Amended in Assembly June 30, 2014

Amended in Assembly June 11, 2014

Amended in Assembly May 29, 2014

Amended in Senate April 22, 2014

Senate Bill No. 1301

Introduced by Senator DeSaulnier

February 21, 2014

An act to amend Sections 107, 158, 171.08, 911, 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, 3503, 5813.5, 7813.5, 9621, and 12504 of, to amend the heading of Division 1.5 (commencing with Section 2500) of Title 1 of, and to add Section 3307 to, the Corporations Code, relating to corporations.

LEGISLATIVE COUNSEL’S DIGEST

SB 1301, as amended, DeSaulnier. Corporate Flexibility Act of 2011: 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 Social Purpose Corporations Act and rename the type of corporation authorized and regulated under that act as a 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 authorize a corporation formed pursuant to the act before January 1, 2015, to elect to change its status from a flexible purpose corporation to a social purpose corporation by amending its articles of incorporation, as provided. The bill would require that any reference in the act to social purpose corporation be deemed a reference to flexible purpose corporation, for any flexible purpose corporation formed prior to January 1, 2015, that has not amended its articles of incorporation to change its status to a 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 revise one of the factors and would require the director to consider those factors. This bill would authorize shareholders to maintain a derivative lawsuit to enforce this requirement.

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 “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 instead provide that a corporation formed under the act may change its status to that of a business corporation. This bill would provide that if the status change 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.

Under the act, the board of a corporation formed under the act is required to cause an annual report to be sent to the shareholders, provided with a management discussion and analysis (special purpose MD&A) that contains specified information concerning the corporation’s stated purposes. Existing law exempts the annual report and special purpose MD&A requirement for corporations formed under the act with fewer than 100 holders of record of its shares if specified conditions exist.

This bill would revise the information required to be contained in the special purpose MD&A. This bill would repeal the exemption.

Existing law sets forth procedures for how a corporation formed pursuant to the Corporate Flexibility Act of 2011 can convert or change their status into other types of entities and how other entities can convert or change their status to a corporation formed pursuant to the Corporate Flexibility Act of 2011.

This bill would revise those procedures.

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

Vote: majority. Appropriation: no. Fiscal committee: no. State-mandated local program: no.

The people of the State of California do enact as follows:

SECTION 1.  

Section 107 of the Corporations Code is amended
to read:

107.  

No corporation, social purpose corporation, association,
or individual shall issue or put in circulation, as money, anything
but the lawful money of the United States.

SEC. 2.  

Section 158 of the Corporations Code is amended to
read:

158.  

(a) “Close corporation” means a corporation, including
a close 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, and 1904.

SEC. 3.  

Section 171.08 of the Corporations Code is amended
to read:

171.08.  

“Social purpose corporation” means any social purpose
corporation formed under Division 1.5 (commencing with Section
2500).

SEC. 4.  

Section 911 of the Corporations Code is amended to
read:

911.  

(a) A corporation may, by amendment of its articles
pursuant to this section, change its status to that of a social purpose
corporation, nonprofit public benefit corporation, nonprofit mutual
benefit corporation, nonprofit religious corporation, or cooperative
corporation.

(b) The amendment of the articles to change status 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 such 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 begin delete change end delete
begin insert conversion end insert of those shares to memberships of the nonprofit
corporation. The amendment of the articles to change status to a
cooperative corporation shall revise the statement of purpose, make
such 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 begin delete change end delete begin insert conversion end insert of those shares to memberships of
the cooperative corporation, if necessary.

(c) If shares have been issued, an amendment to change status
to a nonprofit corporation shall be approved by all of the
outstanding shares of all classes regardless of limitations or
restrictions on the voting rights thereof and an amendment to
change status to a cooperative corporation shall be approved by
the outstanding shares (Section 152) of each class regardless of
limitations or restrictions on the voting rights thereof.

(d) In the case of a change of status to a social purpose
corporation:

(1) The corporation shall modify the name of the corporation,
revise the statement of purpose, include the statement required by
subparagraph (B) of paragraph (3) of subdivision (b) of Section
2602, and make such other conforming changes as may be
necessary or desired.

(2) The amendment 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 changing
corporation.

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

(f) Notwithstanding subdivision (c), if a corporation is a mutual
water company within the meaning of Section 2705 of the Public
Utilities Code and under the terms of the status change each
outstanding share is begin delete changed end delete begin insert converted end insert to a membership of a
nonprofit mutual benefit corporation, an amendment to change
status to a nonprofit mutual benefit corporation shall be approved
by the outstanding shares (Section 152) of each class regardless
of limitations or restrictions on the voting rights thereof.

SEC. 5.  

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), social purpose 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 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. 6.  

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 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. 7.  

Section 1113 of the Corporations Code is amended to
read:

1113.  

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

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

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

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

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

(1) The terms and conditions of the merger.

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

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

(4) The manner of converting the shares of each constituent
corporation into shares, interests, or other securities of the surviving
party. If any shares of any constituent corporation are not to be
converted solely into shares, interests, or other securities of the
surviving party, the agreement of merger shall state (A) the cash,
rights, securities, or other property which the holders of those
shares are to receive in exchange for the shares, which cash, rights,
securities, or other property may be in addition to or in lieu of
shares, interests, or other securities of the surviving party, or (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 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 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. 8.  

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 or a partnership, 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 or a partnership, 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. 9.  

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) 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.

(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
corporation in the same manner and to the same extent as was
required for approval of the original plan of conversion.

(f) A plan of conversion may be abandoned by the board of a
converting 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.

(g) 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. 10.  

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.

(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 domestic partnership, domestic
limited partnership, or domestic limited liability company shall
be deemed to have assumed the liability of the converting
corporation (1) to prepare and file or cause to be prepared and filed
all tax and information returns otherwise required of the converting
corporation under the Corporation Tax Law (Part 11 (commencing
with Section 23001) of Division 2 of the Revenue and Taxation
Code) and (2) to pay any tax liability determined to be due pursuant
to that law.

SEC. 11.  

Section 1201 of the Corporations Code is amended
to read:

1201.  

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

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

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

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

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

(f) Notwithstanding subdivisions (a) and (b), the principal terms
of a reorganization shall be approved by at least two-thirds of each
class, or a greater vote if required in the articles, of the outstanding
shares (Section 152) of a corporation that is a party to a merger
reorganization if holders of shares receive shares of a surviving
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. 12.  

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

 

Division 1.5.  SOCIAL PURPOSE CORPORATIONS ACT

 

SEC. 13.  

Section 2500 of the Corporations Code is amended
to read:

2500.  

This division shall be known and may be cited as the
Social Purpose Corporations Act.

SEC. 14.  

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
“social purpose corporation.”

SEC. 15.  

Section 2502 of the Corporations Code is amended
to read:

2502.  

This division applies only to social purpose corporations
organized expressly under this division whether organized or
existing under this division or amended, merged or converted into
a social purpose corporation in accordance with Chapter 9
(commencing with Section 900) of Division 1, Chapter 11
(commencing with Section 1100) of Division 1 or Chapter 11.5
(commencing with Section 1150) of Division 1, including all
flexible purpose corporations formed under this division prior to
January 1, 2015, and now existing except as provided in paragraph
(2) of subdivision (b) of Section 2601 and paragraph (3) of
subdivision (b) of Section 2602.

SEC. 16.  

Section 2502.01 of the Corporations Code is amended
to read:

2502.01.  

Every social purpose corporation organized under
the laws of this state or similar foreign 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
social purpose corporation or similar foreign 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. 17.  

Section 2502.03 of the Corporations Code is amended
to read:

2502.03.  

A social purpose corporation may be sued in the same
manner as a corporation as provided in the Code of Civil Procedure.

SEC. 18.  

Section 2502.04 of the Corporations Code is amended
to read:

2502.04.  

A social purpose corporation formed under this
division shall, in respect of its property, as a condition of its
existence as a 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. 19.  

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 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. 20.  

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 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 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. 21.  

Section 2503.1 of the Corporations Code is amended
to read:

2503.1.  

“Close social purpose corporation” means a social
purpose corporation that is also a close corporation.

SEC. 22.  

Section 2504 of the Corporations Code is amended
to read:

2504.  

“Constituent social purpose corporation” means a social
purpose corporation that is merged with or into one or more
corporations or one or more other business entities and includes a
surviving social purpose corporation.

SEC. 23.  

Section 2506 of the Corporations Code is amended
to read:

2506.  

“Disappearing social purpose corporation” means a
constituent social purpose corporation that is not the surviving
entity.

SEC. 24.  

Section 2507 of the Corporations Code is amended
to read:

2507.  

“Domestic social purpose corporation” means a
corporation organized under this division.

SEC. 25.  

Section 2509 of the Corporations Code is amended
to read:

2509.  

“Social purpose corporation,” unless otherwise expressly
provided, refers only to a corporation organized under this division.

SEC. 26.  

Section 2510 of the Corporations Code is amended
to read:

2510.  

“Social purpose corporation subject to the Banking Law”
means any of the following:

(a) A 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 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 social purpose corporation, other than a 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 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 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. 27.  

Section 2510.1 of the Corporations Code is amended
to read:

2510.1.  

“Social purpose corporation subject to the Insurance
Code as an insurer” means a social purpose corporation that has
met the requirements of Sections 201.5, 201.6, and 201.7.

SEC. 28.  

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 social purpose corporation, foreign 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
social purpose corporation, a foreign social purpose corporation,
or an other business entity that is in control of the acquiring entity,
of equity securities of another domestic social purpose corporation,
foreign 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 social purpose corporation, foreign 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
social purpose corporation, a foreign social purpose 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 social
purpose corporation, foreign 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 social
purpose corporation, foreign social purpose corporation, or other
business entity.

SEC. 29.  

Section 2512 of the Corporations Code is amended
to read:

2512.  

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

SEC. 30.  

Section 2513 of the Corporations Code is amended
to read:

2513.  

“Special purpose” means the special purpose set forth
in a social purpose corporation’s articles pursuant to subdivision
(b) of Section 2602.

SEC. 31.  

Section 2514 of the Corporations Code is amended
to read:

2514.  

“Special purpose current report” means the report
required of a social purpose corporation pursuant to Section 3501.

SEC. 32.  

Section 2515 of the Corporations Code is amended
to read:

2515.  

“Special purpose MD&A” means the management
discussion and analysis required of a social purpose corporation
pursuant to subdivision (b) of Section 3500.

SEC. 33.  

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 social purpose
corporation for purposes of measuring the impact of the social
purpose corporation’s efforts relating to its special purpose in
accordance with Section 3500.

SEC. 34.  

Section 2517 of the Corporations Code is amended
to read:

2517.  

“Surviving social purpose corporation” means a social
purpose corporation into which one or more other corporations or
one or more other business entities is merged.

SEC. 35.  

Section 2600 of the Corporations Code is amended
to read:

2600.  

(a) One or more natural persons, partnerships,
associations, social purpose corporations, or corporations, domestic
or foreign, may form a 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. 36.  

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 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 social purpose corporation had itself incurred them. The
incumbent trustees of the association shall constitute the initial
directors of the 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
social purpose corporation, or the 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 social purpose corporation of all interests of the
association in and to the real property located in that county.

SEC. 37.  

Section 2601 of the Corporations Code is amended
to read:

2601.  

(a) The Secretary of State shall not file articles setting
forth a name in which “bank,” “trust,” “trustee,” or related words
appear, unless the certificate of approval of the Commissioner of
Financial Institutions is attached to the articles. This subdivision
does not apply to the articles of any social purpose 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 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 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 social
purpose corporation pursuant to this title, except that a social
purpose corporation may adopt a name that is substantially the
same as an existing corporation or 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 social
purpose 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 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 before
January 1, 2015, may elect to change its status from a flexible
purpose corporation to a social purpose corporation by amending
its articles of incorporation to change its name to replace “flexible
purpose corporation” with “social purpose corporation” and to
replace the term “flexible purpose corporation” with “social
purpose corporation” as applicable in any statements contained in
the articles. For any flexible purpose corporation formed prior to
January 1, 2015, that has not amended its articles of incorporation
to change its status to a social purpose corporation, any reference
in this division to social purpose corporation shall be deemed a
reference to “flexible 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 social purpose corporation. No consecutive
reservations shall be made by or for the use or benefit of the same
person, partnership, firm, corporation, or social purpose corporation
of names so similar as to fall within the prohibitions of subdivision
(b).

SEC. 38.  

Section 2602 of the Corporations Code is amended
to read:

2602.  

The articles of incorporation shall set forth:

(a) The name of the social purpose corporation that shall contain
the words “social purpose corporation” or an abbreviation of those
words.

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

(A) “The purpose of this social purpose corporation is to engage
in any lawful act or activity for which a 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 overall interests
of the social purpose corporation and its shareholders and in
furtherance of the following enumerated purposes ____.”

(B) “The purpose of this 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 social purpose corporation
engaging in that profession by applicable laws and regulations,
for the benefit of the overall interests of the social purpose
corporation and its shareholders and in furtherance of the following
enumerated purposes ____.”

(2) A statement that a purpose of the social purpose begin delete corporation end delete
begin insert corporation, in addition to the purpose stated pursuant to
paragraph (1), end insert is to engage in one or more of the following
begin insert enumerated end insert purposes, begin delete in addition to the purpose stated pursuant
to paragraph (1): end delete begin insert as also specified in the statement set forth
pursuant to paragraph (1): end insert

(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 effects of, or minimizing
adverse effects of, the social purpose corporation’s activities upon
any of the begin delete following: end delete begin insert following, provided that the corporation
consider the purpose in addition to or together with the financial
interests of the shareholders and compliance with legal obligations,
and take action consistent with that purpose: end insert

(i) The social purpose corporation’s employees, suppliers,
customers, and creditors.

(ii) The community and society.

(iii) The environment.

(3) (A) For any corporation organized under this division before
January 1, 2015, that has not elected to change its status to a social
purpose corporation, a statement that the corporation is organized
as a flexible purpose corporation under the Corporate Flexibility
Act of 2011. Such a corporation is not required to revise the
statements required in paragraphs (1) and (2) to conform to the
changes made by the act adding this subparagraph.

(B) For any corporation organized under this division on and
after January 1, 2015, or that has elected to change its status to a
social purpose corporation pursuant to paragraph (2) of subdivision
(b) of Section 2601, a statement that the corporation is organized
as a social purpose corporation under the Social Purpose
Corporations Act.

(4) If the social purpose corporation is a social purpose
corporation subject to the Banking Law (Division 1.1 (commencing
with Section 1000) 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 1.1 (commencing with
Section 1000) of the Financial Code).

(5) If the social purpose corporation is a social purpose
corporation subject to the Insurance Code as an insurer, the articles
shall additionally state that the business of the social purpose
corporation is to be an insurer.

(6) If the 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 social purpose 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 social purpose corporation is a close social purpose
corporation, a statement as required by subdivision (a) of Section
158.

(c) The name and street address in this state of the 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 social purpose corporation is authorized to issue only
one class of shares, the total number of shares that the social
purpose corporation is authorized to issue.

(g) If the 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 social
purpose corporation is authorized to issue and the total number of
shares of each series that the 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. 39.  

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 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 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 social purpose corporation may engage
or the powers which the 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 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 social purpose corporation for breach of a director’s
duties to the social purpose 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 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 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 social purpose
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 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 social purpose
corporation for breach of duty to the 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 social purpose corporation, including any provision that is
required or permitted by this division to be stated in the bylaws.

SEC. 40.  

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 social purpose corporation, any
social purpose corporation other than a social purpose corporation
subject to the Banking Law or a professional social purpose
corporation may engage in any business activity. A social purpose
corporation subject to the Banking Law or a professional social
purpose corporation may engage in any business activity not
prohibited by the respective statutes and regulations to which it is
subject.

SEC. 41.  

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
social purpose corporation, a 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, and
provisions for any or all of the directors, officers, and employees
of the 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, 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. 42.  

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 social purpose 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 social purpose 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 overall prospects of the social
purpose corporation, the best interests of the social purpose
corporation and its shareholders, and the purposes of the 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 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 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 social purpose
corporation and its shareholders.

SEC. 43.  

Section 2701 of the Corporations Code is amended
to read:

2701.  

(a) Subject to Section 2700, directors of a social purpose
corporation who approve any of the following corporate actions
shall be jointly and severally liable to the 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 social purpose corporation, without
paying or adequately providing for all known liabilities of the
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 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 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
social purpose corporation as a result of the illegal loan or guaranty,
respectively, but not exceeding the liabilities of the 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 social purpose 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. 44.  

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 social purpose corporation, or is
or was serving at the request of the social purpose corporation as
a director, officer, employee, or agent of another foreign or
domestic corporation, partnership, joint venture, trust, or other
enterprise, or was a director, officer, employee, or agent of a
foreign or domestic corporation which was a predecessor
corporation of the 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 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 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 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 social
purpose corporation would have the power to indemnify the agent
against that liability under this section. The fact that a 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 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 social purpose corporation. A 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. 45.  

Section 2800 of the Corporations Code is amended
to read:

2800.  

(a) All certificates representing shares of a 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 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 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 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 social purpose
corporation.

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

 

“This social purpose corporation is a close 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, and any
agreements on file with the secretary of the social purpose
corporation for further restrictions.”

 

(e) Any attempted voluntary inter vivos transfer of the shares
of a close 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 “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 “social purpose corporation.”

SEC. 46.  

Section 2900 of the Corporations Code is amended
to read:

2900.  

(a) As used in this section:

(1) “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) Shareholders of a social purpose corporation may maintain
a derivative lawsuit to enforce the requirements set forth in
subdivision (c) of Section 2700.

(c) No action may be instituted or maintained in right of any
domestic or foreign social purpose corporation under this section
by any party other than a shareholder of the social purpose
corporation.

(d) No action may be instituted or maintained in right of any
domestic or foreign social purpose corporation by any holder of
shares or of voting trust certificates of the 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 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 social purpose corporation or any shareholder of the 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 social purpose corporation or
the board in writing of the ultimate facts of each cause of action
against each defendant or delivered to the social purpose
corporation or the board a true copy of the complaint which
plaintiff proposes to file.

(e) In any action referred to in subdivision (c), at any time within
30 days after service of summons upon the social purpose
corporation or upon any defendant who is an officer or director of
the social purpose corporation, or held that office at the time of
the acts complained of, the 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 social purpose corporation or its shareholders.

(2) The moving party, if other than the social purpose
corporation, did not participate in the transaction complained of
in any capacity.

The court on application of the social purpose corporation or
any defendant may, for good cause shown, extend the 30-day
period for an additional period or periods not exceeding 60 days.

(f) At the hearing upon any motion pursuant to subdivision (d),
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 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 social purpose corporation in connection with the action,
including expenses for which the 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.

(g) If the plaintiff, either before or after a motion is made
pursuant to subdivision (d), 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.

(h) If a motion is filed pursuant to subdivision (d), no pleadings
need be filed by the 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. 47.  

Section 3000 of the Corporations Code is amended
to read:

3000.  

(a) A proposed amendment to the articles of a 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, 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 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. 48.  

Section 3001 of the Corporations Code is amended
to read:

3001.  

(a) A social purpose corporation may, by amendment
of its articles pursuant to this section, change its status to that of
a nonprofit public benefit corporation, nonprofit mutual benefit
corporation, nonprofit religious corporation, or cooperative
corporation.

(b) The amendment of the articles to change its status 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 begin delete change end delete
begin insert conversion end insert of those shares to memberships of the nonprofit
corporation. The amendment of the articles to change status 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 change of those shares to memberships of the cooperative
corporation, if necessary.

(c) If shares have been issued, an amendment to change status
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 change
status 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 begin delete change end delete begin insert conversion end insert of shares
shall be in the merger agreement rather than in the amendment of
the articles.

(e) Notwithstanding subdivision (c), if a social purpose
corporation is a mutual water company within the meaning of
Section 2705 of the Public Utilities Code and under the terms of
the status change each outstanding share is converted to a
membership of a nonprofit mutual benefit corporation, an
amendment to change begin insert status end insert 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. 49.  

Section 3002 of the Corporations Code is amended
to read:

3002.  

(a) A social purpose corporation may, by amendment
of its articles pursuant to this section, change its status to that of
a business corporation.

(b) The amendment of the articles to change status to a business
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 change status
to a business 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 status change 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 begin delete change end delete begin insert conversion end insert of shares
shall be in the merger agreement rather than in the amendment of
the articles.

SEC. 50.  

Section 3100 of the Corporations Code is amended
to read:

3100.  

(a) A 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 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 social purpose corporation,
the principal terms of the sale shall be approved by at least 90
percent of the voting power of the disposing social purpose
corporation unless the disposition is to a domestic or foreign other
business entity or 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. 51.  

Section 3200 of the Corporations Code is amended
to read:

3200.  

If any disappearing social purpose corporation in a
merger is a close social purpose corporation and the surviving
social purpose corporation is not a close 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
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. 52.  

Section 3201 of the Corporations Code is amended
to read:

3201.  

If any disappearing corporation in a merger is a social
purpose corporation and the surviving entity is not a social purpose
corporation, or is a 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
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. 53.  

Section 3202 of the Corporations Code is amended
to read:

3202.  

If a disappearing social purpose corporation in a merger
is a 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 social purpose corporation,
regardless of limitations or restrictions on their voting rights,
notwithstanding any provision of Chapter 10 (commencing with
Section 3400).

SEC. 54.  

Section 3203 of the Corporations Code is amended
to read:

3203.  

(a) Any one or more social purpose corporations may
merge with one or more other business entities. One or more
domestic 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 social purpose corporations with any number of other business
entities may be effected only if:

(1) In a merger in which a domestic social purpose 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 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 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 social purpose corporation,
if applicable, to be effected by the merger. If any amendment
changes the name of the surviving 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
social purpose corporation into shares, interests, or other securities
of the surviving party. If any shares of any constituent 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
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 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 social purpose
corporation may be converted only into nonredeemable common
shares of a surviving social purpose corporation or a parent party
or nonredeemable equity securities of a surviving party other than
a social purpose 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 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 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 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 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 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 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 social purpose corporation
and foreign 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 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 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 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 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 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
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 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 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 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 social purpose
corporation or domestic other business entity, the merger
proceedings with respect to that party and any domestic
disappearing 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 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 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 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 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 social purpose corporation are suspended
at the time of effectiveness in the foreign jurisdiction, the merger
shall be effective as to the domestic disappearing 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 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. 55.  

Section 3300 of the Corporations Code is amended
to read:

3300.  

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

(a) “Converted social purpose corporation” means a 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 3307.

(b) “Converted entity” means a domestic other business entity
that results from a conversion of a social purpose corporation under
this chapter.

(c) “Converting social purpose corporation” means a social
purpose corporation that converts into a domestic 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 social purpose corporation pursuant to Section 3307.

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

(f) “Foreign other business entity” has the meaning provided in
Section 171.07.

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

SEC. 56.  

Section 3301 of the Corporations Code is amended
to read:

3301.  

(a) A 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
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 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 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 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 social purpose corporation complies with any and all
other requirements of any other law that applies to conversion to
the converted entity.

SEC. 57.  

Section 3302 of the Corporations Code is amended
to read:

3302.  

(a) A 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 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 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 social purpose corporation.

(b) The plan of conversion shall be approved by the board of
the converting 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
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 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 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
social purpose corporation in the same manner and to the same
extent as was required for approval of the original plan of
conversion.

(f) A plan of conversion may be abandoned by the board of a
converting social purpose corporation, or by the shareholders of
a converting 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 17701.13 if the converted
entity is a domestic limited liability company. Upon the request
of a shareholder of a converting social 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. 58.  

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
social purpose corporation converting into a domestic other
business entity, the converting 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
begin delete Section 1155, end delete begin insert Section 3304, end insert duly certified by the Secretary of State
on or after the effective date, shall be conclusive evidence of the
conversion of the social purpose corporation.

SEC. 59.  

Section 3304 of the Corporations Code is amended
to read:

3304.  

(a) To convert a social purpose corporation:

(1) If the 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 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 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.

(b) Any statement or certificate of conversion of a converting
social purpose corporation shall be executed and acknowledged
by those officers of the converting 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 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 social
purpose corporation and no converting 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, or domestic limited liability company shall
be deemed to have assumed the liability of the converting social
purpose corporation to prepare and file or cause to be prepared
and filed all tax and information returns otherwise required of the
converting social purpose 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. 60.  

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 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 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 3307 shall be deemed to constitute a
reorganization.

SEC. 61.  

Section 3307 is added to the Corporations Code, to
read:

3307.  

(a) An other business entity or a foreign other business
entity or a foreign corporation may be converted into a social
purpose corporation pursuant to this chapter only if the converting
entity is authorized by the laws under which it is organized to
effect the conversion.

(b) An other business entity or a foreign other business entity
or a foreign corporation that desires to convert into a social purpose
corporation shall approve a plan of conversion or other instrument
as is required to be approved to effect the conversion pursuant to
the laws under which that entity is organized.

(c) The conversion of an other business entity or a foreign other
business entity or a foreign corporation shall be approved by the
number or percentage of the partners, members, shareholders, or
other holders of interest of the converting entity that is required
by the laws under which that entity is organized, or a greater or
lesser percentage as may be set forth in the converting entity’s
partnership agreement, articles of organization, operating
agreement, articles of incorporation, or other governing document
in accordance with applicable laws.

(d) The conversion by an other business entity or a foreign other
business entity or a foreign corporation shall be effective under
this chapter upon the filing with the Secretary of State of the
articles of incorporation of the converted corporation, containing
a statement of conversion that complies with subdivision (e).

(e) A statement of conversion of an entity converting into a
social purpose corporation pursuant to this chapter shall set forth
all of the following:

(1) The name, form, and jurisdiction of organization of the
converting entity.

(2) The Secretary of State’s file number, if any, of the converting
entity.

(3) If the converting entity is a foreign other business entity or
a foreign corporation, the statement of conversion shall contain
the following:

(A) A statement that the converting entity is authorized to effect
the conversion by the laws under which it is organized.

(B) A statement that the converting entity has approved a plan
of conversion or other instrument as is required to be approved to
effect the conversion pursuant to the laws under which the
converting entity is organized.

(C) A statement that the conversion has been approved by the
number or percentage of the partners, members, shareholders, or
other holders of interest of the converting entity that is required
by the laws under which that entity is organized, or a greater or
lesser percentage as may be set forth in the converting entity’s
partnership agreement, articles of organization, operating
agreement, articles of incorporation, or other governing document
in accordance with applicable laws.

(f) The filing with the Secretary of State of articles of
incorporation containing a statement pursuant to subdivision (e)
shall have the effect of the filing of a certificate of cancellation by
a converting foreign limited liability company or foreign limited
partnership, and no converting foreign limited liability company
or foreign limited partnership that has made the filing is required
to file a certificate of cancellation under Section 17708.06 or
15909.07 as a result of that conversion. If a converting entity is a
foreign corporation qualified to transact business in this state, the
foreign corporation shall, by virtue of the filing, automatically
surrender its right to transact intrastate business.

SEC. 62.  

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 social purpose corporation in a merger
reorganization.

(b) The acquiring social purpose corporation in an exchange
reorganization.

(c) The acquiring social purpose corporation and the social
purpose corporation whose property and assets are acquired in a
sale-of-assets reorganization.

(d) The acquiring social purpose corporation in a share exchange
tender offer.

(e) The social purpose corporation in control of any constituent
or acquiring domestic or foreign 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. 63.  

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 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
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 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 social purpose corporation
or a parent party possessing more than five-sixths of the voting
power of the surviving or acquiring social purpose corporation or
parent party. In making the determination of ownership by the
shareholders of a 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 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 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 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 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 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 social purpose corporation
that is a close social purpose 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 social
purpose 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 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 social purpose corporation, or receive
interests of a surviving 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. 64.  

Section 3500 of the Corporations Code is amended
to read:

3500.  

(a) The board of a 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 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 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
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 social purpose corporation’s officers
and directors believe to be reasonably necessary or appropriate to
an understanding of the 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 overall objectives of the
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 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 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 social purpose corporation during the fiscal
year for evaluating its performance in achieving its special purpose
objectives, including an explanation of why the 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 social purpose 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 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 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 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 social purpose corporation
may make a written request to the social purpose corporation for
an income statement of the 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 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 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 social purpose
corporation or the certificate of an authorized officer of the social
purpose corporation that the financial statements were prepared
without audit from the books and records of the social purpose
corporation.

SEC. 65.  

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 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 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 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. 66.  

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 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 social purpose corporation
be required to provide information that would result in a violation
of state or federal securities laws or other applicable laws.

(d) The 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 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 social purpose corporation
with fewer than 100 holders of record of its shares, determined as
provided in Section 605, required to be furnished by 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
social purpose corporation and disclose the accounting basis used
in their preparation.

(h) 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.

(i) 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.

(j) 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 Sections 3500 and 3501 and, for good cause shown,
may extend the time therefor.

(k) In any action or proceeding with respect to Section 3500 or
3501, if the court finds the failure of the social purpose 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.

(l) Section 3500 and Section 3501 apply to any domestic social
purpose corporation and also to a foreign social purpose
corporation having its principal executive office in this state or
customarily holding meetings of its board in this state.

(m) All reports and notices required by Section 3500 and Section
3501 shall be maintained by the social purpose corporation, in an
electronic form for a period of not less than 10 years.

SEC. 67.  

Section 3503 of the Corporations Code is amended
to read:

3503.  

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

(a) Make, issue, deliver, or publish any prospectus, report,
including the reports required pursuant to Sections 3500 and 3501,
circular, certificate, financial statement, balance sheet, public
notice, or document respecting the 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,
or accounts of a 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 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.

SEC. 68.  

Section 5813.5 of the Corporations Code is amended
to read:

5813.5.  

(a) A public benefit corporation may amend its articles
to change its status to that of a mutual benefit corporation, a social
purpose corporation, a religious corporation, a business corporation,
or a cooperative corporation by complying with this section and
the other sections of this chapter.

The Secretary of State shall notify the Franchise Tax Board, in
the manner and at the times agreed upon by the Secretary of State
and the Franchise Tax Board, of any amendments to a public
benefit corporation’s articles.

(b) If the public benefit corporation has any assets, an
amendment to change its status to a mutual benefit corporation,
begin insert business corporation, end insert social purpose corporation, or cooperative
corporation shall be approved in advance in writing by the Attorney
General. If the public benefit corporation has no assets, the
Attorney General shall be given a copy of the amendment at least
20 days before the amendment is filed.

(c) Amended articles authorized by this section shall include
the provisions which would have been required (other than the
initial street address and initial mailing address of the corporation
and the name of the initial agent for service of process if a
statement has been filed pursuant to Section 6210), and may in
addition only include those provisions which would have been
permitted, in original articles filed by the type of corporation
(mutual benefit, religious, business, social purpose, or cooperative)
into which the public benefit corporation is changing its status.

(d) In the case of a change of status to a business corporation,
social purpose corporation, or cooperative corporation, if the
Franchise Tax Board has issued a determination exempting the
corporation from tax as provided in Section 23701 of the Revenue
and Taxation Code, the corporation shall be subject to Section
23221 of the Revenue and Taxation Code upon filing the certificate
of amendment.

SEC. 69.  

Section 7813.5 of the Corporations Code is amended
to read:

7813.5.  

(a) A mutual benefit corporation may amend its articles
to change its status to that of a public benefit corporation, a
religious corporation, a business corporation, a social purpose
corporation, or a cooperative corporation by complying with this
section and the other sections of this chapter.

(b) Except as authorized by Section 7811 or unless the
corporation has no members, an amendment to change its status
to a public benefit corporation or religious corporation shall: (i)
be approved by the members (Section 5034), and the fairness of
the amendment to the members shall be approved by the
Commissioner of Corporations pursuant to Section 25142; (ii) be
approved by the members (Section 5034) in an election conducted
by written ballot pursuant to Section 7513 in which no negative
votes are cast; or (iii) be approved by 100 percent of the voting
power.

(c) Amended articles authorized by this section shall include
the provisions which would have been required (other than the
initial street address and initial mailing address of the corporation
and the name of the initial agent for service of process if a
statement has been filed pursuant to Section 8210), and may in
addition only include those provisions which would have been
permitted, in original articles filed by the type of corporation
(public benefit, religious, business, social purpose, or cooperative)
into which the mutual benefit corporation is changing its status.

(d) At the time of filing a certificate of amendment to change
status to a public benefit corporation, the Secretary of State shall
forward a copy of the filed certificate to the Attorney General.

(e) In the case of a change of status to a business corporation,
social purpose corporation, or a cooperative corporation, if the
Franchise Tax Board has issued a determination exempting the
corporation from tax as provided in Section 23701 of the Revenue
and Taxation Code, the corporation shall be subject to Section
23221 of the Revenue and Taxation Code upon filing the certificate
of amendment.

SEC. 70.  

Section 9621 of the Corporations Code is amended
to read:

9621.  

(a) A religious corporation may amend its articles to
change its status to that of (1), a public benefit corporation, by
complying with this section and the other sections of Chapter 8
(commencing with Section 5810) of Part 2 (made applicable
pursuant to Section 9620) or (2), a mutual benefit corporation,
business corporation, a social purpose corporation, or cooperative
corporation by complying with Chapter 8 (commencing with
Section 5810) of Part 2.

(b) Amended articles authorized by this section shall include
the provisions which would have been required (other than the
initial street address and initial mailing address of the corporation
and the name of the initial agent for service of process if a
statement has been filed pursuant to Section 6210, made applicable
pursuant to Section 9660) and may in addition only include those
provisions which would have been permitted, in original articles
filed by the type of corporation (public benefit, mutual benefit,
business, social purpose, or cooperative) into which the religious
corporation is changing its status.

SEC. 71.  

Section 12504 of the Corporations Code is amended
to read:

12504.  

(a) A corporation may amend its articles to change its
status to that of a nonprofit public benefit corporation, a nonprofit
mutual benefit corporation, a nonprofit religious corporation, a
business corporation, or a social purpose corporation by complying
with this section and the other sections of this chapter.

(b) Except as authorized by Section 12501 or unless the
corporation has no members, an amendment to change its status
to a nonprofit public benefit corporation or a nonprofit religious
corporation shall: (1) be approved by the members (Section 12224),
and the fairness of the amendment to the members shall be
approved by the Commissioner of Corporations pursuant to Section
25142; or (2) be approved by the members (Section 12224) in an
election conducted by written ballot pursuant to Section 12463 in
which no negative votes are cast; or (3) be approved by 100 percent
of the voting power.

(c) Amended articles authorized by this section shall include
the provisions which would have been required (other than the
initial street address and initial mailing address of the corporation
and the name of the initial agent for service of process if a
statement has been filed pursuant to Section 12570), and may in
addition only include those provisions which would have been
permitted, in original articles filed by the type of corporation
(nonprofit public benefit, nonprofit mutual benefit, nonprofit
religious, business, or social purpose) into which the corporation
is changing its status.

(d) At the time of filing a certificate of amendment to change
status to a nonprofit public benefit corporation, the Secretary of
State shall forward a copy of the filed certificate to the Attorney
General.