the plan of conversion, subject to the contractual rights of third
parties, at any time before the conversion is effective.

(h) The converted entity shall keep the plan of conversion at
(1) the principal place of business of the converted entity if the
converted entity is a domestic partnership or (2) at the office at
which records are to be kept under Section 15901.11 if the
converted entity is a domestic limited partnership or at the office
at which records are to be kept under Section 17701.13 if the
converted entity is a domestic limited liability company. Upon the
request of a shareholder of a converting corporation, the authorized
person on behalf of the converted entity shall promptly deliver to
the shareholder, at the expense of the converted entity, a copy of
the plan of conversion. A waiver by a shareholder of the rights
provided in this subdivision shall be unenforceable.

SEC. 9.  

Section 1155 of the Corporations Code is amended to
read:

1155.  

(a) To convert a corporation:

(1) If the corporation is converting into a domestic limited
partnership, a statement of conversion shall be completed on the
certificate of limited partnership for the converted entity.

(2) If the corporation is converting into a domestic partnership,
a statement of conversion shall be completed on the statement of
partnership authority for the converted entity, or if no statement
of partnership authority is filed then a certificate of conversion
shall be filed separately.

(3) If the corporation is converting into a domestic limited
liability company, a statement of conversion shall be completed
on the articles of organization for the converted entity.

(4) If the corporation is converting into a begin delete flexible purpose end delete
begin insert socially responsible end insert corporation, a statement of conversion shall
be completed on the articles for the converted entity.

(b) Any statement or certificate of conversion of a converting
corporation shall be executed and acknowledged by those officers
of the converting corporation as would be required to sign an
officers’ certificate (Section 173), and shall set forth all of the
following:

(1) The name and the Secretary of State’s file number of the
converting corporation.

(2) A statement of the total number of outstanding shares of
each class entitled to vote on the conversion, that the principal
terms of the plan of conversion were approved by a vote of the
number of shares of each class which equaled or exceeded the vote
required under Section 1152, specifying each class entitled to vote
and the percentage vote required of each class.

(3) The name, form, and jurisdiction of organization of the
converted entity.

(c) For the purposes of this chapter, the certificate of conversion
shall be on a form prescribed by the Secretary of State.

(d) The filing with the Secretary of State of a statement of
conversion on an organizational document or a certificate of
conversion as set forth in subdivision (a) shall have the effect of
the filing of a certificate of dissolution by the converting
corporation and no converting corporation that has made the filing
is required to file a certificate of election under Section 1901 or a
certificate of dissolution under Section 1905 as a result of that
conversion.

(e) Upon the effectiveness of a conversion pursuant to this
chapter, a converted entity that is a begin delete flexible purpose end delete begin insert socially
responsible end insert corporation, domestic partnership, domestic limited
partnership or domestic limited liability company shall be deemed
to have assumed the liability of the converting corporation (1) to
prepare and file or cause to be prepared and filed all tax and
information returns otherwise required of the converting
corporation under the Corporation Tax Law (Part 11 (commencing
with Section 23001) of Division 2 of the Revenue and Taxation
Code) and (2) to pay any tax liability determined to be due pursuant
to that law.

SEC. 10.  

Section 1201 of the Corporations Code is amended
to read:

1201.  

(a) The principal terms of a reorganization shall be
approved by the outstanding shares (Section 152) of each class of
each corporation the approval of whose board is required under
Section 1200, except as provided in subdivision (b) and except
that (unless otherwise provided in the articles) no approval of any
class of outstanding preferred shares of the surviving or acquiring
corporation or parent party shall be required if the rights,
preferences, privileges and restrictions granted to or imposed upon
that class of shares remain unchanged (subject to the provisions
of subdivision (c)). For the purpose of this subdivision, two classes
of common shares differing only as to voting rights shall be
considered as a single class of shares.

(b) No approval of the outstanding shares (Section 152) is
required by subdivision (a) in the case of any corporation if that
corporation, or its shareholders immediately before the
reorganization, or both, shall own (immediately after the
reorganization) equity securities, other than any warrant or right
to subscribe to or purchase those equity securities, of the surviving
or acquiring corporation or a parent party (subdivision (d) of
Section 1200) possessing more than five-sixths of the voting power
of the surviving or acquiring corporation or parent party. In making
the determination of ownership by the shareholders of a
corporation, immediately after the reorganization, of equity
securities pursuant to the preceding sentence, equity securities
which they owned immediately before the reorganization as
shareholders of another party to the transaction shall be
disregarded. For the purpose of this section only, the voting power
of a corporation shall be calculated by assuming the conversion
of all equity securities convertible (immediately or at some future
time) into shares entitled to vote but not assuming the exercise of
any warrant or right to subscribe to or purchase those shares.

(c) Notwithstanding subdivision (b), the principal terms of a
reorganization shall be approved by the outstanding shares (Section
152) of the surviving corporation in a merger reorganization if any
amendment is made to its articles that would otherwise require
that approval.

(d) Notwithstanding subdivision (b), the principal terms of a
reorganization shall be approved by the outstanding shares (Section
152) of any class of a corporation that is a party to a merger or
sale-of-assets reorganization if holders of shares of that class
receive shares of the surviving or acquiring corporation or parent
party having different rights, preferences, privileges or restrictions
than those surrendered. Shares in a foreign corporation received
in exchange for shares in a domestic corporation have different
rights, preferences, privileges and restrictions within the meaning
of the preceding sentence.

(e) Notwithstanding subdivisions (a) and (b), the principal terms
of a reorganization shall be approved by the affirmative vote of at
least two-thirds of each class, or a greater vote if required in the
articles, of the outstanding shares (Section 152) of any close
corporation if the reorganization would result in their receiving
shares of a corporation that is not a close corporation. However,
the articles may provide for a lesser vote, but not less than a
majority of the outstanding shares of each class.

(f) Notwithstanding subdivisions (a) and (b), the principal terms
of a reorganization shall be approved by at least two-thirds of each
class, or a greater vote if required in the articles, of the outstanding
shares (Section 152) of a corporation that is a party to a merger
reorganization if holders of shares receive shares of a surviving
begin delete flexible purpose end delete begin insert socially responsible end insert corporation in the merger.

(g) Notwithstanding subdivisions (a) and (b), the principal terms
of a reorganization shall be approved by the outstanding shares
(Section 152) of any class of a corporation that is a party to a
merger reorganization if holders of shares of that class receive
interests of a surviving other business entity in the merger.

(h) Notwithstanding subdivisions (a) and (b), the principal terms
of a reorganization shall be approved by all shareholders of any
class or series if, as a result of the reorganization, the holders of
that class or series become personally liable for any obligations
of a party to the reorganization, unless all holders of that class or
series have the dissenters’ rights provided in Chapter 13
(commencing with Section 1300).

(i) Any approval required by this section may be given before
or after the approval by the board. Notwithstanding approval
required by this section, the board may abandon the proposed
reorganization without further action by the shareholders, subject
to the contractual rights, if any, of third parties.

SEC. 11.  

The heading of Division 1.5 (commencing with
Section 2500) of Title 1 of the Corporations Code is amended to
read:

 

Division 1.5.  begin delete CORPORATE FLEXIBILITY ACT OF 2011 end delete
begin insert SOCIALLY RESPONSIBLE CORPORATIONS ACT end insert

 

SEC. 12.  

Section 2500 of the Corporations Code is amended
to read:

2500.  

This division shall be known and may be cited as the
begin delete Corporate Flexibility Act of 2011. end delete begin insert Socially Responsible
Corporations Act. end insert

SEC. 13.  

Section 2501 of the Corporations Code is amended
to read:

2501.  

Except as otherwise expressly stated, the provisions of
Division 1 (commencing with Section 100) shall apply to
corporations organized under this division, and references in that
division to the terms “close corporation,” “constituent corporation,”
“corporation,” “disappearing corporation,” “domestic corporation,”
“foreign corporation,” “surviving corporation,” and similar terms
shall be read to apply, in the same manner, to include the similar
begin delete “flexible purpose corporation” organized under this division. end delete
begin insert “socially responsible corporation. end insert begin insert ” end insert

SEC. 14.  

Section 2502 of the Corporations Code is amended
to read:

2502.  

This division applies only to begin delete flexible purpose end delete begin insert socially
responsible end insert corporations organized expressly under this division
whether organized or existing under this division or merged or
converted into a begin delete flexible purpose end delete begin insert socially responsible end insert corporation
in accordance with Chapter 11 (commencing with Section 1100)
of Division 1 or Chapter 11.5 (commencing with Section 1150)
of Division 1.

SEC. 15.  

Section 2502.01 of the Corporations Code is amended
to read:

2502.01.  

Every begin delete flexible purpose end delete begin insert socially responsible end insert
corporation organized under the laws of this state or similar foreign
begin delete flexible purpose end delete begin insert socially responsible end insert corporation, all of the capital
stock of which is beneficially owned by the United States, an
agency or instrumentality of the United States or any begin delete flexible
purpose end delete begin insert socially responsible end insert corporation or similar foreign begin delete flexible
purpose end delete begin insert socially responsible end insert corporation the whole of the capital
stock of which is owned by the United States or by an agency or
instrumentality of the United States, is conclusively presumed to
be an agency and instrumentality of the United States and is entitled
to all privileges and immunities to which the holders of all of its
stock are entitled as agencies of the United States.

SEC. 16.  

Section 2502.03 of the Corporations Code is amended
to read:

2502.03.  

A begin delete flexible purpose end delete begin insert socially responsible end insert corporation
may be sued in the same manner as a corporation as provided in
the Code of Civil Procedure.

SEC. 17.  

Section 2502.04 of the Corporations Code is amended
to read:

2502.04.  

A begin delete flexible purpose end delete begin insert socially responsible end insert corporation
formed under this division shall, in respect of its property, as a
condition of its existence as a begin delete flexible purpose end delete begin insert socially responsible end insert
corporation, be subject, in the same manner as a corporation, to
the provisions of the Code of Civil Procedure authorizing the
attachment of corporate property.

SEC. 18.  

Section 2502.05 of the Corporations Code is amended
to read:

2502.05.  

The fees of the Secretary of State for filing
instruments by or on behalf of begin delete flexible purpose end delete begin insert socially responsible end insert
corporations shall be the same fees prescribed for corporations in
Article 3 (commencing with Section 12180) of Chapter 3 of Part
2 of Division 3 of Title 2 of the Government Code.

SEC. 19.  

Section 2502.06 of the Corporations Code is amended
to read:

2502.06.  

(a) Provisions of the articles described in paragraph
(3) of subdivision (e) of Section 2602 and subdivisions (a) and (b)
of Section 2603 may be made dependent upon facts ascertainable
outside of the articles, if the manner in which those facts shall
operate upon those provisions is clearly and expressly set forth in
the articles. Similarly, any of the terms of an agreement of merger
pursuant to Section 1101 may be made dependent upon facts
ascertainable outside of that agreement, if the manner in which
those facts shall operate upon the terms of the agreement is clearly
and expressly set forth in the agreement of merger.

(b) Notwithstanding subdivision (a), when any provisions or
terms of articles or an agreement of merger are made dependent
upon facts ascertainable outside of the filed instrument through a
reference to an agreement or similar document, the begin delete flexible purpose end delete
begin insert socially responsible end insert corporation filing that instrument shall
maintain at its principal executive office a copy of that referenced
agreement or document and all amendments, and shall provide to
its shareholders, in the case of articles, or to shareholders of any
constituent corporation or other business entity, in the case of an
agreement of merger, a copy of them upon written request and
without charge.

(c) For the purposes of this section, “referenced agreement”
means an agreement or contract to which the begin delete flexible purpose end delete
begin insert socially responsible end insert corporation is a party. An amendment or
revision of a referenced agreement shall require shareholder
approval, in addition to any other required approvals, upon any of
the following circumstances:

(1) If the amendment or revision of the referenced agreement
would result in a material change in the rights, preferences,
privileges, or restrictions of a class or series of shares, the
amendment or revision shall be approved by the outstanding shares,
as defined in Section 152, of that class or series.

(2) If the amendment or revision of the referenced agreement
would result in a material change in the rights or liabilities of any
class or series of shares with respect to the subject matter of
paragraph (1), (2), (3), (5), or (9) of subdivision (a) of Section
2603, the amendment or revision shall be approved by the
outstanding shares, as defined in Section 152, of that class or series.

(3) If the amendment or revision of the referenced agreement
would result in a material change in the restrictions on transfer or
hypothecation of any class or series of shares, the amendment or
revision shall be approved by the outstanding shares, as defined
in Section 152, of that class or series.

(4) If the amendment or revision of the referenced agreement
would result in a change of any of the principal terms of an
agreement of merger, the amendment or revision shall be approved
in the same manner as required by Section 3504 for a change in
the principal terms of an agreement of merger.

SEC. 20.  

Section 2503.1 of the Corporations Code is amended
to read:

2503.1.  

“Close begin delete flexible purpose end delete begin insert socially responsible end insert
corporation” means a begin delete flexible purpose end delete begin insert socially responsible end insert
corporation that is also a close corporation.

SEC. 21.  

Section 2504 of the Corporations Code is amended
to read:

2504.  

“Constituent begin delete flexible purpose end delete begin insert socially responsible end insert
corporation” means a begin delete flexible purpose end delete begin insert socially responsible end insert
corporation that is merged with or into one or more corporations
or one or more other business entities and includes a surviving
begin delete flexible purpose end delete begin insert socially responsible end insert corporation.

SEC. 22.  

Section 2506 of the Corporations Code is amended
to read:

2506.  

“Disappearing begin delete flexible purpose end delete begin insert socially responsible end insert
corporation” means a constituent begin delete flexible purpose end delete begin insert socially
responsible end insert corporation that is not the surviving entity.

SEC. 23.  

Section 2507 of the Corporations Code is amended
to read:

2507.  

“Domestic begin delete flexible purpose end delete begin insert socially responsible end insert
corporation” means a corporation organized under this division.

SEC. 24.  

Section 2509 of the Corporations Code is amended
to read:

2509.  

begin delete “Flexible purpose corporation,” end delete begin insert “Socially responsible
corporation,” end insert unless otherwise expressly provided, refers only to
a corporation organized under this division.

SEC. 25.  

Section 2510 of the Corporations Code is amended
to read:

2510.  

begin delete “Flexible purpose end delete begin insert “Socially responsible end insert corporation
subject to the Banking Law” means any of the following:

(a) A begin delete flexible purpose end delete begin insert socially responsible end insert corporation that,
with the approval of the Commissioner of Financial Institutions,
is incorporated for the purpose of engaging in, or that is authorized
by the Commissioner of Financial Institutions to engage in, the
commercial banking business under the Banking Law (Division
1 (commencing with Section 99) of the Financial Code).

(b) Any begin delete flexible purpose end delete begin insert socially responsible end insert corporation that,
with the approval of the Commissioner of Financial Institutions,
is incorporated for the purpose of engaging in, or that is authorized
by the Commissioner of Financial Institutions to engage in, the
industrial banking business under the Banking Law (Division 1
(commencing with Section 99) of the Financial Code).

(c) Any begin delete flexible purpose end delete begin insert socially responsible end insert corporation, other
than a begin delete flexible purpose end delete begin insert socially responsible end insert corporation described
in subdivision (d), that, with the approval of the Commissioner of
Financial Institutions, is incorporated for the purpose of engaging
in, or that is authorized by the Commissioner of Financial
Institutions to engage in, the trust business under the Banking Law
(Division 1 (commencing with Section 99) of the Financial Code).

(d) Any begin delete flexible purpose end delete begin insert socially responsible end insert corporation that
is authorized by the Commissioner of Financial Institutions and
the Commissioner of Insurance to maintain a title insurance
department to engage in title insurance business and a trust
department to engage in trust business.

(e) Any begin delete flexible purpose end delete begin insert socially responsible end insert corporation that,
with the approval of the Commissioner of Financial Institutions,
is incorporated for the purpose of engaging in, or that is authorized
by the Commissioner of Financial Institutions to engage in,
business under Article 1 (commencing with Section 3500) of
Chapter 19 of Division 1 of the Financial Code.

SEC. 26.  

Section 2510.1 of the Corporations Code is amended
to read:

2510.1.  

begin delete “Flexible purpose end delete begin insert “Socially responsible end insert corporation
subject to the Insurance Code as an insurer” means a begin delete flexible
purpose end delete begin insert socially responsible end insert corporation that has met the
requirements of Sections 201.5, 201.6, and 201.7.

SEC. 27.  

Section 2511 of the Corporations Code is amended
to read:

2511.  

“Reorganization” means a merger reorganization, an
exchange reorganization, or a sale of assets reorganization.

(a) “Merger reorganization” means a merger pursuant to Chapter
11 (commencing with Section 1100) of Division 1 and Chapter 8
(commencing with Section 3200), of this division, other than a
short-form merger.

(b) “Exchange reorganization” means the acquisition by one
domestic begin delete flexible purpose end delete begin insert socially responsible end insert corporation, foreign
begin delete flexible purpose end delete begin insert socially responsible end insert corporation, or other business
entity in exchange, in whole or in part, for its equity securities, or
the equity securities of a domestic begin delete flexible purpose end delete begin insert socially
responsible end insert corporation, a foreign begin delete flexible purpose end delete begin insert socially
responsible end insert corporation, or an other business entity that is in control
of the acquiring entity, of equity securities of another domestic
begin delete flexible purpose end delete begin insert socially responsible end insert corporation, foreign begin delete flexible
purpose end delete begin insert socially responsible end insert corporation, or other business entity
if, immediately after the acquisition, the acquiring entity has control
of the other entity.

(c) “Sale-of-assets reorganization” means the acquisition by
one domestic begin delete flexible purpose end delete begin insert socially responsible end insert corporation,
foreign begin delete flexible purpose end delete begin insert socially responsible end insert corporation, or other
business entity in exchange in whole or in part for its equity
securities, or the equity securities of a domestic begin delete flexible purpose end delete
begin insert socially responsible end insert corporation, a foreign begin delete flexible purpose end delete begin insert socially
responsible end insert corporation, or an other business entity that is in control
of the acquiring entity, or for its debt securities, or debt securities
of a domestic begin delete flexible purpose end delete begin insert socially responsible end insert corporation,
foreign begin delete flexible purpose end delete begin insert socially responsible end insert corporation, or other
business entity that is in control of the acquiring entity, that are
not adequately secured and that have a maturity date in excess of
five years after the consummation of the reorganization, or both,
of all or substantially all of the assets of another domestic begin delete flexible
purpose end delete begin insert socially responsible end insert corporation, foreign begin delete flexible purpose end delete
begin insert socially responsible end insert corporation, or other business entity.

SEC. 28.  

Section 2512 of the Corporations Code is amended
to read:

2512.  

“Share exchange tender offer” means any acquisition by
one begin delete flexible purpose end delete begin insert socially responsible end insert corporation in exchange
in whole or in part for its equity securities, or the equity securities
of a corporation or a begin delete flexible purpose end delete begin insert socially responsible end insert
corporation that is in control of the acquiring begin delete flexible purpose end delete
begin insert socially responsible end insert corporation, of shares of another corporation
or begin delete flexible purpose end delete begin insert socially responsible end insert corporation, other than an
exchange reorganization (subdivision (b) of Section 2511).

SEC. 29.  

Section 2513 of the Corporations Code is amended
to read:

2513.  

“Special purpose” means the special purpose set forth
in a begin delete flexible purpose end delete begin insert socially responsible end insert corporation’s articles
pursuant to subdivision (b) of Section 2602.

SEC. 30.  

Section 2514 of the Corporations Code is amended
to read:

2514.  

“Special purpose current report” means the report
required of a begin delete flexible purpose end delete begin insert socially responsible end insert corporation
pursuant to Section 3501.

SEC. 31.  

Section 2515 of the Corporations Code is amended
to read:

2515.  

“Special purpose MD&A” means the management
discussion and analysis required of a begin delete flexible purpose end delete begin insert socially
responsible end insert corporation pursuant to subdivision (b) of Section
3500.

SEC. 32.  

Section 2516 of the Corporations Code is amended
to read:

2516.  

“Special purpose objectives” means those objectives set
forth by management and the directors of a begin delete flexible purpose end delete
begin insert socially responsible end insert corporation for purposes of measuring the
impact of the begin delete flexible purpose end delete begin insert socially responsible end insert corporation’s
efforts relating to its special purpose in accordance with Section
3500.

SEC. 33.  

Section 2517 of the Corporations Code is amended
to read:

2517.  

“Surviving begin delete flexible purpose end delete begin insert socially responsible end insert
corporation” means a begin delete flexible purpose end delete begin insert socially responsible end insert
corporation into which one or more other corporations or one or
more other business entities is merged.

SEC. 34.  

Section 2600 of the Corporations Code is amended
to read:

2600.  

(a) One or more natural persons, partnerships,
associations, begin delete flexible purpose end delete begin insert socially responsible end insert corporations,
or corporations, domestic or foreign, may form a begin delete flexible purpose end delete
begin insert socially responsible end insert corporation under this division by executing
and filing articles of incorporation.

(b) If initial directors are named in the articles, each director
named in the articles shall sign and acknowledge the articles. If
initial directors are not named in the articles, the articles shall be
signed by one or more incorporators who shall be persons described
in subdivision (a).

(c) The corporate existence begins upon the filing of the articles
and continues perpetually, unless otherwise expressly provided by
law or in the articles.

SEC. 35.  

Section 2600.5 of the Corporations Code is amended
to read:

2600.5.  

(a) An existing business association organized as a
trust under the laws of this state or of a foreign jurisdiction may
incorporate under this division upon approval by its board of
trustees or similar governing body and approval by the affirmative
vote of begin delete a majority end delete begin insert two-thirds end insert of the outstanding voting shares of
beneficial interest, or a greater proportion of the outstanding shares
of beneficial interest or the vote of those other classes of shares
of beneficial interest as may be specifically required by its
declaration of trust or bylaws, and the filing of articles with a
certificate attached pursuant to this chapter.

(b) In addition to the matters required to be set forth in the
articles pursuant to Section 2602, the articles filed pursuant to this
section shall state that an existing unincorporated association,
stating its name, is being incorporated by the filing of the articles.

(c) The articles filed pursuant to this section shall be signed by
the president, or any vice president, and the secretary, or any
assistant secretary, of the existing association and shall be
accompanied by a certificate signed and verified by those officers
signing the articles and stating that the incorporation of the
association has been approved by the trustees and by the required
vote of holders of shares of beneficial interest in accordance with
subdivision (a).

(d) Upon the filing of articles pursuant to this section, the
begin delete flexible purpose end delete begin insert socially responsible end insert corporation shall succeed
automatically to all of the rights and property of the association
being incorporated and shall be subject to all of its debts and
liabilities in the same manner as if the begin delete flexible purpose end delete begin insert socially
responsible end insert corporation had itself incurred them. The incumbent
trustees of the association shall constitute the initial directors of
the begin delete flexible purpose end delete begin insert socially responsible end insert corporation and shall
continue in office until the next annual meeting of the shareholders
or their earlier death, resignation, or removal. All rights of creditors
and all liens upon the property of the association shall be preserved
unimpaired. Any action or proceeding pending by or against the
association may be prosecuted to judgment, which shall bind the
begin delete flexible purpose end delete begin insert socially responsible end insert corporation, or the begin delete flexible
purpose end delete begin insert socially responsible end insert corporation may be proceeded against
or substituted in its place.

(e) The filing for record in the office of the county recorder of
any county in this state in which any of the real property of the
association is located of a copy of the articles filed pursuant to this
section, certified by the Secretary of State, shall evidence record
ownership in the begin delete flexible purpose end delete begin insert socially responsible end insert corporation
of all interests of the association in and to the real property located
in that county.

SEC. 36.  

Section 2601 of the Corporations Code is amended
to read:

2601.  

(a) The Secretary of State shall not file articles setting
forth a name in which “bank,” “trust,” “trustee” or related words
appear, unless the certificate of approval of the Commissioner of
Financial Institutions is attached to the articles. This subdivision
does not apply to the articles of any begin delete flexible purpose end delete begin insert socially
responsible end insert corporation subject to the Banking Law on which is
endorsed the approval of the Commissioner of Financial
Institutions.

(b) begin insert   end insert begin insert (1) end insert begin insert   end insert  The Secretary of State shall not file articles that set
forth a name that is likely to mislead the public or that is the same
as, or resembles so closely as to tend to deceive, the name of a
domestic corporation, the name of a domestic begin delete flexible purpose end delete
begin insert socially responsible end insert corporation, or the name of a foreign
corporation that is authorized to transact intrastate business or has
registered its name pursuant to Section 2101, a name that a foreign
corporation has assumed under subdivision (b) of Section 2106, a
name that will become the record name of a corporation or begin delete flexible
purpose end delete begin insert socially responsible end insert corporation or a foreign corporation
upon the effective date of a filed corporate instrument where there
is a delayed effective date pursuant to subdivision (c) of Section
110 or subdivision (c) of Section 5008, or a name that is under
reservation for another corporation or begin delete flexible purpose end delete begin insert socially
responsible end insert corporation pursuant to this title, except that a begin delete flexible
purpose end delete begin insert socially responsible end insert corporation may adopt a name that
is substantially the same as an existing corporation or begin delete flexible
purpose end delete begin insert socially responsible end insert corporation, foreign or domestic,
which is authorized to transact intrastate business or has registered
its name pursuant to Section 2101, upon proof of consent by the
domestic or foreign corporation or begin delete flexible purpose end delete begin insert socially
responsible end insert corporation and a finding by the Secretary of State
that under the circumstances the public is not likely to be misled.
The use by a begin delete flexible purpose end delete begin insert socially responsible end insert corporation of
a name in violation of this section may be enjoined notwithstanding
the filing of its articles by the Secretary of State.

begin insert

(2) A corporation formed pursuant to this division as a “flexible
purpose corporation” before January 1, 2015, shall continue its
existence as a socially responsible corporation. A corporation
formed pursuant to this division before January 1, 2015, may, but
is not required to, change its name to replace “flexible purpose
corporation” with “socially responsible corporation” and may,
but is not required to, amend its articles of incorporation to replace
the term “flexible purpose corporation” with “socially responsible
corporation” as applicable in any statements contained in the
articles. Any reference to a “flexible purpose corporation” or any
abbreviation of that term in the articles of incorporation of a
corporation formed pursuant to this division before January 1,
2015, shall also be a reference to “socially responsible
corporation.”

end insert

(c) Any applicant may, upon payment of the fee prescribed in
the Government Code, obtain from the Secretary of State a
certificate of reservation of any name not prohibited by subdivision
(b), and upon the issuance of the certificate the name stated in the
certificate shall be reserved for a period of 60 days. The Secretary
of State shall not, however, issue certificates reserving the same
name for two or more consecutive 60-day periods to the same
applicant or for the use or benefit of the same person, partnership,
firm, corporation, or begin delete flexible purpose end delete begin insert socially responsible end insert
corporation. No consecutive reservations shall be made by or for
the use or benefit of the same person, partnership, firm, corporation
or begin delete flexible purpose end delete begin insert socially responsible end insert corporation of names so
similar as to fall within the prohibitions of subdivision (b).

SEC. 37.  

Section 2602 of the Corporations Code is amended
to read:

2602.  

The articles of incorporation shall set forth:

(a) The name of the begin delete flexible purpose end delete begin insert socially responsible end insert
corporation that shall contain the words begin delete “flexible purpose end delete begin insert “socially
responsible end insert corporation” or an abbreviation of those words.

(b) (1) Either of the following statements, as applicable:

(A) “The purpose of this begin delete flexible purpose end delete begin insert socially responsible end insert
corporation is to engage in any lawful act or activity for which a
begin delete flexible purpose end delete begin insert socially responsible end insert corporation may be organized
under Division 1.5 of the California Corporations Code, other than
the banking business, the trust company business or the practice
of a profession permitted to be incorporated by the California
Corporations Code, for the benefit of the long-term and the
short-term interests of the begin delete flexible purpose end delete begin insert socially responsible end insert
corporation and its shareholders and in furtherance of the following
enumerated purposes ____.”

(B) “The purpose of this begin delete flexible purpose end delete begin insert socially responsible end insert
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 begin delete flexible purpose end delete begin insert socially responsible end insert corporation engaging in
that profession by applicable laws and regulations, for the benefit
of the long-term and the short-term interests of the begin delete flexible purpose end delete
begin insert socially responsible end insert corporation and its shareholders begin insert and in
furtherance of the following enumerated purposes ____ end insert .”

(2) A statement that a purpose of the begin delete flexible purpose end delete begin insert socially
responsible end insert corporation is to engage in one or more of the
following purposes, in addition to the purpose stated pursuant to
paragraph (1):

(A) One or more charitable or public purpose activities that a
nonprofit public benefit corporation is authorized to carry out.

(B) The purpose of promoting positive short-term or long-term
effects of, or minimizing adverse short-term or long-term effects
of, the begin delete flexible purpose end delete begin insert socially responsible end insert corporation’s activities
upon any of the following:

(i) The begin delete flexible purpose end delete begin insert socially responsible end insert corporation’s
employees, suppliers, customers, and creditors.

(ii) The community and society.

(iii) The environment.

(3) A statement that the begin delete flexible purpose end delete begin insert socially responsible end insert
corporation is organized as a begin delete flexible purpose end delete begin insert socially responsible end insert
corporation under the Corporate Flexibility Act of 2011.

(4) If the begin delete flexible purpose end delete begin insert socially responsible end insert corporation is a
begin delete flexible purpose end delete begin insert socially responsible end insert corporation subject to the
Banking Law (Division 1 (commencing with Section 99) of the
Financial Code), the articles shall set forth a statement of purpose
that is prescribed by the applicable provision of the Banking Law
(Division 1 (commencing with Section 99) of the Financial Code).

(5) If the begin delete flexible purpose end delete begin insert socially responsible end insert corporation is a
begin delete flexible purpose end delete begin insert socially responsible end insert corporation subject to the
Insurance Code as an insurer, the articles shall additionally state
that the business of the begin delete flexible purpose end delete begin insert socially responsible end insert
corporation is to be an insurer.

(6) If the begin delete flexible purpose end delete begin insert socially responsible end insert 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 Section 13404. The
articles shall not set forth any further or additional statement with
respect to the purposes or powers of the begin delete flexible purpose end delete begin insert socially
responsible end insert 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.

(7) If the begin delete flexible purpose end delete begin insert socially responsible end insert corporation is a
close begin delete flexible purpose end delete begin insert socially responsible end insert corporation, a statement
as required by subdivision (a) of Section 158.

(c) The name and street address in this state of the begin delete flexible
purpose end delete begin insert socially responsible end insert corporation’s initial agent for service
of process in accordance with subdivision (b) of Section 1502.

(d) The initial street address of the corporation.

(e) The initial mailing address of the corporation, if different
from the initial street address.

(f) If the begin delete flexible purpose end delete begin insert socially responsible end insert corporation is
authorized to issue only one class of shares, the total number of
shares that the begin delete flexible purpose end delete begin insert socially responsible end insert corporation
is authorized to issue.

(g) If the begin delete flexible purpose end delete begin insert socially responsible end insert corporation is
authorized to issue more than one class of shares, or if any class
of shares is to have two or more series, the articles shall state:

(1) The total number of shares of each class that the begin delete flexible
purpose end delete begin insert socially responsible end insert corporation is authorized to issue and
the total number of shares of each series that the begin delete flexible purpose end delete
begin insert socially responsible end insert 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
series.

(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 in the article or 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 series subsequent to the issue of shares of that series.
If the number of shares of any series shall be so decreased, the
shares constituting that decrease shall resume the status which they
had prior to the adoption of the resolution originally fixing the
number of shares of that series.

SEC. 38.  

Section 2603 of the Corporations Code is amended
to read:

2603.  

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 begin delete flexible purpose end delete
begin insert socially responsible end insert 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 Division 1
(commencing with Section 100) or this division.

(6) So long as consistent with the purpose of the begin delete flexible purpose end delete
begin insert socially responsible end insert corporation as set forth in the articles in
accordance with subdivision (b) of Section 2602, a provision
limiting or restricting the business in which the begin delete flexible purpose end delete
begin insert socially responsible end insert corporation may engage or the powers which
the begin delete flexible purpose end delete begin insert socially responsible end insert corporation may exercise,
or both.

(7) A provision conferring upon the holders of any evidences
of indebtedness, issued or to be issued by the begin delete flexible purpose end delete
begin insert socially responsible end insert corporation, the right to vote in the election
of the 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 Division 1 (commencing with Section 100) or this division.

(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 begin delete flexible purpose end delete begin insert socially responsible end insert corporation for
breach of a director’s duties to the begin delete flexible purpose end delete begin insert socially
responsible end insert corporation and its shareholders, as set forth in Section
2700, subject to the following:

(A) The 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 begin delete flexible purpose end delete begin insert socially responsible end insert corporation
or its shareholders and its corporate purposes as expressed in its
articles, 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 begin delete flexible purpose end delete
begin insert socially responsible end insert 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 begin delete flexible purpose end delete begin insert socially
responsible end insert corporation, its shareholders, or its corporate purposes
as expressed in its articles, (v) for acts or omissions that constitute
an unexcused pattern of inattention that amounts to an abdication
of the director’s duty to the begin delete flexible purpose end delete begin insert socially responsible end insert
corporation, its shareholders, or its corporate purposes as expressed
in its articles pursuant to Section 2602, or (vi) under Section 310
or 2701.

(B) The provision shall not eliminate or limit the liability of a
director for any act or omission occurring prior to the date on which
the provision becomes effective.

(C) The provision shall not 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 directors.

(11) A provision authorizing, whether by bylaw, agreement, or
otherwise, the indemnification of agents of the begin delete flexible purpose end delete
begin insert socially responsible end insert corporation for breach of duty to the begin delete flexible
purpose end delete begin insert socially responsible end insert corporation and its shareholders,
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 described in subparagraphs (A), (B), and (C) of paragraph (10).

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, except that no
restriction shall be binding with respect to shares issued prior to
the adoption of the restriction unless the holders of those shares
voted in favor of the restriction.

(c) The names and addresses of the persons appointed to act as
initial directors.

(d) Any other provision, not in conflict with law, for the
management of the business and for the conduct of the affairs of
the begin delete flexible purpose end delete begin insert socially responsible end insert corporation, including
any provision that is required or permitted by this division to be
stated in the bylaws.

SEC. 39.  

Section 2604 of the Corporations Code is amended
to read:

2604.  

Subject to any limitation contained in the articles, to
compliance with any other applicable laws, and to consistency
with the special purpose of the begin delete flexible purpose end delete begin insert socially responsible end insert
corporation, any begin delete flexible purpose end delete begin insert socially responsible end insert corporation
other than a begin delete flexible purpose end delete begin insert socially responsible end insert corporation
subject to the Banking Law or a professional begin delete flexible purpose end delete
begin insert socially responsible end insert corporation may engage in any business
activity. A begin delete flexible purpose end delete begin insert socially responsible end insert corporation subject
to the Banking Law or a professional begin delete flexible purpose end delete begin insert socially
responsible end insert corporation may engage in any business activity not
prohibited by the respective statutes and regulations to which it is
subject.

SEC. 40.  

Section 2605 of the Corporations Code is amended
to read:

2605.  

Subject to any limitations contained in the articles, to
compliance with other provisions of this division and any other
applicable laws, and to consistency with the special purpose of the
begin delete flexible purpose end delete begin insert socially responsible end insert corporation, a begin delete flexible purpose end delete
begin insert socially responsible end insert corporation shall have all the powers of a
natural person in carrying out its business activities, including,
without limitation, the power to:

(a) Adopt, use, and at will alter a corporate seal. Failure to affix
a seal does not affect the validity of any instrument.

(b) Adopt, amend, and repeal bylaws.

(c) Qualify to do business in any other state, territory,
dependency, or foreign country.

(d) Subject to the provisions of Section 510, issue, purchase,
redeem, receive, take or otherwise acquire, own, hold, sell, lend,
exchange, transfer or otherwise dispose of, pledge, use, and
otherwise deal in and with its own shares, bonds, debentures, and
other securities.

(e) Make donations, regardless of specific corporate benefit, for
the public welfare or for a community fund, hospital, charitable,
educational, scientific, civic, or similar purposes.

(f) Pay pensions, and establish and carry out pension,
profit-sharing, share bonus, share purchase, share option, savings,
thrift, and other retirement, incentive, and benefit plans, trusts and
provisions for any or all of the directors, officers, and employees
of the begin delete flexible purpose end delete begin insert socially responsible end insert corporation or any of
its subsidiaries or affiliates, and to indemnify and purchase and
maintain insurance on behalf of any fiduciary of these plans, trusts,
or provisions.

(g) Subject to the provisions of Section 315, assume obligations,
enter into contracts, including contracts of guaranty or suretyship,
incur liabilities, borrow and lend money and otherwise use its
credit, and secure any of its obligations, contracts, or liabilities by
mortgage, pledge, or other encumbrance of all or any part of its
property, franchises and income.

(h) Participate with others in any partnership, joint venture, or
other association, transaction, or arrangement of any kind, whether
or not that participation involves sharing or delegation of control
with or to others.

SEC. 41.  

Section 2700 of the Corporations Code is amended
to read:

2700.  

(a) A director shall perform the duties of a director,
including duties as a member of any committee of the board upon
which the director may serve, in good faith, in a manner the director
believes to be in the best interests of the begin delete flexible purpose end delete begin insert socially
responsible end insert corporation and its shareholders, and with that care,
including reasonable inquiry, as an ordinarily prudent person in a
like position would use under similar circumstances.

(b) In performing the duties of a director, a director shall be
entitled to rely upon information, opinions, reports, or statements,
including financial statements and other financial data, in each
case prepared or presented by any of the following:

(1) An officer or employee of the begin delete flexible purpose end delete begin insert socially
responsible end insert corporation whom the director believes to be reliable
and competent in the matters presented.

(2) Counsel, independent accountants, or other persons as to
matters which the director believes to be within that person’s
professional or expert competence.

(3) A committee of the board upon which the director does not
serve, as to matters within its designated authority, which
committee the director believes to merit confidence, so long as the
director acts in good faith, after reasonable inquiry when the need
therefor is indicated by the circumstances and without knowledge
that would cause that reliance to be unwarranted.

(c) In discharging his or her duties, a director begin delete may end delete begin insert shall end insert consider
those factors, and give weight to those factors, as the director
deems relevant, including the short-term and long-term prospects
of the begin delete flexible purpose end delete begin insert socially responsible end insert corporation, the best
interests of the begin delete flexible purpose end delete begin insert socially responsible end insert corporation
and its shareholders, and the purposes of the begin delete flexible purpose end delete
begin insert socially responsible end insert corporation as set forth in its articles.

(d) A person who performs the duties of a director in accordance
with subdivisions (a), (b), and (c) shall have no liability based
upon any alleged failure to discharge the person’s obligations as
a director. The liability of a director for monetary damages may
be eliminated or limited by a begin delete flexible purpose end delete begin insert socially responsible end insert
corporation’s articles to the extent provided in paragraph (10) of
subdivision (a) of Section 2603.

(e) Notwithstanding any of the purposes set forth in its articles,
a begin delete flexible purpose end delete begin insert socially responsible end insert corporation shall not be
deemed to hold any of its assets for the benefit of any party other
than its shareholders. However, nothing in this division shall be
construed as negating existing charitable trust principles or the
Attorney General’s authority to enforce any charitable trust created.

(f) Nothing in this section, express or implied, is intended to
create or grant or shall create or grant any right in or for any person
or any cause of action by or for any person, and a director shall
not be responsible to any party other than the begin delete flexible purpose end delete
begin insert socially responsible end insert corporation and its shareholders.

SEC. 42.  

Section 2701 of the Corporations Code is amended
to read:

2701.  

(a) Subject to Section 2700, directors of a begin delete flexible
purpose end delete begin insert socially responsible end insert corporation who approve any of the
following corporate actions shall be jointly and severally liable to
the begin delete flexible purpose end delete begin insert socially responsible end insert corporation for the benefit
of all of the creditors or shareholders entitled to institute an action
under subdivision (c):

(1) The making of any distribution to its shareholders to the
extent that it is contrary to the provisions of Sections 500 to 503,
inclusive.

(2) The distribution of assets to shareholders after institution of
dissolution proceedings of the begin delete flexible purpose end delete begin insert socially responsible end insert
corporation, without paying or adequately providing for all known
liabilities of the begin delete flexible purpose end delete begin insert socially responsible end insert corporation,
excluding any claims not filed by creditors within the time limit
set by the court in a notice given to creditors under Chapter 18
(commencing with Section 1800) of Division 1, Chapter 20
(commencing with Section 1900) of Division 1, and Chapter 20
(commencing with Section 2000).

(3) The making of any loan or guaranty contrary to Section
2715.

(b) A director who is present at a meeting of the board, or any
committee of the board, at which an action specified in subdivision
(a) is taken and who abstains from voting, shall be deemed to have
approved the action.

(c) Suit may be brought in the name of the begin delete flexible purpose end delete
begin insert socially responsible end insert corporation to enforce the liability as follows:

(1) Under paragraph (1) of subdivision (a) against any or all
directors liable, by the persons entitled to sue under subdivision
(b) of Section 506.

(2) Under paragraph (2) or (3) of subdivision (a) against any or
all directors liable, by any one or more creditors of the begin delete flexible
purpose end delete begin insert socially responsible end insert corporation whose debts or claims
arose prior to the time of any of the corporate actions specified in
paragraph (2) or (3) of subdivision (a) and who have not consented
to the corporate action, regardless of whether they have reduced
their claims to judgment.

(3) Under paragraph (3) of subdivision (a) against any or all
directors liable, by any one or more holders of shares outstanding
at the time of any corporate action specified in paragraph (3) of
subdivision (a) who have not consented to the corporate action,
without regard to the provisions of Section 2900.

(d) The damages recoverable from a director under this section
shall be the amount of the illegal distribution, or if the illegal
distribution consists of property, the fair market value of that
property at the time of the illegal distribution, plus interest thereon
from the date of the distribution at the legal rate on judgments until
paid, together with all reasonably incurred costs of appraisal or
other valuation, if any, of that property or loss suffered by the
begin delete flexible purpose end delete begin insert socially responsible end insert corporation as a result of the
illegal loan or guaranty, respectively, but not exceeding the
liabilities of the begin delete flexible purpose end delete begin insert socially responsible end insert corporation
owed to nonconsenting creditors at the time of the violation and
the injury suffered by nonconsenting shareholders.

(e) Any director sued under this section may implead all other
directors liable and may compel contribution, either in that action
or in an independent action against directors not joined in that
action.

(f) Directors liable under this section shall also be entitled to
be subrogated to the rights of the begin delete flexible purpose end delete begin insert socially
responsible end insert corporation:

(1) With respect to paragraph (1) of subdivision (a), against
shareholders who received the distribution.

(2) With respect to paragraph (2) of subdivision (a), against
shareholders who received the distribution of assets.

(3) With respect to paragraph (3) of subdivision (a), against the
person who received the loan or guaranty.

Any director sued under this section may file a cross-complaint
against the person or persons who are liable to the director as a
result of the subrogation provided for in this subdivision or may
proceed against them in an independent action.

SEC. 43.  

Section 2702 of the Corporations Code is amended
to read:

2702.  

(a) For the purposes of this section:

(1) “Agent” means any person who is or was a director, officer,
employee, or other agent of the begin delete flexible purpose end delete begin insert socially
responsible end insert corporation, or is or was serving at the request of the
begin delete flexible purpose end delete begin insert socially responsible end insert corporation as a director,
officer, employee or agent of another foreign or domestic
corporation, partnership, joint venture, trust, or other enterprise,
or was a director, officer, employee, or agent of a foreign or
domestic corporation which was a predecessor corporation of the
begin delete flexible purpose end delete begin insert socially responsible end insert corporation or of another
enterprise at the request of the predecessor corporation.

(2) “Proceeding” means any threatened, pending, or completed
action or proceeding, whether civil, criminal, administrative, or
investigative.

(3) “Expenses” includes without limitation attorneys’ fees and
any expenses of establishing a right to indemnification under
subdivision (b).

(b) Subject to the standards and restrictions, if any, set forth in
its articles or bylaws, and subject to the limitations required by
paragraph (11) of subdivision (a) of Section 2603, a begin delete flexible
purpose end delete begin insert socially responsible end insert corporation may indemnify and hold
harmless any agent or any other person from and against any and
all claims and demands whatsoever.

(c) Expenses incurred in defending any proceeding may be
advanced by the begin delete flexible purpose end delete begin insert socially responsible end insert corporation
prior to the final disposition of the proceeding. The provisions of
subdivision (a) of Section 315 do not apply to advances made
pursuant to this subdivision.

(d) A begin delete flexible purpose end delete begin insert socially responsible end insert corporation may
purchase and maintain insurance on behalf of any of its agents
against any liability asserted against or incurred by the agent in
that capacity or arising out of the agent’s status as an agent
regardless of whether the begin delete flexible purpose end delete begin insert socially responsible end insert
corporation would have the power to indemnify the agent against
that liability under this section. The fact that a begin delete flexible purpose end delete
begin insert socially responsible end insert corporation owns all or a portion of the shares
of the company issuing a policy of insurance shall not render this
subdivision inapplicable if either of the following conditions are
satisfied:

(1) The insurance provided by this subdivision is limited as
indemnification is required to be limited by paragraph (11) of
subdivision (a) of Section 2603.

(2) (A) The company issuing the insurance policy is organized,
licensed, and operated in a manner that complies with the insurance
laws and regulations applicable to its jurisdiction of organization.

(B) The company issuing the policy provides procedures for
processing claims that do not permit that company to be subject
to the direct control of the begin delete flexible purpose end delete begin insert socially responsible end insert
corporation that purchased that policy.

(C) The policy issued provides for some manner of risk sharing
between the issuer and purchaser of the policy, on one hand, and
some unaffiliated person or persons, on the other, such as by
providing for more than one unaffiliated owner of the company
issuing the policy or by providing that a portion of the coverage
furnished will be obtained from some unaffiliated insurer or
reinsurer.

(e) This section does not apply to any proceeding against any
trustee, investment manager, or other fiduciary of an employee
benefit plan in that person’s capacity as such, even though the
person may also be an agent as defined in subdivision (a) of the
employer begin delete flexible purpose end delete begin insert socially responsible end insert corporation. A
begin delete flexible purpose end delete begin insert socially responsible end insert corporation shall have power
to indemnify a trustee, investment manager, or other fiduciary to
the extent permitted by subdivision (f) of Section 2605.

SEC. 44.  

Section 2800 of the Corporations Code is amended
to read:

2800.  

(a) All certificates representing shares of a begin delete flexible
purpose end delete begin insert socially responsible end insert corporation shall contain, in addition
to any other statements required by this section, the following
conspicuous language on the face of the certificate.

 

“This entity is a begin delete flexible purpose end delete begin insert socially responsible end insert corporation
organized under Division 1.5 of the California Corporations Code.
The articles of this corporation state one or more purposes required
by law. Refer to the articles on file with the Secretary of State, and
the bylaws and any agreements on file with the secretary of the
corporation, for further information.”

 

(b) There shall also appear on the certificate, the initial
transaction statement, and written statements, unless stated or
summarized under subdivision (a) or (b) of Section 417, the
statements required by all of the following, to the extent applicable:

(1) The fact that the shares are subject to restrictions upon
transfer.

(2) If the shares are assessable or are not fully paid, a statement
that they are assessable or the statements required by subdivision
(d) of Section 409 if they are not fully paid.

(3) The fact that the shares are subject to a voting agreement
under subdivision (a) of Section 706 or an irrevocable proxy under
subdivision (e) of Section 705 or restrictions upon voting rights
contractually imposed by the begin delete flexible purpose end delete begin insert socially responsible end insert
corporation.

(4) The fact that the shares are redeemable.

(5) The fact that the shares are convertible and the period for
conversion.

Statements or references to statements on the face of the
certificate, the initial transaction statement, and written statements
required by paragraph (1) or (2) shall be conspicuous.

(c) Unless stated on the certificate, the initial transaction
statement, and written statements as required by subdivision (a),
no restriction upon transfer, no right of redemption and no voting
agreement under subdivision (a) of Section 706, no irrevocable
proxy under subdivision (e) of Section 705, and no voting
restriction imposed by the begin delete flexible purpose end delete begin insert socially responsible end insert
corporation shall be enforceable against a transferee of the shares
without actual knowledge of the restriction, right, agreement, or
proxy. With regard only to liability to assessment or for the unpaid
portion of the subscription price, unless stated on the certificate
as required by subdivision (a), that liability shall not be enforceable
against a transferee of the shares. For the purpose of this
subdivision, “transferee” includes a purchaser from the begin delete flexible
purpose end delete begin insert socially responsible end insert corporation.

(d) All certificates representing shares of a close begin delete flexible purpose end delete
begin insert socially responsible end insert corporation shall contain, in addition to any
other statements required by this section, the following conspicuous
legend on the face thereof:

 

“This begin delete flexible purpose end delete begin insert socially responsible end insert corporation is a close
begin delete flexible purpose end delete begin insert socially responsible end insert corporation. The number of
holders of record of its shares of all classes cannot exceed ____
(a number not in excess of 35). Any attempted voluntary inter
vivos transfer which would violate this requirement is void. Refer
to the articles, bylaws and any agreements on file with the secretary
of the begin delete flexible purpose end delete begin insert socially responsible end insert corporation for further
restrictions.”

 

(e) Any attempted voluntary inter vivos transfer of the shares
of a close begin delete flexible purpose end delete begin insert socially responsible end insert corporation that
would result in the number of holders of record of its shares
exceeding the maximum number specified in its articles is void if
the certificate contains the legend required by subdivision (c).

begin insert

(f) Notwithstanding any other subdivision, the certificates
representing shares of a corporation formed pursuant to this
division as a “flexible purpose corporation” before January 1,
2015, shall continue to be valid even if the certificates reference
a “flexible purpose corporation.” A corporation formed pursuant
to this division before January 1, 2015, may, but is not required
to, reissue certificates to replace “flexible purpose corporation”
with “socially responsible corporation” as applicable. Any
reference to a “flexible purpose corporation” or any abbreviation
of that term in certificates representing shares of a corporation
formed pursuant to this division before January 1, 2015, shall also
be a reference to “socially responsible corporation.”

end insert

SEC. 45.  

Section 2900 of the Corporations Code is amended
to read:

2900.  

(a) As used in this section:

(1)  begin delete “Flexible purpose end delete begin insert “Socially responsible end insert corporation”
includes an unincorporated association.

(2) “Board” includes the managing body of an unincorporated
association.

(3) “Shareholder” includes a member of an unincorporated
association.

(4) “Shares” includes memberships in an unincorporated
association.

(b) No action may be instituted or maintained in right of any
domestic or foreign begin delete flexible purpose end delete begin insert socially responsible end insert
corporation under this section by any party other than a shareholder
of the begin delete flexible purpose end delete begin insert socially responsible end insert corporation.

(c) No action may be instituted or maintained in right of any
domestic or foreign begin delete flexible purpose end delete begin insert socially responsible end insert
corporation by any holder of shares or of voting trust certificates
of the begin delete flexible purpose end delete begin insert socially responsible end insert corporation unless both
of the following conditions exist:

(1) The plaintiff alleges in the complaint that plaintiff was a
shareholder, of record or beneficially, or the holder of voting trust
certificates at the time of the transaction or any part thereof of
which plaintiff complains or that plaintiff’s shares or voting trust
certificates thereafter devolved upon plaintiff by operation of law
from a holder who was a holder at the time of the transaction or
any part thereof complained of. Any shareholder who does not
meet these requirements may nevertheless be allowed, in the
discretion of the court, to maintain the action on a preliminary
showing to and determination by the court, by motion and after a
hearing, at which the court shall consider the evidence by affidavit
or testimony, as it deems material, of all of the following:

(A) There is a strong prima facie case in favor of the claim
asserted on behalf of the begin delete flexible purpose end delete begin insert socially responsible end insert
corporation.

(B) No other similar action has been or is likely to be instituted.

(C) The plaintiff acquired the shares before there was disclosure
to the public or to the plaintiff of the wrongdoing of which plaintiff
complains.

(D) Unless the action can be maintained the defendant may
retain a gain derived from defendant’s willful breach of a fiduciary
duty.

(E) The requested relief will not result in unjust enrichment of
the begin delete flexible purpose end delete begin insert socially responsible end insert corporation or any
shareholder of the begin delete flexible purpose end delete begin insert socially responsible end insert corporation.

(2) The plaintiff alleges in the complaint with particularity
plaintiff’s efforts to secure from the board the action as plaintiff
desires, or the reasons for not making that effort, and alleges further
that plaintiff has either informed the begin delete flexible purpose end delete begin insert socially
responsible end insert corporation or the board in writing of the ultimate facts
of each cause of action against each defendant or delivered to the
begin delete flexible purpose end delete begin insert socially responsible end insert corporation or the board a
true copy of the complaint which plaintiff proposes to file.

(d) In any action referred to in subdivision (b), at any time within
30 days after service of summons upon the begin delete flexible purpose end delete begin insert socially
responsible end insert corporation or upon any defendant who is an officer
or director of the begin delete flexible purpose end delete begin insert socially responsible end insert corporation,
or held that office at the time of the acts complained of, the begin delete flexible
purpose end delete begin insert socially responsible end insert corporation or the defendant may
move the court for an order, upon notice and hearing, requiring
the plaintiff to furnish a bond as hereinafter provided. The motion
shall be based upon one or both of the following grounds:

(1) There is no reasonable possibility that the prosecution of
the cause of action alleged in the complaint against the moving
party will benefit the begin delete flexible purpose end delete begin insert socially responsible end insert
corporation or its shareholders.

(2) The moving party, if other than the begin delete flexible purpose end delete begin insert socially
responsible end insert corporation, did not participate in the transaction
complained of in any capacity.

The court on application of the begin delete flexible purpose end delete begin insert socially
responsible end insert corporation or any defendant may, for good cause
shown, extend the 30-day period for an additional period or periods
not exceeding 60 days.

(e) At the hearing upon any motion pursuant to subdivision (c),
the court shall consider the evidence, written or oral, by witnesses
or affidavit, as may be material to the ground or grounds upon
which the motion is based, or to a determination of the probable
reasonable expenses, including attorney’s fees, of the begin delete flexible
purpose end delete begin insert socially responsible end insert corporation and the moving party
that will be incurred in the defense of the action. If the court
determines, after hearing the evidence adduced by the parties, that
the moving party has established a probability in support of any
of the grounds upon which the motion is based, the court shall fix
the amount of the bond, not to exceed fifty thousand dollars
($50,000), to be furnished by the plaintiff for reasonable expenses,
including attorney’s fees, which may be incurred by the moving
party and the begin delete flexible purpose end delete begin insert socially responsible end insert corporation in
connection with the action, including expenses for which the
begin delete flexible purpose end delete begin insert socially responsible end insert corporation may become
liable pursuant to Section 2702. A ruling by the court on the motion
shall not be a determination of any issue in the action or of the
merits thereof. If the court, upon the motion, makes a determination
that a bond shall be furnished by the plaintiff as to any one or more
defendants, the action shall be dismissed as to the defendant or
defendants, unless the bond required by the court has been
furnished within such reasonable time as may be fixed by the court.

(f) If the plaintiff, either before or after a motion is made
pursuant to subdivision (c), or any order or determination pursuant
to the motion, furnishes a bond in the aggregate amount of fifty
thousand dollars ($50,000) to secure the reasonable expenses of
the parties entitled to make the motion, the plaintiff shall be deemed
to have complied with the requirements of this section and with
any order for a bond theretofore made, and any motion then
pending shall be dismissed and no further or additional bond shall
be required.

(g) If a motion is filed pursuant to subdivision (c), no pleadings
need be filed by the begin delete flexible purpose end delete begin insert socially responsible end insert
corporation or any other defendant and the prosecution of the action
shall be stayed until 10 days after the motion has been disposed
of.

SEC. 46.  

Section 3000 of the Corporations Code is amended
to read:

3000.  

(a) A proposed amendment to the articles of a begin delete flexible
purpose end delete begin insert socially responsible end insert corporation shall be approved by the
outstanding shares of a class, regardless of whether that class is
entitled to vote thereon by the provisions of the articles, if the
amendment would:

(1) Increase or decrease the aggregate number of authorized
shares of that class, other than an increase as provided in either
subdivision (b) of Section 405 or subdivision (b) of Section 902.

(2) Effect an exchange, reclassification, or cancellation of all
or part of the shares of that class, including a reverse stock split
but excluding a stock split.

(3) Effect an exchange, or create a right of exchange, of all or
part of the shares of another class into the shares of that class.

(4) Change the rights, preferences, privileges or restrictions of
the shares of that class.

(5) Create a new class of shares having rights, preferences, or
privileges prior to the shares of that class, or increase the rights,
preferences, or privileges or the number of authorized shares of
any class having rights, preferences, or privileges prior to the shares
of that class.

(6) In the case of preferred shares, divide the shares of any class
into series having different rights, preferences, privileges, or
restrictions or authorize the board to do so.

(7) Cancel or otherwise affect dividends on the shares of that
class that have accrued but have not been paid.

(b) A proposed amendment shall be approved by an affirmative
vote of at least two-thirds of the outstanding shares of each class,
or a greater vote if required in the articles, regardless of whether
that class is entitled to vote thereon by the provisions of the articles,
if the amendment would materially alter any special purpose of
the begin delete flexible purpose end delete begin insert socially responsible end insert corporation stated in the
articles pursuant to paragraph (2) of subdivision (b) of Section
2602, regardless of whether that purpose, as amended, would
comply with the provisions of that paragraph.

(c) Different series of the same class shall not constitute different
classes for the purpose of voting by classes except when a series
is adversely affected by an amendment in a different manner than
other shares of the same class.

(d) In addition to approval by a class as provided in subdivisions
(a) and (b), a proposed amendment shall also be approved by the
outstanding voting shares (Section 152).

SEC. 47.  

Section 3001 of the Corporations Code is amended
to read:

3001.  

(a) A begin delete flexible purpose end delete begin insert socially responsible end insert corporation
may, by amendment of its articles pursuant to this section, convert
to a nonprofit public benefit corporation, nonprofit mutual benefit
corporation, nonprofit religious corporation, or cooperative
corporation.

(b) The amendment of the articles to convert to a nonprofit
corporation shall revise the statement of purpose, delete the
authorization for shares and any other provisions relating to
authorized or issued shares, make other changes as may be
necessary or desired, and, if any shares have been issued, provide
either for the cancellation of those shares or for the conversion of
those shares to memberships of the nonprofit corporation. The
amendment of the articles to convert to a cooperative corporation
shall revise the statement of purpose, make other changes as may
be necessary or desired, and, if any shares have been issued,
provide for the cancellation of those shares or for the conversion
of those shares to memberships of the cooperative corporation, if
necessary.

(c) If shares have been issued, an amendment to convert to a
nonprofit corporation shall be approved by all of the outstanding
shares of all classes regardless of limitations or restrictions on their
voting rights and an amendment to convert to a cooperative
corporation shall be approved by the outstanding shares of each
class regardless of limitations or restrictions on their voting rights.

(d) If an amendment pursuant to this section is included in a
merger agreement, the provisions of this section shall apply, except
that any provision for cancellation or conversion of shares shall
be in the merger agreement rather than in the amendment of the
articles.

(e) Notwithstanding subdivision (c), if a begin delete flexible purpose end delete begin insert socially
responsible end insert corporation is a mutual water company within the
meaning of Section 2705 of the Public Utilities Code and under
the terms of the conversion each outstanding share is converted to
a membership of a nonprofit mutual benefit corporation, an
amendment to convert to a nonprofit mutual benefit corporation
shall be approved by the outstanding shares of each class regardless
of limitations or restrictions on their voting rights.

SEC. 48.  

Section 3002 of the Corporations Code is amended
to read:

3002.  

(a) A begin delete flexible purpose end delete begin insert socially responsible end insert corporation
may, by amendment of its articles pursuant to this section, convert
to a domestic corporation.

(b) The amendment of the articles to convert to a domestic
corporation shall revise the statement of purpose to delete any
provisions in the articles that are permitted by Section 2602, but
that are not permitted to be in the articles of a domestic corporation.

(c) If shares have been issued, an amendment to convert to a
domestic corporation shall be approved by an affirmative vote of
at least two-thirds of the outstanding shares of each class, or a
greater vote if required in the articles, regardless of whether that
class is entitled to vote thereon by the provisions of the articles. begin insert If
the conversion is approved, shareholders with dissenting shares,
as defined in subdivision (b) of Section 1300, may exercise
dissenters’ rights pursuant to Section 3305 and Chapter 13
(commencing with Section 1300) of Division 1. end insert

(d) If an amendment pursuant to this section is included in a
merger agreement, the provisions of this section shall apply, except
that any provision for cancellation or conversion of shares shall
be in the merger agreement rather than in the amendment of the
articles.

SEC. 49.  

Section 3100 of the Corporations Code is amended
to read:

3100.  

(a) A begin delete flexible purpose end delete begin insert socially responsible end insert corporation
may sell, lease, convey, exchange, transfer, or otherwise dispose
of all or substantially all of its assets when the principal terms of
the transaction are approved by the board and are approved by an
affirmative vote of at least two-thirds of the outstanding shares of
each class, or a greater vote if required in the articles, regardless
of whether that class is entitled to vote thereon by the provisions
of the articles, either before or after approval by the board and
before the transaction. A transaction constituting a reorganization
shall be subject to Chapter 12 (commencing with Section 1200)
of Division 1 and Chapter 10 (commencing with Section 3400) of
this division and shall not be subject to this section, other than
subdivision (d). A transaction constituting a conversion shall be
subject to Chapter 11.5 (commencing with Section 1150) of
Division 1 and Chapter 9 (commencing with Section 3300) of this
division and shall not be subject to this section.

(b) Notwithstanding approval of begin insert two-thirds of end insert the outstanding
shares, the board may abandon the proposed transaction without
further action by the shareholders, subject to the contractual rights,
if any, of third parties.

(c) The sale, lease, conveyance, exchange, transfer, or other
disposition may be made upon those terms and conditions and for
that consideration as the board may deem in the best interests of
the begin delete flexible purpose end delete begin insert socially responsible end insert corporation. The
consideration may be money, securities, or other property.

(d) If the acquiring party in a transaction pursuant to subdivision
(a) or subdivision (g) of Section 2001 is in control of or under
common control with the disposing begin delete flexible purpose end delete begin insert socially
responsible end insert corporation, the principal terms of the sale shall be
approved by at least 90 percent of the voting power of the disposing
begin delete flexible purpose end delete begin insert socially responsible end insert corporation unless the
disposition is to a domestic or foreign other business entity or
begin delete flexible purpose end delete begin insert socially responsible end insert corporation, the articles of
incorporation of which specify materially the same purposes, in
consideration of the nonredeemable common shares or
nonredeemable equity securities of the acquiring party or its parent.

(e) Subdivision (d) shall not apply to a transaction if the
Commissioner of Corporations, the Commissioner of Financial
Institutions, the Insurance Commissioner, or the Public Utilities
Commission has approved the terms and conditions of the
transaction and the fairness of those terms and conditions pursuant
to Section 25142, Section 696.5 of the Financial Code, Section
838.5 of the Insurance Code, or Section 822 of the Public Utilities
Code.

SEC. 50.  

Section 3200 of the Corporations Code is amended
to read:

3200.  

If any disappearing begin delete flexible purpose end delete begin insert socially responsible end insert
corporation in a merger is a close begin delete flexible purpose end delete begin insert socially
responsible end insert corporation and the surviving begin delete flexible purpose end delete begin insert socially
responsible end insert corporation is not a close begin delete flexible purpose end delete begin insert socially
responsible end insert corporation, the merger shall be approved by an
affirmative vote of at least two-thirds of the outstanding shares of
each class, or a greater vote if required in the articles, regardless
of whether that class is entitled to vote thereon by the provisions
of the articles, of the disappearing begin delete flexible purpose end delete begin insert socially
responsible end insert corporation. The articles may provide for a lesser vote,
but not less than a majority of the outstanding shares of each class.

SEC. 51.  

Section 3201 of the Corporations Code is amended
to read:

3201.  

If any disappearing corporation in a merger is a begin delete flexible
purpose end delete begin insert socially responsible end insert corporation and the surviving entity
is not a begin delete flexible purpose end delete begin insert socially responsible end insert corporation, or is a
begin delete flexible purpose end delete begin insert socially responsible end insert corporation the articles of
incorporation of which set forth materially different purposes, the
merger shall be approved by an affirmative vote of at least
two-thirds of the outstanding shares of each class, or a greater vote
if required in the articles, regardless of whether that class is entitled
to vote thereon by the provisions of the articles, of the disappearing
begin delete flexible purpose corporation. end delete begin insert socially responsible corporation. If
the merger is approved, shareholders with dissenting shares, as
defined in subdivision (b) of Section 1300, may exercise dissenters’
rights pursuant to Section 3305 and Chapter 13 (commencing with
Section 1300) of Division 1. end insert

SEC. 52.  

Section 3202 of the Corporations Code is amended
to read:

3202.  

If a disappearing begin delete flexible purpose end delete begin insert socially responsible end insert
corporation in a merger is a begin delete flexible purpose end delete begin insert socially responsible end insert
corporation governed by this division and the surviving corporation
is a nonprofit public benefit corporation, a nonprofit mutual benefit
corporation, or a nonprofit religious corporation, the merger shall
be approved by all of the outstanding shares of all classes of the
disappearing begin delete flexible purpose end delete begin insert socially responsible end insert corporation,
regardless of limitations or restrictions on their voting rights,
notwithstanding any provision of Chapter 10 (commencing with
Section 3400).

SEC. 53.  

Section 3203 of the Corporations Code is amended
to read:

3203.  

(a) Any one or more begin delete flexible purpose end delete begin insert socially
responsible end insert corporations may merge with one or more other
business entities. One or more domestic begin delete flexible purpose end delete begin insert socially
responsible end insert corporations not organized under this division and one
or more foreign corporations may be parties to the merger.
Notwithstanding this section, the merger of any number of begin delete flexible
purpose end delete begin insert socially responsible end insert corporations with any number of
other business entities may be effected only if:

(1) In a merger in which a domestic begin delete flexible purpose end delete begin insert socially
responsible end insert corporation not organized under this division or a
domestic other business entity is a party, it is authorized by the
laws under which it is organized to effect the merger.

(2) In a merger in which a foreign corporation is a party, it is
authorized by the laws under which it is organized to effect the
merger.

(3) In a merger in which a foreign other business entity is a
party, it is authorized by the laws under which it is organized to
effect the merger.

(b) Each begin delete flexible purpose end delete begin insert socially responsible end insert corporation and
each other party that desires to merge shall approve, and shall be
a party to, an agreement of merger. Other persons, including a
parent party, may be parties to the agreement of merger. The board
of each begin delete flexible purpose end delete begin insert socially responsible end insert corporation that
desires to merge, and, if required, the shareholders, shall approve
the agreement of merger. The agreement of merger shall be
approved on behalf of each party by those persons required to
approve the merger by the laws under which it is organized. The
agreement of merger shall state:

(1) The terms and conditions of the merger.

(2) The name and place of incorporation or organization of each
party to the merger and the identity of the surviving party.

(3) The amendments, if any, subject to Sections 900, 902, 907,
and 3002 to the articles of the surviving begin delete flexible purpose end delete begin insert socially
responsible end insert corporation, if applicable, to be effected by the merger.
If any amendment changes the name of the surviving begin delete flexible
purpose end delete begin insert socially responsible end insert corporation, if applicable, the new
name may be, subject to subdivision (b) of Section 2601, the same
as or similar to the name of a disappearing party to the merger.

(4) The manner of converting the shares of each constituent
begin delete flexible purpose end delete begin insert socially responsible end insert corporation into shares,
interests, or other securities of the surviving party. If any shares
of any constituent begin delete flexible purpose end delete begin insert socially responsible end insert corporation
are not to be converted solely into shares, interests, or other
securities of the surviving party, the agreement of merger shall
state (A) the cash, rights, securities, or other property that the
holders of those shares are to receive in exchange for the shares,
which cash, rights, securities, or other property may be in addition
to or in lieu of shares, interests, or other securities of the surviving
party, or (B) that the shares are canceled without consideration.

(5) Any other details or provisions required by the laws under
which any party to the merger is organized, including, if a domestic
corporation is a party to the merger, Section 3203, if a public
benefit corporation or a religious corporation is a party to the
merger, Section 6019.1, if a mutual benefit corporation is a party
to the merger, Section 8019.1, if a consumer cooperative
corporation is a party to the merger, Section 12540.1, if a domestic
limited partnership is a party to the merger, Section 15911.12, if
a domestic partnership is a party to the merger, Section 16911,
and if a domestic limited liability company is a party to the merger,
Section 17551.

(6) Any other details or provisions as are desired, including,
without limitation, a provision for the payment of cash in lieu of
fractional shares or for any other arrangement with respect thereto
consistent with the provisions of Section 407.

(c) Each share of the same class or series of any constituent
begin delete flexible purpose end delete begin insert socially responsible end insert corporation, other than the
cancellation of shares held by a party to the merger or its parent,
or a wholly owned subsidiary of either, in another constituent
begin delete flexible purpose end delete begin insert socially responsible end insert corporation, shall, unless all
shareholders of the class or series consent and except as provided
in Section 407, be treated equally with respect to any distribution
of cash, rights, securities, or other property. Notwithstanding
paragraph (4) of subdivision (b), the nonredeemable common
shares of a constituent begin delete flexible purpose end delete begin insert socially responsible end insert
corporation may be converted only into nonredeemable common
shares of a surviving begin delete flexible purpose end delete begin insert socially responsible end insert
corporation or a parent party or nonredeemable equity securities
of a surviving party other than a begin delete flexible purpose end delete begin insert socially
responsible end insert corporation if another party to the merger or its parent
owns, directly or indirectly, prior to the merger shares of that
corporation representing more than 50 percent of the voting power
of that begin delete flexible purpose end delete begin insert socially responsible end insert corporation, unless
all of the shareholders of the class consent and except as provided
in Section 407.

(d) Notwithstanding its prior approval, an agreement of merger
may be amended prior to the filing of the agreement of merger or
the certificate of merger, as is applicable, if the amendment is
approved by the board of each constituent begin delete flexible purpose end delete begin insert socially
responsible end insert corporation and, if the amendment changes any of the
principal terms of the agreement, by the outstanding shares, if
required by Chapter 10 (commencing with Section 3400), in the
same manner as the original agreement of merger. If the agreement
of merger as so amended and approved is also approved by each
of the other parties to the agreement of merger, the agreement of
merger as so amended shall then constitute the agreement of
merger.

(e) The board of a constituent begin delete flexible purpose end delete begin insert socially
responsible end insert corporation may, in its discretion, abandon a merger,
subject to the contractual rights, if any, of third parties, including
other parties to the agreement of merger, without further approval
by the outstanding shares, at any time before the merger is
effective.

(f) Each constituent begin delete flexible purpose end delete begin insert socially responsible end insert
corporation shall sign the agreement of merger by its chairperson
of the board, president, or a vice president and also by its secretary
or an assistant secretary acting on behalf of their respective
corporations.

(g) (1) If the surviving party is a domestic begin delete flexible purpose end delete
begin insert socially responsible end insert corporation, or if a domestic corporation or a
foreign corporation, a public benefit corporation, a mutual benefit
corporation, a religious corporation, or a corporation organized
under the Consumer Cooperative Corporation Law (Part 2
(commencing with Section 12200) of Division 3) is a party to the
merger, after required approvals of the merger by each constituent
begin delete flexible purpose end delete begin insert socially responsible end insert corporation through approval
of the board and any approval of the outstanding shares required
by Chapter begin delete 13 end delete begin insert 10 end insert (commencing with Section 3400) and by the
other parties to the merger, the surviving party shall file a copy of
the agreement of merger with an officers’ certificate of each
constituent domestic begin delete flexible purpose end delete begin insert socially responsible end insert
corporation and foreign begin delete flexible purpose end delete begin insert socially responsible end insert
corporation attached stating the total number of outstanding shares
begin delete or membership interests end delete of each class entitled to vote on the merger,
and identifying any other person or persons whose approval is
required, that the agreement of merger in the form attached or its
principal terms, as required, were approved by that begin delete flexible purpose end delete
begin insert socially responsible end insert corporation by a vote of a number of shares
begin delete or membership interests end delete of each class that equaled or exceeded the
vote required, specifying each class entitled to vote and the
percentage vote required of each class and, if applicable, by that
other person or persons whose approval is required, or that the
merger agreement was entitled to be and was approved by the
board alone, as provided in Section 3401, in the case of a begin delete flexible
purpose end delete begin insert socially responsible end insert corporation subject to that section.
If equity securities of a parent party are to be issued in the merger,
the officers’ certificate of that controlled party shall state either
that no vote of the shareholders of the parent party was required
or that the required vote was obtained. In lieu of an officers’
certificate, a certificate of merger, on a form prescribed by the
Secretary of State, shall be filed for each constituent other business
entity. The certificate of merger shall be executed and
acknowledged by each domestic constituent limited liability
company by all managers of the limited liability company, unless
a lesser number is specified in its articles or organization or
operating agreement, and by each domestic constituent limited
partnership by all general partners, unless a lesser number is
provided in its certificate of limited partnership or partnership
agreement, and by each domestic constituent general partnership
by two partners, unless a lesser number is provided in its
partnership agreement, and by each foreign constituent limited
liability company by one or more managers and by each foreign
constituent general partnership or foreign constituent limited
partnership by one or more general partners, and by each
constituent reciprocal insurer by the chairperson of the board,
president, or vice president, and by the secretary or assistant
secretary, or, if a constituent reciprocal insurer has not appointed
those officers, by the chairperson of the board, president, or vice
president, and by the secretary or assistant secretary of the
constituent reciprocal insurer’s attorney-in-fact, and by each other
party to the merger by those persons required or authorized to
execute the certificate of merger by the laws under which that party
is organized, specifying for that party the provision of law or other
basis for the authority of the signing persons. The certificate of
merger shall set forth, if a vote of the shareholders, members,
partners, or other holders of interests of the constituent other
business entity was required, a statement setting forth the total
number of outstanding interests of each class entitled to vote on
the merger and that the agreement of merger in the form attached
or its principal terms, as required, were approved by a vote of the
number of interests of each class that equaled or exceeded the vote
required, specifying each class entitled to vote and the percentage
vote required of each class, and any other information required to
be set forth under the laws under which the constituent other
business entity is organized, including, if a domestic limited
partnership is a party to the merger, subdivision (a) of Section
15911.14, if a domestic partnership is a party to the merger,
subdivision (b) of Section 16915, and, if a domestic limited liability
company is a party to the merger, subdivision (a) of Section 17552.
The certificate of merger for each constituent foreign other business
entity, if any, shall also set forth the statutory or other basis under
which that foreign other business entity is authorized by the laws
under which it is organized to effect the merger. The merger and
any amendment of the articles of the surviving begin delete flexible purpose end delete
begin insert socially responsible end insert corporation, if applicable, contained in the
agreement of merger shall be effective upon filing of the agreement
of merger with an officer’s certificate of each constituent domestic
corporation and foreign corporation and a certificate of merger for
each constituent other business entity, subject to subdivision (c)
of Section begin delete 153 end delete begin insert 110 end insert and subject to the provisions of subdivision
(j), and the several parties thereto shall be one entity. If a domestic
reciprocal insurer organized after 1974 to provide medical
malpractice insurance is a party to the merger, the agreement of
merger or certificate of merger shall not be filed until there has
been filed the certificate issued by the Insurance Commissioner
approving the merger pursuant to Section 1555 of the Insurance
Code. The Secretary of State may certify a copy of the agreement
of merger separate from the officers’ certificates and certificates
of merger attached thereto.

(2) If the surviving entity is an other business entity, and no
public benefit corporation, mutual benefit corporation, religious
corporation, or corporation organized under the Consumer
Cooperative Corporation Law (Part 2 (commencing with Section
12200) of Division 3) is a party to the merger, after required
approvals of the merger by each constituent begin delete flexible purpose end delete
begin insert socially responsible end insert corporation through approval of the board and
any approval of the outstanding shares required by Chapter 10
(commencing with Section 3400) and by the other parties to the
merger, the parties to the merger shall file a certificate of merger
in the office of, and on a form prescribed by, the Secretary of State.
The certificate of merger shall be executed and acknowledged by
each constituent domestic and foreign begin delete flexible purpose end delete begin insert socially
responsible end insert corporation by its chairperson of the board, president,
or a vice president and also by its secretary or an assistant secretary
and by each domestic constituent limited liability company by all
managers of the limited liability company, unless a lesser number
is specified in its articles of organization or operating agreement,
and by each domestic constituent limited partnership by all general
partners, unless a lesser number is provided in its certificate of
limited partnership or partnership agreement, and by each domestic
constituent general partnership by two partners, unless a lesser
number is provided in its partnership agreement, and by each
foreign constituent limited liability company by one or more
managers and by each foreign constituent general partnership or
foreign constituent limited partnership by one or more general
partners, and by each constituent reciprocal insurer by the
chairperson of the board, president, or vice president, and by the
secretary or assistant secretary, or, if a constituent reciprocal insurer
has not appointed those officers, by the chairperson of the board,
president, or vice president, and by the secretary or assistant
secretary of the constituent reciprocal insurer’s attorney-in-fact.
The certificate of merger shall be signed by each other party to the
merger by those persons required or authorized to execute the
certificate of merger by the laws under which that party is
organized, specifying for that party the provision of law or other
basis for the authority of the signing persons. The certificate of
merger shall set forth all of the following:

(A) The name, place of incorporation or organization, and the
Secretary of State’s file number, if any, of each party to the merger,
separately identifying the disappearing parties and the surviving
party.

(B) If the approval of the outstanding shares of a constituent
begin delete flexible purpose end delete begin insert socially responsible end insert corporation was required by
Chapter 10 (commencing with Section 3400), a statement setting
forth the total number of outstanding shares of each class entitled
to vote on the merger and that the principal terms of the agreement
of merger were approved by a vote of the number of shares of each
class entitled to vote and the percentage vote required of each
class.

(C) The future effective date or time, not more than 90 days
subsequent to the date of filing of the merger, if the merger is not
to be effective upon the filing of the certificate of merger with the
Secretary of State.

(D) A statement, by each party to the merger that is a domestic
corporation not organized under this division, a foreign corporation
or foreign other business entity, or an other business entity, of the
statutory or other basis under which that party is authorized by the
laws under which it is organized to effect the merger.

(E) Any other information required to be stated in the certificate
of merger by the laws under which each respective party to the
merger is organized, including, if a domestic limited liability
company is a party to the merger, subdivision (a) of Section 17552,
if a domestic partnership is a party to the merger, subdivision (b)
of Section 16915, and, if a domestic limited partnership is a party
to the merger, subdivision (a) of Section 15911.14.

(F) Any other details or provisions that may be desired.

Unless a future effective date or time is provided in a certificate
of merger, in which event the merger shall be effective at that
future effective date or time, a merger shall be effective upon the
filing of the certificate of merger with the Secretary of State and
the several parties thereto shall be one entity. The surviving other
business entity shall keep a copy of the agreement of merger at its
principal place of business which, for purposes of this subdivision,
shall be the office referred to in Section 17057 if a domestic limited
liability company, at the business address specified in paragraph
(5) of subdivision (a) of Section 17552 if a foreign limited liability
company, at the office referred to in subdivision (a) of Section
16403 if a domestic general partnership, at the business address
specified in subdivision (f) of Section 16911 if a foreign
partnership, at the office referred to in subdivision (a) of Section
15901.14 if a domestic limited partnership, or at the business
address specified in paragraph (5) of subdivision (a) of Section
15911.14 if a foreign limited partnership. Upon the request of a
holder of equity securities of a party to the merger, a person with
authority to do so on behalf of the surviving other business entity
shall promptly deliver to that holder, a copy of the agreement of
merger. A waiver by that holder of the rights provided in the
foregoing sentence shall be unenforceable. If a domestic reciprocal
insurer organized after 1974 to provide medical malpractice
insurance is a party to the merger the agreement of merger or
certificate of merger shall not be filed until there has been filed
the certificate issued by the Insurance Commissioner approving
the merger in accordance with Section 1555 of the Insurance Code.

(h) (1) A copy of an agreement of merger certified on or after
the effective date by an official having custody thereof has the
same force in evidence as the original and, except as against the
state, is conclusive evidence of the performance of all conditions
precedent to the merger, the existence on the effective date of the
surviving party to the merger, and the performance of the
conditions necessary to the adoption of any amendment to the
articles, if applicable, contained in the agreement of merger.

(2) For all purposes for a merger in which the surviving entity
is a domestic other business entity and the filing of a certificate of
merger is required by paragraph (2) of subdivision (g), a copy of
the certificate of merger duly certified by the Secretary of State is
conclusive evidence of the merger of the constituent corporations,
either by themselves or together with the other parties to the
merger, into the surviving other business entity.

(i) (1) Upon a merger pursuant to this section, the separate
existences of the disappearing parties to the merger cease and the
surviving party to the merger shall succeed, without other transfer,
to all the rights and property of each of the disappearing parties to
the merger and shall be subject to all the debts and liabilities of
each in the same manner as if the surviving party to the merger
had itself incurred them.

(2) All rights of creditors and all liens upon the property of each
of the constituent begin delete flexible purpose end delete begin insert socially responsible end insert corporations
and other parties to the merger shall be preserved unimpaired,
provided that those liens upon property of a disappearing party
shall be limited to the property affected thereby immediately prior
to the time the merger is effective.

(3) Any action or proceeding pending by or against any
disappearing begin delete flexible purpose end delete begin insert socially responsible end insert corporation or
disappearing party to the merger may be prosecuted to judgment,
which shall bind the surviving party, or the surviving party may
be proceeded against or substituted in its place.

(4) Nothing in this section shall be construed to affect the
liability a general partner of a disappearing limited partnership or
general partnership may have in connection with the debts and
liabilities of the disappearing limited partnership or general
partnership existing prior to the time the merger is effective.

(j) (1) The merger of domestic begin delete flexible purpose end delete begin insert socially
responsible end insert corporations with foreign corporations or foreign other
business entities in a merger in which one or more other business
entities is a party shall comply with subdivision (a) and this
subdivision.

(2) If the surviving party is a domestic begin delete flexible purpose end delete begin insert socially
responsible end insert corporation or domestic other business entity, the
merger proceedings with respect to that party and any domestic
disappearing begin delete flexible purpose end delete begin insert socially responsible end insert corporation
shall conform to the provisions of this section. If the surviving
party is a foreign corporation or foreign other business entity, then,
subject to the requirements of subdivision (c), Section 407, Chapter
10 (commencing with Section 3400), and Chapter 13 (commencing
with Section 1300) of Division 1, and, if applicable, corresponding
provisions of the Nonprofit Corporation Law (Division 2
(commencing with Section 5002)) or the Consumer Cooperative
Corporation Law (Part 2 (commencing with Section 12200) of
Division 3), with respect to any domestic constituent corporations,
Chapter 13 (commencing with Section 17600) of Title 2.5 with
respect to any domestic constituent limited liability companies,
Article 6 (commencing with Section 16601) of Chapter 5 of Title
2 with respect to any domestic constituent general partnerships,
and Article 11.5 (commencing with Section 15911.20) of Chapter
5.5 of Title 2 with respect to any domestic constituent limited
partnerships, the merger proceedings may be in accordance with
the laws of the state or place of incorporation or organization of
the surviving party.

(3) If the surviving party is a domestic begin delete flexible purpose end delete begin insert socially
responsible end insert corporation or domestic other business entity, the
certificate of merger or the agreement of merger with attachments
shall be filed as provided in subdivision (g) and thereupon, subject
to subdivision (c) of Section begin delete 153 end delete begin insert 110 end insert or paragraph (2) of
subdivision (g), as applicable, the merger shall be effective as to
each domestic constituent begin delete flexible purpose end delete begin insert socially responsible end insert
corporation and domestic constituent other business entity.

(4) If the surviving party is a foreign corporation or foreign
other business entity, the merger shall become effective in
accordance with the law of the jurisdiction in which the surviving
party is organized, but, except as provided in paragraph (5), the
merger shall be effective as to any domestic disappearing begin delete flexible
purpose end delete begin insert socially responsible end insert corporation as of the time of
effectiveness in the foreign jurisdiction upon the filing in this state
of a copy of the agreement of merger with an officers’ certificate
of each constituent foreign and domestic begin delete flexible purpose end delete begin insert socially
responsible end insert corporation and a certificate of merger of each
constituent other business entity attached, which officers’
certificates and certificates of merger shall conform to the
requirements of paragraph (1) of subdivision (g). If one or more
domestic other business entities is a disappearing party in a merger
pursuant to this subdivision in which a foreign other business entity
is the surviving entity, a certificate of merger required by the laws
under which that domestic other business entity is organized,
including subdivision (a) of Section 15911.14, subdivision (b) of
Section 16915, or subdivision (a) of Section 17552, as is applicable,
shall also be filed at the same time as the filing of the agreement
of merger.

(5) If the date of the filing in this state pursuant to this
subdivision is more than six months after the time of the
effectiveness in the foreign jurisdiction, or if the powers of a
domestic disappearing begin delete flexible purpose end delete begin insert socially responsible end insert
corporation are suspended at the time of effectiveness in the foreign
jurisdiction, the merger shall be effective as to the domestic
disappearing begin delete flexible purpose end delete begin insert socially responsible end insert corporation as
of the date of filing in this state.

(6) In a merger described in paragraph (3) or (4), each foreign
disappearing begin delete flexible purpose end delete begin insert socially responsible end insert corporation that
is qualified for the transaction of intrastate business shall by virtue
of the filing pursuant to this subdivision, subject to subdivision
(c) of Section begin delete 2508, end delete begin insert 110, end insert automatically surrender its right to
transact intrastate business in this state. The filing of the agreement
of merger or certificate of merger, as is applicable, pursuant to this
subdivision, by a disappearing foreign other business entity
registered for the transaction of intrastate business in this state
shall, by virtue of that filing, subject to subdivision (c) of Section
begin delete 2508, end delete begin insert 110, end insert automatically cancel the registration for that foreign
other business entity, without the necessity of the filing of a
certificate of cancellation.

SEC. 54.  

Section 3300 of the Corporations Code is amended
to read:

3300.  

For purposes of this chapter, the following definitions
shall apply:

(a) “Converted begin delete flexible purpose end delete begin insert socially responsible end insert
corporation” means a begin delete flexible purpose end delete begin insert socially responsible end insert
corporation that results from a conversion of an other business
entity or a foreign other business entity or a foreign corporation
pursuant to Section 1158.

(b) “Converted entity” means a domestic other business entity
that results from a conversion of a begin delete flexible purpose end delete begin insert socially
responsible end insert corporation under this chapter.

(c) “Converting begin delete flexible purpose end delete begin insert socially responsible end insert
corporation” means a begin delete flexible purpose end delete begin insert socially responsible end insert
corporation that converts into a domestic or foreign other business
entity pursuant to this chapter.

(d) “Converting entity” means an other business entity or a
foreign other business entity or foreign corporation that converts
into a begin delete flexible purpose end delete begin insert socially responsible end insert corporation pursuant
to Section 3607.

(e) “Domestic other business entity” has the meaning provided
in Section 167.7.

(f) “Foreign other business entity” has the meaning provided in
Section 171.05.

(g) “Other business entity” has the meaning provided in Section
174.5.

SEC. 55.  

Section 3301 of the Corporations Code is amended
to read:

3301.  

(a) A begin delete flexible purpose end delete begin insert socially responsible end insert corporation
may be converted into a domestic other business entity pursuant
to this chapter if, pursuant to the proposed conversion, each of the
following conditions is met:

(1) Each share of the same class or series of the converting
begin delete flexible purpose end delete begin insert socially responsible end insert corporation shall, unless all
the shareholders of the class or series consent, be treated equally
with respect to any cash, rights, securities, or other property to be
received by, or any obligations or restrictions to be imposed on,
the holder of that share.

(2) The conversion is approved by an affirmative vote of at least
two-thirds of the outstanding shares begin delete (Section 152) end delete of each class,
or a greater vote if required in the articles, regardless of whether
that class is entitled to vote thereon by the provisions of the articles.

(3) Nonredeemable common shares of the converting begin delete flexible
purpose end delete begin insert socially responsible end insert corporation shall be converted only
into nonredeemable equity securities of the converted entity unless
all of the shareholders of the class consent.

(4) Paragraph (1) shall not restrict the ability of the shareholders
of a converting begin delete flexible purpose end delete begin insert socially responsible end insert corporation
to appoint one or more managers, if the converted entity is a limited
liability company, or one or more general partners, if the converted
entity is a limited partnership, in the plan of conversion or in the
converted entity’s governing documents.

(b)  Notwithstanding subdivision (a), the conversion of a begin delete flexible
purpose end delete begin insert socially responsible end insert corporation into a domestic other
business entity may be effected only if both of the following
conditions are met:

(1) The law under which the converted entity will exist expressly
permits the formation of that entity pursuant to a conversion.

(2) The begin delete flexible purpose end delete begin insert socially responsible end insert corporation
complies with any and all other requirements of any other law that
applies to conversion to the converted entity.

SEC. 56.  

Section 3302 of the Corporations Code is amended
to read:

3302.  

(a) A begin delete flexible purpose end delete begin insert socially responsible end insert corporation
that desires to convert to a domestic other business entity shall
approve a plan of conversion. The plan of conversion shall state
all of the following:

(1) The terms and conditions of the conversion.

(2) The jurisdiction of the organization of the converted entity
and of the converting begin delete flexible purpose end delete begin insert socially responsible end insert
corporation and the name of the converted entity after conversion.

(3) The manner of converting the shares of each of the
shareholders of the converting begin delete flexible purpose end delete begin insert socially responsible end insert
corporation into securities of, or interests in, the converted entity.

(4) The provisions of the governing documents for the converted
entity, including the articles and bylaws, partnership agreement
or limited liability company articles of organization and operating
agreement, to which the holders of interests in the converted entity
are to be bound.

(5) Any other details or provisions that are required by the laws
under which the converted entity is organized, or that are desired
by the converting begin delete flexible purpose end delete begin insert socially responsible end insert corporation.

(b) The plan of conversion shall be approved by the board of
the converting begin delete flexible purpose end delete begin insert socially responsible end insert corporation,
and the principal terms of the plan of the conversion shall be
approved by at least two-thirds of the outstanding shares of each
class, or a greater vote if required in the articles, regardless of
whether that class is entitled to vote thereon by the provisions of
the articles of the converting begin delete flexible purpose end delete begin insert socially responsible end insert
corporation. The approval of begin insert at least two-thirds of end insert the outstanding
shares may be given before or after approval by the board. begin insert If the
plan is approved, shareholders with dissenting shares, as defined
in subdivision (b) of Section 1300, may exercise dissenters’ rights
pursuant to Section 3305 and Chapter 13 (commencing with
Section 1300) of Division 1. end insert

(c) If the begin delete flexible purpose end delete begin insert socially responsible end insert corporation is
converting into a general or limited partnership or into a limited
liability company, then in addition to the approval of the
shareholders set forth in subdivision (b), the plan of conversion
shall be approved by each shareholder who will become a general
partner or manager, as applicable, of the converted entity pursuant
to the plan of conversion unless the shareholders have dissenters’
rights pursuant to Section 3305 and Chapter 13 (commencing with
Section 1300) of Division 1.

(d) Upon the effectiveness of the conversion, all shareholders
of the converting begin delete flexible purpose end delete begin insert socially responsible end insert corporation,
except those that exercise dissenters’ rights as provided in Section
3305 and Chapter 13 (commencing with Section 1300) of Division
1, shall be deemed parties to any agreement or agreements
constituting the governing documents for the converted entity
adopted as part of the plan of conversion, regardless of whether a
shareholder has executed the plan of conversion or those governing
documents for the converted entity. Any adoption of governing
documents made pursuant thereto shall be effective at the effective
time or date of the conversion.

(e) Notwithstanding its prior approval by the board and the
outstanding shares, or either of them, a plan of conversion may be
amended before the conversion takes effect if the amendment is
approved by the board and, if it changes any of the principal terms
of the plan of conversion, by the shareholders of the converting
begin delete flexible purpose end delete begin insert socially responsible end insert corporation in the same
manner and to the same extent as was required for approval of the
original plan of conversion.

(f) A plan of conversion may be abandoned by the board of a
converting begin delete flexible purpose end delete begin insert socially responsible end insert corporation, or
by the shareholders of a converting begin delete flexible purpose end delete begin insert socially
responsible end insert corporation if the abandonment is approved by the
outstanding shares, in each case in the same manner as required
for approval of the plan of conversion, subject to the contractual
rights of third parties, at any time before the conversion is effective.

(g) The converted entity shall keep the plan of conversion at
the principal place of business of the converted entity if the
converted entity is a domestic partnership, or at the office at which
records are to be kept under Section 15901.14 if the converted
entity is a domestic limited partnership, or at the office at which
records are to be kept under Section 17057 if the converted entity
is a domestic limited liability company. Upon the request of a
shareholder of a converting flexible purpose corporation, the
authorized person on behalf of the converted entity shall promptly
deliver to the shareholder, at the expense of the converted entity,
a copy of the plan of conversion. A waiver by a shareholder of the
rights provided in this subdivision shall be unenforceable.

SEC. 57.  

Section 3303 of the Corporations Code is amended
to read:

3303.  

(a) After the approval, as provided in Section 3302, of
a plan of conversion by the board and the outstanding shares of a
begin delete flexible purpose end delete begin insert socially responsible end insert corporation converting into
a domestic other business entity, the converting begin delete flexible purpose end delete
begin insert socially responsible end insert corporation shall cause the filing of all
documents required by law to effect the conversion and create the
converted entity, which documents shall include a certificate of
conversion or a statement of conversion as required by Section
3304, and the conversion shall thereupon be effective.

(b) A copy of the statement of partnership authority, certificate
of limited partnership, or articles of organization complying with
Section begin delete 1156, end delete begin insert 1155, end insert duly certified by the Secretary of State on or
after the effective date, shall be conclusive evidence of the
conversion of the begin delete flexible purpose end delete begin insert socially responsible end insert corporation.

SEC. 58.  

Section 3304 of the Corporations Code is amended
to read:

3304.  

(a) To convert a begin delete flexible purpose end delete begin insert socially responsible end insert
corporation:

(1) If the begin delete flexible purpose end delete begin insert socially responsible end insert corporation is
converting into a domestic limited partnership, a statement of
conversion shall be completed on the certificate of limited
partnership for the converted entity.

(2) If the begin delete flexible purpose end delete begin insert socially responsible end insert corporation is
converting into a domestic partnership, a statement of conversion
shall be completed on the statement of partnership authority for
the converted entity, or if no statement of partnership authority is
filed, then a certificate of conversion shall be filed separately.

(3) If the begin delete flexible purpose end delete begin insert socially responsible end insert corporation is
converting into a domestic limited liability company, a statement
of conversion shall be completed on the articles of organization
for the converted entity.

(4) If the begin delete flexible purpose end delete begin insert socially responsible end insert corporation is
converting into a domestic corporation, a statement of conversion
shall be completed on the articles for the converted entity.

(b) Any statement or certificate of conversion of a converting
begin delete flexible purpose end delete begin insert socially responsible end insert corporation shall be executed
and acknowledged by those officers of the converting begin delete flexible
purpose end delete begin insert socially responsible end insert corporation as would be required to
sign an officers’ certificate, and shall set forth all of the following:

(1) The name and the Secretary of State’s file number of the
converting begin delete flexible purpose end delete begin insert socially responsible end insert corporation.

(2) A statement of the total number of outstanding shares of
each class entitled to vote on the conversion, that the principal
terms of the plan of conversion were approved by a vote of the
number of shares of each class which equaled or exceeded the vote
required under Section 3602, specifying each class entitled to vote
and the percentage vote required of each class.

(3) The name, form, and jurisdiction of organization of the
converted entity.

(c) The certificate of conversion shall be on a form prescribed
by the Secretary of State.

(d) The filing with the Secretary of State of a statement of
conversion on an organizational document or a certificate of
conversion as set forth in subdivision (a) shall have the effect of
the filing of a certificate of dissolution by the converting begin delete flexible
purpose end delete begin insert socially responsible end insert corporation and no converting begin delete flexible
purpose end delete begin insert socially responsible end insert corporation that has made the filing
is required to file a certificate of election under Section 1901 or a
certificate of dissolution under Section 1905 as a result of that
conversion.

(e)  Upon the effectiveness of a conversion pursuant to this
chapter, a converted entity that is a domestic partnership, domestic
limited partnership or domestic limited liability company shall be
deemed to have assumed the liability of the converting begin delete flexible
purpose end delete begin insert socially responsible end insert corporation to prepare and file or
cause to be prepared and filed all tax and information returns
otherwise required of the converting begin delete flexible purpose end delete begin insert socially
responsible end insert corporation under the Corporation Tax Law (Part 11
(commencing with Section 23001) of Division 2 of the Revenue
and Taxation Code) and to pay any tax liability determined to be
due pursuant to that law.

SEC. 59.  

Section 3305 of the Corporations Code is amended
to read:

3305.  

The shareholders begin insert with dissenting rights, as defined in
subdivision (b) of Section 1300, end insert of a converting begin delete flexible purpose end delete
begin insert socially responsible end insert corporation shall have all of the rights under
Chapter 13 (commencing with Section 1300) of Division 1 of the
shareholders of a corporation involved in a reorganization requiring
the approval of its outstanding shares, and the converting begin delete flexible
purpose end delete begin insert socially responsible end insert corporation shall have all of the
obligations under Chapter 13 (commencing with Section 1300) of
Division 1 of a corporation involved in the reorganization. Solely
for purposes of applying the provisions of Chapter 13 (commencing
with Section 1300) of Division 1, and not for purposes of this
chapter, a conversion pursuant to Section 3301 or begin delete 1158 end delete begin insert 1157 end insert shall
be deemed to constitute a reorganization.

SEC. 60.  

Section 3400 of the Corporations Code is amended
to read:

3400.  

A reorganization or a share exchange tender offer shall
be approved by the board of all of the following:

(a) Each constituent begin delete flexible purpose end delete begin insert socially responsible end insert
corporation in a merger reorganization.

(b) The acquiring begin delete flexible purpose end delete begin insert socially responsible end insert
corporation in an exchange reorganization.

(c) The acquiring begin delete flexible purpose end delete begin insert socially responsible end insert
corporation and the begin delete flexible purpose end delete begin insert socially responsible end insert
corporation whose property and assets are acquired in a
sale-of-assets reorganization.

(d) The acquiring begin delete flexible purpose end delete begin insert socially responsible end insert
corporation in a share exchange tender offer.

(e) The begin delete flexible purpose end delete begin insert socially responsible end insert corporation in
control of any constituent or acquiring domestic or foreign begin delete flexible
purpose end delete begin insert socially responsible end insert corporation or other business entity
under subdivision (a), (b), or (c) and whose equity securities are
issued, transferred, or exchanged in the reorganization, hereafter
a “parent party.”

SEC. 61.  

Section 3401 of the Corporations Code is amended
to read:

3401.  

(a) The principal terms of a reorganization shall be
approved by the outstanding shares of each class of each begin delete flexible
purpose end delete begin insert socially responsible end insert corporation the approval of whose
board is required under Section 3400, except as provided in
subdivision (b) and except that, unless otherwise provided in the
articles, no approval of any class of outstanding preferred shares
of the surviving or acquiring begin delete flexible purpose end delete begin insert socially responsible end insert
corporation or parent party shall be required if the rights,
preferences, privileges, and restrictions granted to or imposed upon
that class of shares remain unchanged, subject to the provisions
of subdivision (c). For the purpose of this subdivision, two classes
of common shares differing only as to voting rights shall be
considered as a single class of shares.

(b) No approval of the outstanding shares is required by
subdivision (a) if the begin delete flexible purpose end delete begin insert socially responsible end insert
corporation, or its shareholders immediately before the
reorganization, or both, shall own, immediately after the
reorganization, equity securities, other than any warrant or right
to subscribe to or purchase those equity securities, of the surviving
or acquiring begin delete flexible purpose end delete begin insert socially responsible end insert corporation or
a parent party possessing more than five-sixths of the voting power
of the surviving or acquiring begin delete flexible purpose end delete begin insert socially responsible end insert
corporation or parent party. In making the determination of
ownership by the shareholders of a begin delete flexible purpose end delete begin insert socially
responsible end insert corporation, immediately after the reorganization, of
equity securities pursuant to the preceding sentence, equity
securities that they owned immediately before the reorganization
as shareholders of another party to the transaction shall be
disregarded. For the purpose of this section, the voting power of
a begin delete flexible purpose end delete begin insert socially responsible end insert corporation shall be
calculated by assuming the conversion of all equity securities
convertible, immediately or at some future time, into shares entitled
to vote but not assuming the exercise of any warrant or right to
subscribe to or purchase those shares.

(c) Notwithstanding subdivisions (a) and (b), the principal terms
of a reorganization shall be approved by the outstanding shares of
the surviving begin delete flexible purpose end delete begin insert socially responsible end insert corporation in
a merger reorganization, as otherwise required by Chapter begin delete 11 end delete begin insert 10 end insert
(commencing with Section begin delete 3500) end delete begin insert 3400) end insert , if any amendment is made
to its articles that would otherwise require that approval.

(d) Notwithstanding subdivisions (a) and (b), the principal terms
of a reorganization shall be approved by the begin insert end insert begin insert affirmative vote of at
least two-thirds of each class, or a greater vote if required in the
articles, of the end insert outstanding shares of any class of a begin delete flexible purpose end delete
begin insert socially responsible end insert corporation that is a party to a merger or
sale-of-assets reorganization if holders of shares of that class
receive shares of the surviving or acquiring begin delete flexible purpose end delete
begin insert socially responsible end insert corporation or parent party having different
rights, preferences, privileges, or restrictions than those
surrendered. Shares in a foreign corporation received in exchange
for shares in a domestic begin delete flexible purpose end delete begin insert socially responsible end insert
corporation shall be deemed to have different rights, preferences,
privileges, and restrictions within the meaning of the preceding
sentence.

(e) Notwithstanding subdivisions (a) and (b), the principal terms
of a reorganization shall be approved by the affirmative vote of at
least two-thirds of each class, or a greater vote if required in the
articles, of the outstanding shares of any begin delete flexible purpose end delete begin insert socially
responsible end insert corporation that is a close begin delete flexible purpose end delete begin insert socially
responsible end insert corporation if the reorganization would result in the
holders receiving shares or other interests of a corporation or other
business entity that is not a close begin delete flexible purpose end delete begin insert socially
responsible end insert corporation. The articles may provide for a lesser vote,
but not less than a majority of the outstanding shares of each class.

(f) Notwithstanding subdivisions (a) and (b), the principal terms
of a reorganization shall be approved by a vote of at least two-thirds
of the outstanding shares of each class, or a greater vote if required
in the articles, of a begin delete flexible purpose end delete begin insert socially responsible end insert corporation
that is a party to a merger reorganization, regardless of whether
that class is entitled to vote thereon by the provisions of the articles,
if holders of shares of that class receive interests of a surviving
other business entity in the merger that is not a begin delete flexible purpose end delete
begin insert socially responsible end insert corporation, or receive interests of a surviving
begin delete flexible purpose end delete begin insert socially responsible end insert corporation the articles of
incorporation of which specify a materially different purpose as
part of the reorganization.

(g) Notwithstanding subdivisions (a) and (b), the principal terms
of a reorganization shall be approved by all shareholders of any
class or series if, as a result of the reorganization, the holders of
that class or series become personally liable for any obligations
of a party to the reorganization, unless all holders of that class or
series have the dissenters’ rights provided in Chapter 13
(commencing with Section 1300) of Division 1.

(h) Any approval required by this section may be given before
or after the approval by the board. Notwithstanding approval
required by this section, the board may abandon the proposed
reorganization without further action by the shareholders, subject
to the contractual rights, if any, of third parties.

SEC. 62.  

Section 3500 of the Corporations Code is amended
to read:

3500.  

(a) The board of a begin delete flexible purpose end delete begin insert socially responsible end insert
corporation shall cause an annual report to be sent to the
shareholders not later than 120 days after the close of the fiscal
year. The annual report shall contain (1) a balance sheet as of the
end of that fiscal year and an income statement and a statement of
cashflows for that fiscal year, accompanied by any report thereon
of independent accountants or, if there is no report, the certificate
of an authorized officer of the begin delete flexible purpose end delete begin insert socially responsible end insert
corporation that the statements were prepared without audit from
the books and records of the corporation, and (2) the information
required by subdivision (b).

(b) The board shall cause to be provided with the annual report,
a management discussion and analysis (special purpose MD&A)
concerning the begin delete flexible purpose end delete begin insert socially responsible end insert corporation’s
stated purpose or purposes as set forth in its articles pursuant to
paragraph (2) of subdivision (b) of Section 2602, and, to the extent
consistent with reasonable confidentiality requirements, shall cause
the special purpose MD&A to be made publicly available by
posting it on the begin delete flexible purpose end delete begin insert socially responsible end insert corporation’s
Internet Web site or providing it through similar electronic means.
The special purpose MD&A shall include the information specified
in this subdivision and any other information that the begin delete flexible
purpose end delete begin insert socially responsible end insert corporation’s officers and directors
believe to be reasonably necessary or appropriate to an
understanding of the begin delete flexible purpose end delete begin insert socially responsible end insert
corporation’s efforts in connection with its special purpose or
purposes. The special purpose MD&A shall also include the
following information:

(1) Identification and discussion of the short-term and long-term
objectives of the begin delete flexible purpose end delete begin insert socially responsible end insert corporation
relating to its special purpose or purposes, and an identification
and explanation of any changes made in those special purpose
objectives during the fiscal year.

(2) Identification and discussion of the material actions taken
by the begin delete flexible purpose end delete begin insert socially responsible end insert corporation during the
fiscal year to achieve its special purpose objectives, the impact of
those actions, including the causal relationships between the actions
and the reported outcomes, and the extent to which those actions
achieved the special purpose objectives for the fiscal year.

(3) Identification and discussion of material actions, including
the intended impact of those actions, that the begin delete flexible purpose end delete
begin insert socially responsible end insert corporation expects to take in the short term
and long term with respect to achievement of its special purpose
objectives.

(4) A description of the process for selecting, and an
identification and description of, the financial, operating, and other
measures used by the begin delete flexible purpose end delete begin insert socially responsible end insert
corporation during the fiscal year for evaluating its performance
in achieving its special purpose objectives, including an explanation
of why the begin delete flexible purpose end delete begin insert socially responsible end insert corporation
selected those measures and identification and discussion of the
nature and rationale for any material changes in those measures
made during the fiscal year.

(5) Identification and discussion of any material operating and
capital expenditures incurred by the begin delete flexible purpose end delete begin insert socially
responsible end insert corporation during the fiscal year in furtherance of
achieving the special purpose objectives, a good faith estimate of
any additional material operating or capital expenditures the
begin delete flexible purpose end delete begin insert socially responsible end insert corporation expects to incur
over the next three fiscal years in order to achieve its special
purpose objectives, and other material expenditures of resources
incurred by the begin delete flexible purpose end delete begin insert socially responsible end insert corporation
during the fiscal year, including employee time, in furtherance of
achieving the special purpose objectives, including a discussion
of the extent to which that capital or use of other resources serves
purposes other than and in addition to furthering the achievement
of the special purpose objectives.

(c) Except as may otherwise be excused pursuant to subdivision
(h) of Section 1501.5, the reports specified in subdivisions (a) and
(b) shall be sent to the shareholders at least 15 days, or, if sent by
bulk mail, 35 days, prior to the annual meeting of shareholders to
be held during the next fiscal year. This requirement shall not limit
the requirement for holding an annual meeting as required by
Section 600.

(d) If no annual report for the last fiscal year has been sent to
shareholders, the begin delete flexible purpose end delete begin insert socially responsible end insert corporation
shall, upon the written request of any shareholder made more than
120 days after the end of that fiscal year, deliver or mail to the
person making the request within 30 days following the request,
the statements required by subdivisions (a) and (b) for that fiscal
year.

(e) A shareholder or shareholders holding at least 5 percent of
the outstanding shares of any class of a begin delete flexible purpose end delete begin insert socially
responsible end insert corporation may make a written request to the begin delete flexible
purpose end delete begin insert socially responsible end insert corporation for an income statement
of the begin delete flexible purpose end delete begin insert socially responsible end insert corporation for the
three-month, six-month, or nine-month period of the current fiscal
year ended more than 30 days prior to the date of the request and
a balance sheet of the begin delete flexible purpose end delete begin insert socially responsible end insert
corporation as at the end of that period and, in addition, if no annual
report for the most recent fiscal year has been sent to the
shareholders, the statements referred to in subdivisions (a) and (b)
relating to that fiscal year. The statements shall be delivered or
mailed to the person making the request within 30 days following
the request. A copy of the statements shall be kept on file in the
principal office of the begin delete flexible purpose end delete begin insert socially responsible end insert
corporation for 12 months and shall be exhibited at all reasonable
times to any shareholder demanding an examination of the
statements or a copy shall be mailed to the shareholder. The
quarterly income statements and balance sheets referred to in this
subdivision shall be accompanied by the report thereon, if any, of
any independent accountants engaged by the begin delete flexible purpose end delete
begin insert socially responsible end insert corporation or the certificate of an authorized
officer of the begin delete flexible purpose end delete begin insert socially responsible end insert corporation
that the financial statements were prepared without audit from the
books and records of the begin delete flexible purpose end delete begin insert socially responsible end insert
corporation.

SEC. 63.  

Section 3501 of the Corporations Code is amended
to read:

3501.  

(a) The board shall cause a special purpose current report
to be sent to the shareholders not later than 45 days following the
occurrence of any one or more of the events specified in
subdivision (b) or (c), and, to the extent consistent with reasonable
confidentiality requirements, shall cause the special purpose current
report to be made publicly available by posting it on the begin delete flexible
purpose end delete begin insert socially responsible end insert corporation’s Internet Web site or
providing it through similar electronic means.

(b) Unless previously reported in the most recent annual report,
the special purpose current report shall identify and discuss, in
reasonable detail, any expenditure or group of related or planned
expenditures, excluding compensation of officers and directors,
made in furtherance of the special purpose objectives, whether an
operating expenditure, a capital expenditure, or some other
expenditure of corporate resources, including, but not limited to,
employee time, whether the expenditure was direct or indirect,
and whether the expenditure was categorized as overhead or
otherwise where the expenditure has or is likely to have a material
adverse impact on the begin delete flexible purpose end delete begin insert socially responsible end insert
corporation’s results of operations or financial condition for a
quarterly or annual fiscal period.

(c) Unless previously reported in the most recent annual report,
the special purpose current report shall identify and discuss, in
reasonable detail, any decision by the board or action by
management to do either of the following:

(1) Withhold expenditures or a group of related or planned
expenditures, whether temporarily or permanently, that were to
have been made in furtherance of the special purpose as
contemplated in the most recent annual report, whether those
planned expenditures were an operating expenditure, a capital
expenditure, or some other expenditure of corporate resources,
including, but not limited to, employee time, whether the planned
expenditure was direct or indirect, and whether the planned
expenditure to be made would have been categorized as overhead
or otherwise, in any case, where the planned expenditure was likely
to have had a material positive impact on the begin delete flexible purpose end delete
begin insert socially responsible end insert corporation’s impact in furtherance of its
special purpose objectives, as contemplated in the most recent
annual report.

(2) Determine that the special purpose has been satisfied or
should no longer be pursued, whether temporarily or permanently.

SEC. 64.  

Section 3502 of the Corporations Code is amended
to read:

3502.  

(a) Nothing contained in subdivision (b) of Section 3500
or Section 3501 shall require a detailing or itemization of every
relevant expenditure incurred, or planned or action taken or
planned, by the corporation. Management and the board shall use
their discretion in providing that information, including the
reasonable detail that a reasonable investor would consider
important in understanding the corporation’s objectives, actions,
impacts, measures, rationale, and results of operations as they
relate to the nature and achievement of the special purpose
objectives.

(b) Where best practices emerge for providing the information
required by subdivision (b) of Section 3500 or Section 3501, use
of those best practices shall create a presumption that the begin delete flexible
purpose end delete begin insert socially responsible end insert corporation caused all the information
required by those provisions to be provided. This presumption can
only be rebutted by showing that the reporting contained either a
misstatement of a material fact or omission of a material fact.

(c) Notwithstanding subdivision (b) of Section 3500 and Section
3501, under no circumstances shall the begin delete flexible purpose end delete begin insert socially
responsible end insert corporation be required to provide information that
would result in a violation of state or federal securities laws or
other applicable laws.

(d) The begin delete flexible purpose end delete begin insert socially responsible end insert corporation and
its officers and directors are expressly excluded from liability for
any and all forward looking statements supplied in the report
required by subdivision (b) of Section 3500 and Section 3501, so
long as those statements are supplied in good faith. Statements are
deemed to be forward looking as that term is defined in the federal
securities laws.

(e) The special purpose MD&A and any special purpose current
report shall be written in plain English and shall be provided in an
efficient and understandable manner, avoiding repetition and
disclosure of immaterial information.

(f) Unless otherwise provided by the articles or bylaws, and if
approved by the board of directors, the reports specified in
subdivision (b) of Section 3500 and Section 3501 and any
accompanying material sent pursuant to this section may be sent
by electronic transmission by the corporation.

(g) The financial statements of any begin delete flexible purpose end delete begin insert socially
responsible end insert corporation with fewer than 100 holders of record of
its shares, determined as provided in Section 605, required to be
furnished by begin delete subdivision (b) of end delete Section 3500 and Section 3501 are
not required to be prepared in conformity with generally accepted
accounting principles if they reasonably set forth the assets and
liabilities and the income and expense of the begin delete flexible purpose end delete
begin insert socially responsible end insert corporation and disclose the accounting basis
used in their preparation.

(h) Any corporation with fewer than 100 holders of record of
its shares, determined as provided in Section 605, shall not be
required to prepare and furnish the reports required by subdivision
(b) of Section 3500 and Section 3501, if and only if, the begin delete flexible
purpose end delete begin insert socially responsible end insert corporation holds unrevoked waivers
of such compliance executed by shareholders holding two-thirds
of the outstanding shares. That waiver shall remain valid and in
effect for each fiscal year that the begin delete flexible purpose end delete begin insert socially
responsible end insert corporation provides each waiving shareholder with
notice, prior to the end of that year, that the shareholder may revoke
the waiver and, on the 30th day following the end of the fiscal
year, the begin delete flexible purpose end delete begin insert socially responsible end insert corporation holds
unrevoked waivers to that compliance executed by shareholders
holding two-thirds of the outstanding shares. The shareholder
notice may be sent by electronic transmission pursuant to Section
20.

(i) The requirements described in Section 3500 shall be satisfied
if a corporation with an outstanding class of securities registered
under Section 12 of the Securities Exchange Act of 1934 both
complies with Section 240.14a-16 of Title 17 of the Code of
Federal Regulations, as amended from time to time, with respect
to the obligation of a corporation to furnish an annual report to
shareholders pursuant to Section 240.14a-3(b) of Title 17 of the
Code of Federal Regulations, and includes the information required
by subdivision (b) of Section 3500 in the annual report.

(j) The requirements described in Section 3501 shall be satisfied
if a corporation with an outstanding class of securities registered
under Section 12 of the Securities Exchange Act of 1934 both
complies with Section 240.13a-13 of Title 17 of the Code of
Federal Regulations, as amended from time to time, with respect
to the obligation of a corporation to furnish a quarterly report to
shareholders, and includes the information required by subdivision
(b) of Section 3501 in the quarterly report.

(k) In addition to the penalties provided for in this division, the
superior court of the proper county shall enforce the duty of making
and mailing or delivering the information and financial statements
required by subdivision (b) of Section 3500 and Section 3501 and,
for good cause shown, may extend the time therefor.

(l) In any action or proceeding with respect to Section 3500 or
3501, if the court finds the failure of the begin delete flexible purpose end delete begin insert socially
responsible end insert corporation to comply with the requirements of those
sections to have been without justification, the court may award
an amount sufficient to reimburse the shareholder for the reasonable
expenses incurred by the shareholder, including attorney’s fees,
in connection with the action or proceeding.

(m) Subdivision (b) of Section 3500 and Section 3501 apply to
any domestic begin delete flexible purpose end delete begin insert socially responsible end insert corporation
and also to a foreign begin delete flexible purpose end delete begin insert socially responsible end insert
corporation having its principal executive office in this state or
customarily holding meetings of its board in this state.

(n) All reports and notices required by subdivision (b) of Section
3500 and Section 3501 shall be maintained by the begin delete flexible purpose end delete
begin insert socially responsible end insert corporation, in an electronic form for a period
of not less than 10 years.

SEC. 65.  

Section 3503 of the Corporations Code is amended
to read:

3503.  

Any officers, directors, employees, or agents of a begin delete flexible
purpose end delete begin insert socially responsible end insert corporation who do any of the
following shall be liable jointly and severally for all the damages
resulting therefrom to the begin delete flexible purpose end delete begin insert socially responsible end insert
corporation or any person injured by those actions who relied on
those actions or to both:

(a) Make, issue, deliver or publish any prospectus, report,
including the reports required pursuant to subdivision (b) of Section
3500 and Section 3501, circular, certificate, financial statement,
balance sheet, public notice, or document respecting the begin delete flexible
purpose end delete begin insert socially responsible end insert corporation or its shares, assets,
liabilities, capital, dividends, business, earnings, or accounts which
is false in any material respect, knowing it to be false, or participate
in the making, issuance, delivery, or publication thereof with
knowledge that the same is false in a material respect.

(b) Make or cause to be made in the books, minutes, records or
accounts of a begin delete flexible purpose end delete begin insert socially responsible end insert corporation
any entry that is false in any material particular knowing it to be
false.

(c) Remove, erase, alter, or cancel any entry in any books or
records of the begin delete flexible purpose end delete begin insert socially responsible end insert corporation,
with intent to deceive.

(d) With respect to the reports required pursuant to subdivision
(b) of Section 3500 and Section 3501, omit to state any material
fact necessary in order to make the statements contained therein,
in light of the circumstances under which those statements were
made, not misleading in a material respect, knowing the omission
to be misleading.