BILL NUMBER: SB 1301 AMENDED
BILL TEXT
AMENDED IN SENATE APRIL 22, 2014
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 amended, DeSaulnier. Corporate Flexibility Act of
2011: Socially Responsible Social Purpose
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 Social Purpose Corporations Act and
rename the type of corporation authorized and regulated under that
act as a socially responsible social purpose
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 "social
purpose 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 social purpose
corporation.
This bill would require, for corporations organized on and after
January 1, 2015, a statement that the corporation is organized as a
social purpose corporation under the Social Purpose Corporations Act.
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
"social purpose 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 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, socially responsible
social purpose corporation, association
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 socially responsible social purpose
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 1800, and 1904.
SEC. 3. Section 171.08 of the Corporations Code is amended to
read:
171.08. "Socially responsible "Social
purpose corporation" means any socially responsible
social purpose 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), socially responsible 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
socially responsible social purpose
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 socially responsible social purpose
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
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 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 socially responsible
social purpose 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, including, but not limited to, a limited liability
company, a partnership or a socially responsible
partnership, or social purpose corporation, 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, including, but not limited to,
a limited liability company, a partnership or a socially
responsible partnership, or social purpose
corporation, 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 socially
responsible social purpose 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 socially
responsible social purpose 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 socially responsible
soc ial purpose corporation, domestic
partnership, domestic limited partnership
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 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
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 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 socially responsible social purpose
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. SOCIALLY RESPONSIBLE
SOCIAL PURPOSE CORPORATIONS ACT
SEC. 12. Section 2500 of the Corporations Code is amended to read:
2500. This division shall be known and may be cited as the
Socially Responsible Social Purpose
Corporations Act.
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
"socially responsible "social purpose
corporation."
SEC. 14. Section 2502 of the Corporations Code is amended to read:
2502. This division applies only to socially responsible
social purpose corporations organized expressly
under this division whether organized or existing under this
division or merged or converted into a socially responsible
social purpose 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 socially responsible
social purpose corporation organized under the laws of this
state or similar foreign socially responsible
social purpose 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 socially
responsible social purpose corporation or
similar foreign socially responsible social
purpose 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 socially responsible social
purpose 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 socially responsible social
purpose corporation formed under this division shall, in
respect of its property, as a condition of its existence as a
socially responsible social purpose
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 socially responsible
social purpose 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 socially responsible
social purpose 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 socially responsible
social purpose 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 socially responsible
social purpose corporation" means a socially
responsible social purpose corporation that is
also a close corporation.
SEC. 21. Section 2504 of the Corporations Code is amended to read:
2504. "Constituent socially responsible
social purpose corporation" means a socially
responsible social purpose corporation that is
merged with or into one or more corporations or one or more other
business entities and includes a surviving socially
responsible social purpose corporation.
SEC. 22. Section 2506 of the Corporations Code is amended to read:
2506. "Disappearing socially responsible
social purpose corporation" means a constituent socially
responsible corporation that is not the surviving entity.
SEC. 23. Section 2507 of the Corporations Code is amended to read:
2507. "Domestic socially responsible
social purpose corporation" means a corporation organized under
this division.
SEC. 24. Section 2509 of the Corporations Code is amended to read:
2509. "Socially responsible "Social
purpose corporation," 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. "Socially responsible "Social
purpose corporation subject to the Banking Law" means any of
the following:
(a) A socially responsible social purpose
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 socially responsible social
purpose 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 socially responsible social
purpose corporation, other than a socially responsible
social purpose 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 socially responsible social
purpose 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 socially responsible social
purpose 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. "Socially responsible "Social
purpose corporation subject to the Insurance Code as an insurer"
means a socially responsible social purpose
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 socially responsible social purpose
corporation, foreign socially responsible
social purpose corporation, or other business entity in
exchange, in whole or in part, for its equity securities, or the
equity securities of a domestic socially responsible corporation, a
foreign socially responsible corporation, or an other business entity
that is in control of the acquiring entity, of equity securities of
another domestic socially responsible social
purpose corporation, foreign socially responsible
social purpose 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 socially responsible social purpose
corporation, foreign socially responsible
social purpose corporation, or other business entity in
exchange in whole or in part for its equity securities, or the equity
securities of a domestic socially responsible
social purpose corporation, a foreign socially responsible
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 socially responsible social purpose
corporation, foreign socially responsible
social purpose 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 socially
responsible social purpose corporation, foreign
socially responsible social purpose
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
socially responsible social purpose
corporation in exchange in whole or in part for its equity
securities, or the equity securities of a corporation or a
socially responsible social purpose corporation
that is in control of the acquiring socially responsible
social purpose corporation, of shares of another
corporation or socially responsible social
purpose 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
socially responsible social purpose
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 socially responsible social purpose
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 socially responsible 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 socially
responsible social purpose corporation for
purposes of measuring the impact of the socially responsible
social purpose 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 socially responsible
social purpose corporation" means a socially
responsible social purpose 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, socially responsible social
purpose corporations, or corporations, domestic or foreign, may
form a socially responsible social purpose
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 two-thirds 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
socially responsible social purpose
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
socially responsible corporation had itself incurred them. The
incumbent trustees of the association shall constitute the initial
directors of the socially responsible social
purpose 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 socially
responsible social purpose corporation, or the
socially responsible social purpose
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 socially responsible
social purpose 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"
"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 socially responsible corporation subject
to the Banking Law on which is endorsed the approval of the
Commissioner of Financial Institutions.
(b) (1) 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 socially
responsible social purpose 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 socially responsible social
purpose 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 socially responsible corporation pursuant
to this title, except that a socially responsible
social purpose corporation may adopt a name that is
substantially the same as an existing corporation or
socially responsible social purpose 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 socially
responsible 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 socially responsible social purpose
corporation of a name in violation of this section may be
enjoined notwithstanding the filing of its articles by the Secretary
of State.
(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 social
purpose 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 "social purpose
corporation" and may, but is not required to, amend its articles of
incorporation to replace the term "flexible purpose corporation" with
"socially responsible "social purpose
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
"social purpose corporation."
(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 socially responsible social
purpose corporation. No consecutive reservations shall be made
by or for the use or benefit of the same person, partnership, firm,
corporation corporation, or
socially responsible social purpose 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 socially responsible
social purpose corporation that shall contain the words
"socially responsible corporation" or an abbreviation of those words.
(b) (1) Either of the following statements, as applicable:
(A) "The purpose of this socially responsible
social purpose corporation is to engage in any lawful act
or activity for which a socially responsible
social purpose 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
socially responsible social purpose corporation
and its shareholders and in furtherance of the following enumerated
purposes ____."
(B) "The purpose of this socially responsible
social purpose 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 socially responsible
social purpose corporation engaging in that profession by
applicable laws and regulations, for the benefit of the long-term and
the short-term interests of the socially responsible
social purpose corporation and its shareholders
and in furtherance of the following enumerated purposes ____."
(2) A statement that a purpose of the socially responsible
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 socially responsible social purpose
corporation's activities upon any of the following:
(i) The socially responsible social
purpose corporation's employees, suppliers, customers, and
creditors.
(ii) The community and society.
(iii) The environment.
(3) A (A) For
corporations organized before January 1, 2015, a statement that
the socially responsible corporation is organized
as a socially responsible flexible purpose
corporation under the Corporate Flexibility Act of 2011.
(B) For corporations organized on and after January 1, 2015, a
statement that the corporation is organized as a social purpose
corporation under the Social Purpose Corporations Act.
(4) If the socially responsible social
purpose corporation is a socially responsible
social purpose 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 socially responsible social
purpose corporation is a socially responsible
social purpose corporation subject to the
Insurance Code as an insurer, the articles shall additionally state
that the business of the socially responsible
social purpose corporation is to be an insurer.
(6) If the socially responsible social
purpose 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
socially responsible 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 socially responsible social
purpose corporation is a close socially responsible
social purpose corporation, a statement as
required by subdivision (a) of Section 158.
(c) The name and street address in this state of the
socially responsible social purpose 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 socially responsible social
purpose corporation is authorized to issue only one class of
shares, the total number of shares that the socially
responsible social purpose corporation is
authorized to issue.
(g) If the socially responsible social
purpose 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
socially responsible social purpose corporation
is authorized to issue and the total number of shares of each series
that the socially responsible social purpose
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 socially
responsible social purpose 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
socially responsible social purpose 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 socially responsible social purpose
corporation may engage or the powers which the
socially responsible social purpose corporation
may exercise, or both.
(7) A provision conferring upon the holders of any evidences of
indebtedness, issued or to be issued by the socially
responsible social purpose 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 socially responsible social
purpose corporation for breach of a director's duties to the
socially responsible 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 socially responsible social
purpose 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 socially responsible social
purpose 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 socially responsible 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 socially responsible social purpose
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 socially
responsible social purpose corporation for
breach of duty to the socially responsible
social purpose 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
socially responsible social purpose
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 socially responsible
social purpose corporation, any socially
responsible social purpose corporation other
than a socially responsible social purpose
corporation subject to the Banking Law or a professional
socially responsible social purpose
corporation may engage in any business activity. A socially
responsible social purpose corporation subject
to the Banking Law or a professional socially responsible 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
socially responsible social purpose
corporation, a socially responsible social
purpose 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 trusts, and provisions for any or all of
the directors, officers, and employees of the socially
responsible social purpose 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 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 socially responsible
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 socially responsible 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 shall consider
those factors, and give weight to those factors, as the director
deems relevant, including the short-term and long-term prospects of
the socially responsible social purpose
corporation, the best interests of the socially responsible
social purpose corporation and its
shareholders, and the purposes of the socially responsible
social purpose 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 socially responsible
social purpose 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 socially responsible social purpose
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
socially responsible social purpose 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
socially responsible social purpose corporation
who approve any of the following corporate actions shall be jointly
and severally liable to the socially responsible
social purpose 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 socially responsible
social purpose corporation, without paying or
adequately providing for all known liabilities of the
socially responsible social purpose 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 socially
responsible social purpose 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
socially responsible social purpose 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 socially responsible social
purpose corporation as a result of the illegal loan or
guaranty, respectively, but not exceeding the liabilities of the
socially responsible social purpose
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 socially responsible 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 socially responsible corporation, or
is or was serving at the request of the socially responsible
social purpose corporation as a director,
officer, employee 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 socially responsible
social purpose 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
socially responsible social purpose 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 socially responsible social
purpose 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 socially responsible social purpose
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 socially responsible
social purpose corporation would have the power
to indemnify the agent against that liability under this section. The
fact that a socially responsible social
purpose 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 socially responsible
social purpose 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 socially responsible social purpose
corporation. A socially responsible
social purpose 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
socially responsible social purpose 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 socially responsible
social purpose 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 socially responsible
social purpose 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 socially responsible social
purpose 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 socially responsible social purpose
corporation.
(d) All certificates representing shares of a close
socially responsible social purpose corporation
shall contain, in addition to any other statements required by this
section, the following conspicuous legend on the face thereof:
"This socially responsible social purpose
corporation is a close socially responsible
social purpose 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 bylaws, and any agreements on
file with the secretary of the socially responsible
social purpose corporation for further
restrictions."
(e) Any attempted voluntary inter vivos transfer of the shares of
a close socially responsible social purpose
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).
(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 "social purpose
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 "social purpose
corporation."
SEC. 45. Section 2900 of the Corporations Code is amended to read:
2900. (a) As used in this section:
(1) "Socially responsible "Social purpose
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 socially responsible
social purpose corporation under this section by any party
other than a shareholder of the socially responsible
social purpose corporation.
(c) No action may be instituted or maintained in right of any
domestic or foreign socially responsible
social purpose corporation by any holder of shares or of voting
trust certificates of the socially responsible
social purpose 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 socially responsible
social purpose 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 socially responsible social purpose
corporation or any shareholder of the socially responsible
social purpose 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 socially responsible
corporation or the board in writing of the ultimate facts of each
cause of action against each defendant or delivered to the
socially responsible social purpose 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 socially responsible
corporation or upon any defendant who is an officer or director of
the socially responsible social purpose
corporation, or held that office at the time of the acts complained
of, the socially responsible social purpose
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 socially responsible social
purpose corporation or its shareholders.
(2) The moving party, if other than the socially responsible
corporation, did not participate in the transaction complained of in
any capacity.
The court on application of the socially responsible 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 socially
responsible social purpose
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 socially responsible
social purpose corporation in connection with
the action, including expenses for which the socially
responsible social purpose 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 socially responsible
social purpose 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
socially responsible social purpose 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
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
socially responsible social purpose
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 socially responsible social
purpose 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 socially responsible
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 socially responsible social
purpose 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.
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.
(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 socially responsible social
purpose 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 two-thirds of 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
socially responsible social purpose
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 socially responsible
corporation, the principal terms of the sale shall be approved by at
least 90 percent of the voting power of the disposing
socially responsible social purpose corporation
unless the disposition is to a domestic or foreign other business
entity or socially responsible social purpose
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 socially responsible
social purpose corporation in a merger is a close
socially responsible social purpose
corporation and the surviving socially responsible
social purpose corporation is not a close
socially responsible social purpose 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 socially responsible social
purpose 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
socially responsible social purpose corporation
and the surviving entity is not a socially responsible
social purpose corporation, or is a
socially responsible social purpose 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 socially responsible
social purpose 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.
SEC. 52. Section 3202 of the Corporations Code is amended to read:
3202. If a disappearing socially responsible
social purpose corporation in a merger is a
socially responsible social purpose 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 socially responsible social
purpose 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 socially responsible
social purpose corporations may merge with one or more
other business entities. One or more domestic socially
responsible social purpose 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 socially responsible
social purpose corporations with any number of other business
entities may be effected only if:
(1) In a merger in which a domestic socially responsible
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 socially responsible social
purpose 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 socially responsible
social purpose 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 socially responsible
social purpose corporation, if applicable, to be
effected by the merger. If any amendment changes the name of the
surviving socially responsible social purpose
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
socially responsible social purpose
corporation into shares, interests, or other securities of the
surviving party. If any shares of any constituent socially
responsible social purpose 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
socially responsible social purpose
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 socially responsible
social purpose 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
socially responsible social purpose
corporation may be converted only into nonredeemable common shares of
a surviving socially responsible social
purpose corporation or a parent party or nonredeemable equity
securities of a surviving party other than a socially responsible
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 socially responsible social purpose
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 socially responsible
social purpose 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 socially responsible
social purpose 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 socially responsible
social purpose 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 socially
responsible social purpose 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 socially responsible social
purpose 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
surviving party shall file a copy of the agreement of merger with an
officers' certificate of each constituent domestic socially
responsible social purpose corporation and
foreign socially responsible social purpose
corporation attached stating the total number of outstanding
shares 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 socially responsible
social purpose corporation by a vote of a number
of shares 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 socially responsible
social purpose 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
socially responsible social purpose
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 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, 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 socially responsible
social purpose 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 socially
responsible social purpose 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
socially responsible social purpose
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 socially responsible
social purpose 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 socially responsible social
purpose 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 socially responsible
social purpose 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 socially responsible
corporation or domestic other business entity, the merger proceedings
with respect to that party and any domestic disappearing
socially responsible social purpose 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 socially
responsible social purpose 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 applicable, the merger
shall be effective as to each domestic constituent socially
responsible social purpose 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
socially responsible social purpose 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
socially responsible social purpose
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 socially responsible
social purpose corporation are suspended at the time of
effectiveness in the foreign jurisdiction, the merger shall be
effective as to the domestic disappearing socially
responsible social purpose corporation as of the
date of filing in this state.
(6) In a merger described in paragraph (3) or (4), each foreign
disappearing socially responsible social
purpose 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 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 socially responsible social
purpose corporation" means a socially responsible
social purpose 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 socially responsible
social purpose corporation under this chapter.
(c) "Converting socially responsible
social purpose corporation" means a socially
responsible social purpose 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 socially responsible social purpose
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 socially responsible social
purpose 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
socially responsible social purpose
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 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
socially responsible social purpose 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 socially responsible
social purpose 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
socially responsible social purpose 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 socially responsible social
purpose 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 socially responsible social
purpose 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 socially responsible
social purpose 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 socially responsible
social purpose 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 socially responsible social
purpose corporation.
(b) The plan of conversion shall be approved by the board of the
converting socially responsible social
purpose 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
socially responsible social purpose corporation.
The approval of at least two-thirds of the outstanding shares may be
given before or after approval by the board. 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.
(c) If the socially responsible social
purpose 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 socially responsible social
purpose 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
socially responsible corporation social
purpose 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 socially responsible social
purpose corporation, or by the shareholders of a converting
socially responsible social purpose
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
socially responsible social purpose
corporation converting into a domestic other business entity, the
converting socially responsible social
purpose 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 1155, duly certified by the Secretary of State on or after
the effective date, shall be conclusive evidence of the conversion of
the socially responsible social purpose
corporation.
SEC. 58. Section 3304 of the Corporations Code is amended to read:
3304. (a) To convert a socially responsible
social purpose corporation:
(1) If the socially responsible social
purpose 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 socially responsible social
purpose 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 socially responsible social
purpose 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 socially responsible social
purpose 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
socially responsible social purpose
corporation shall be executed and acknowledged by those officers of
the converting socially responsible social
purpose 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 socially responsible social
purpose 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
socially responsible social purpose corporation
and no converting socially responsible
social purpose 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 partnership, or
domestic limited liability company shall be deemed to have assumed
the liability of the converting socially responsible
social purpose corporation to prepare and file
or cause to be prepared and filed all tax and information returns
otherwise required of the converting socially responsible 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 with dissenting rights, as defined in
subdivision (b) of Section 1300, of a converting socially
responsible social purpose 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 socially responsible
social purpose 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 1157 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 socially responsible
social purpose corporation in a merger reorganization.
(b) The acquiring socially responsible
social purpose corporation in an exchange reorganization.
(c) The acquiring socially responsible
social purpose corporation and the socially responsible
social purpose corporation whose property and
assets are acquired in a sale-of-assets reorganization.
(d) The acquiring socially responsible
social purpose corporation in a share exchange tender offer.
(e) The socially responsible social
purpose corporation in control of any constituent or acquiring
domestic or foreign socially responsible
social purpose 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
socially responsible social purpose 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 socially
responsible social purpose
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 socially responsible
social purpose 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 socially responsible social
purpose corporation or a parent party possessing more than
five-sixths of the voting power of the surviving or acquiring
socially responsible social purpose
corporation or parent party. In making the determination of ownership
by the shareholders of a socially responsible
social purpose 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 socially responsible social purpose
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 socially responsible social
purpose corporation in a merger reorganization, as otherwise
required by Chapter 10 (commencing with Section 3400), 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 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 class of a socially responsible
social purpose 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 socially
responsible social purpose 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 socially
responsible social purpose 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 socially responsible
corporation that is a close socially responsible 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 socially responsible 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 socially responsible
social purpose 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 socially responsible
social purpose corporation, or receive interests
of a surviving socially responsible social
purpose 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 socially responsible
social purpose 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 socially
responsible social purpose 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 socially responsible social purpose
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 socially responsible
social purpose 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 socially responsible
social purpose corporation's officers and
directors believe to be reasonably necessary or appropriate to an
understanding of the socially responsible
social purpose 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 socially responsible social
purpose 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 socially responsible social purpose
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 socially
responsible social purpose 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 socially responsible
social purpose corporation during the fiscal year for
evaluating its performance in achieving its special purpose
objectives, including an explanation of why the socially
responsible social purpose 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 socially responsible 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 socially responsible
social purpose 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 socially responsible social purpose
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 socially responsible social
purpose 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 socially responsible
corporation may make a written request to the socially
responsible social purpose corporation for an
income statement of the socially responsible
social purpose 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
socially responsible social purpose 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 socially responsible social purpose
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 socially
responsible social purpose corporation or the
certificate of an authorized officer of the socially
responsible social purpose corporation that the
financial statements were prepared without audit from the books and
records of the socially responsible social
purpose 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
socially responsible social purpose 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 socially responsible social
purpose 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 socially responsible social purpose
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
socially responsible social purpose 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 socially responsible
corporation be required to provide information that would result in a
violation of state or federal securities laws or other applicable
laws.
(d) The socially responsible social
purpose 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 Sections
3500 and 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 socially responsible
corporation with fewer than 100 holders of record of its shares,
determined as provided in Section 605, required to be furnished by
Section 3500 and Section Sections 3500 and
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
socially responsible social purpose
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 socially
responsible social purpose 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 socially
responsible social purpose 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 socially
responsible social purpose 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 Sections 3500 and 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 socially responsible
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 socially responsible
social purpose corporation and also to a foreign
socially responsible social purpose 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
socially responsible social purpose
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
socially responsible social purpose corporation
who do any of the following shall be liable jointly and severally
for all the damages resulting therefrom to the socially
responsible social purpose corporation or any
person injured by those actions who relied on those actions or to
both:
(a) Make, issue, deliver deliver, or
publish any prospectus, report, including the reports required
pursuant to subdivision (b) of Section
Sections 3500 and Section 3501, circular,
certificate, financial statement, balance sheet, public notice, or
document respecting the socially responsible
social purpose 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 records, or accounts of a
socially responsible social purpose 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 socially responsible social
purpose 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.