BILL ANALYSIS                                                                                                                                                                                                    





                             SENATE JUDICIARY COMMITTEE
                         Senator Hannah-Beth Jackson, Chair
                             2015-2016  Regular  Session


          AB 1471 (Perea)
          Version: April 14, 2015
          Hearing Date: June 23, 2015
          Fiscal: No
          Urgency: No
          RD   


                                        SUBJECT
                                           
                             Business entities:  filings

                                      DESCRIPTION  

          This bill would make various clarifying and technical changes  
          throughout the General Corporation Law, Social Purpose  
          Corporations Act, the California Uniform Limited Liability  
          Company Act, the Uniform Limited Partnership Act, and Uniform  
          Partnership Act, including: 
           updating and making consistent throughout the various acts the  
            information that must be provided in a certificate of  
            conversion;
           clarifying signature authority in relation to Secretary of  
            State (SOS) filings; and 
           correcting cross-references to existing sections prescribing  
            the fees that a business entity must pay in order to reserve a  
            name with the SOS. 

                                      BACKGROUND  

          The California Corporations Code provides for the formation and  
          governance of various business entities, including corporations,  
          associations, partnerships, limited partnerships, limited  
          liability companies (LLC), and limited liability partnerships.   
          Each of these businesses must file certain documents with the  
          SOS in order to form, convert business entities (such as from a  
          corporation to an LLC), and stay in good standing with the  
          state.  These include articles of incorporation, annual  
          statements, and statements or certificates of conversion.  The  
          California Business Connect Project is a project set to automate  








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          current processes within the SOS office, and allow for all  
          business instruments to be filed and accessed online, on an  
          around the clock basis. 

          The California Business Connect Feasibility Study Report,  
          approved by the California Technology Agency in April of 2011,  
          provides an overview of the problem faced by California with  
          respect to its current business filings system.  The reliance on  
          manual labor and hard copies makes it not only increasingly  
          difficult to comply with current mandates and new mandates that  
          are created by law, but it also makes these vital business  
          records prone to human error and at risk of irreparable  
          destruction.  (California Business Connect Feasibility Study  
          Report, March 2011, page 4.)  "SOS staff pointed out that the  
          filing systems are so archaic, that in many cases, there is no  
          backup.  The systems contain only a single paper copy of each  
          recording for Limited Liability Companies (LLCs), Limited  
          Partnerships (LPs), and general partnerships for the generations  
          of filings that make up much of the state's legally organized  
          small businesses.  This means that in the event of a disaster,  
          such as a fire, the permanent records of hundreds of thousands  
          of California businesses may be wiped out." (Id.) 

          In the last several years, the Secretary of State's office has  
          sponsored two bills that have sought to facilitate the  
          development of the California Business Connect automated system.  
           In 2012, SB 1532 (Pavley, Ch. 494, Stats. 2012), the first of  
          those two bills, specified that the required address information  
          in business filings is the street address and required business  
          entities to provide a mailing address if not the same as the  
          street address.  SB 1532 also revised requirements with respect  
          to the maintenance of forms filed with the SOS, revised  
          provisions relating to the assignment of filing dates and fees  
          by the SOS, repealed specified provisions relating to special  
          purpose corporations, and made other technical changes.  The  
          second bill, SB 1041 (Jackson, Ch. 834, Stats. 2014), similarly  
          made various technical, non-substantive, and clarifying changes  
          throughout the Corporations Code in preparation for the SOS  
          automated filing system.   These changes included, for example,  
          requiring that the SOS prescribe forms for the resignation of  
          agents for service of process; authorizing the SOS to remove and  
          destroy records relating to agent resignations if a new agent  
          for service of process is designated, as specified; clarifying  
          the necessary signatures for various business filings; and  
          clarifying when foreign limited liability company registration  







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          cancellations are effective.  

          Similarly, this bill, also sponsored by the Secretary of State,  
          seeks to address various statutory inconsistences and make other  
          clarifying changes that would assist in improving efficiencies  
          in the business filing procedures.

                                CHANGES TO EXISTING LAW
           
           1.Existing law  , the General Corporation Law and the Social  
            Purpose Corporations Act, authorizes the Secretary of State  
            (SOS), upon the applicant's payment of a prescribed fee under  
            the Government Code, to issue a certificate of reservation of  
            any name, not otherwise prohibited, for a period of 60 days.  
            Existing law prohibits the SOS from issuing 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 or corporation.  (Corp. Code  
            Secs. 201(c), 2601(c).)   Existing law, the California Revised  
            Uniform Limited Liability Company (LLC) Act, provides a  
            similar provision for the reservation of the exclusive use of  
            a name of an LLC or foreign LLC.  (Corp. Code Sec. 17701.09.)

             This bill  would update the cross-references for the prescribed  
            fees, above, and remove the specific references to  
            "partnership, firm or corporations" in the General Corporation  
            Law and the Social Purposes Corporations Act provisions.    
            
           2.Existing law  , the Social Purpose Corporations Act, prohibits  
            the SOS from 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, except as specified.  (Corp. Code  
            Sec. 2601(a).)    
            
            This bill  would update the above provision and its exception  
            to reflect changes made in the 2012 Governor Reorganization  
            Plan 2, by replacing references to the Commissioner of  
            Financial Institutions with the Commissioner of Business  
            Oversight. 
            
           3.Existing law  , the General Corporation Law and the Uniform  
            Partnership Act, each require that any statement or  
            certificate of conversion of a converting corporation or any  
            certificate of conversion of a converting partnership, set  







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            forth certain information, including the name and street  
            address of the corporation's or partnership's agent for  
            service of process.  (Corp. Code Secs. 1155(b)(4),  
            16906(a)(3), (b)(4).)  Existing law provides that if a  
            qualified corporation, as specified, is designated, no address  
            for it shall be set forth. (Corp. Code Sec. 1155(b)(4);  
            similar provisions also at Section 16906(a)(3), (b)(4).) 
             
            Existing law  , the Uniform Limited Partnership Act, requires,  
            in relevant part, that any certificate or statement of  
            conversion shall set for the street address of the converted  
            entity's agent for service of process.  Existing law provides  
            that if a corporation that has complied with specified law is  
            designated as the agent, no address for it shall be set forth.  
            (Corp. Code Sec. 15911.06(b)(4).) 
            
             Existing law  , the California Uniform LLC Act, requires that a  
            certificate of conversion set forth the name and mailing  
            address of the converted entity's agent for service of  
            process.  (Corp. Code Sec. 17710.06(c)(2).)

             This bill  would make various technical and clarifying changes  
            to require that each of the entities above provide the same  
            information in a statement of conversion, except as specified.  
             Specifically, this bill would amend each of the above  
            sections to: (1) ensure that each entity is required to set  
            forth the name, mailing address, and street address of the  
            "converted entity" in its statement of conversion; and (2)  
            expressly specify that if a specified corporation is  
            designated as the agent, no addresses are required. 
          
           4.Existing law  , the California Uniform LLC Act, governs the  
            signature of a record delivered to the SOS for filing pursuant  
            to this Act. Existing law provides that except as specified, a  
            record signed on behalf of an LLC shall be signed by a person  
            authorized by the LLC. Existing law also governs the signing  
            of a certificate of cancellation, as specified.  (Corp. Code  
            Sec. 17702.03(a)(1), (5).)  Existing law provides that any  
            record filed under this Act may be signed by an agent.  (Corp.  
            Code Sec. 17702.03(b).) 

             This bill  would clarify the limitations placed upon the  
            signature authority of a person authorized by the LLC to sign  
            records and would clarify the signature requirements for a  
            certificate of cancellation.  This bill would also clarify the  







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            authority of an agent to sign records filed with the SOS under  
            this Act. 

           5.Existing law  , the California Uniform LLC Act, requires that  
            managers sign and cause to be filed in the SOS office on a  
            prescribed form, a certificate of dissolution, and requires  
            that the "persons who filed the certificate of dissolution"  
            sign and cause to be filed in the SOS office on a prescribed  
            form, a certificate of cancellation of articles of  
            organization.  (Corp. Code Sec. 17707.08.) 

             This bill  would add consistency and clarity in the above  
            section by replacing the term "persons who filed with  
            certificate of dissolution" with "managers." 

                                        COMMENT
           
          1.  Stated need for the bill
            
           According to the author: 

            AB 1471 improves the efficiency of existing and future  
            [Secretary of State (SOS)] business filing procedures. This  
            measure reduces statutory inconsistency within Corporations  
            Code, updates corporation filing statutes to reflect changes  
            made by recent legislation, and standardizes the processing  
            and handling of specified SOS business customer transactions  
            (conversions and name reservations). These small but  
            meaningful changes will pave the way for improving the overall  
            SOS filing experience.

            The California Business Connect online filing project, which  
            is currently underway at SOS, will modernize the [SOS's]  
            paper-based business filing processes. California Business  
            Connect is scheduled to be completed in 2016. Once  
            implemented, customers will be able to file documents and  
            request records online 24 hours a day, 7 days a week. This  
            project will streamline processes for business entity,  
            trademark, and Uniform Commercial Code (UCC) filings, as well  
            as special filings not related to business entities.



           2.Proposed changes to existing law are in continued effort to  
            prepare for an automated filing system







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          This bill seeks to make various clarifying and technical changes  
          throughout the General Corporation Law, Social Purpose  
          Corporations Act, the California Uniform Limited Liability  
          Company Act, the Uniform Limited Partnership Act, and Uniform  
          Partnership Act in preparation for the Secretary of State's  
          (SOS) automated filing system.  These changes largely relate to  
          the payment of fees for business entities to reserve names with  
          the SOS, provisions governing the signature authority of various  
          individuals for filings made with the SOS, and provisions  
          governing information that must be set forth in certificates of  
          conversion.  This bill would add clarity and consistency  
          throughout each of these provisions, or would otherwise update  
          the law to reflect recent changes relating to the Governor's  
          reorganization of departments, among other things.   

          The sponsor of this bill, the Secretary of State, writes that  
          because the Corporations Code contains filing requirements for  
          various business entity types, and because omnibus legislation  
          will occasionally enact changes for each of those individual  
          entities, often times, the resulting statutes can contain  
          "different or disjointed policies for the different entities"  
          and cause confusion for business customers attempting to file  
          documents with the SOS in the most expeditious manner.  The  
          California Chamber of Commerce writes that it supports AB 1471's  
          attempt to reduce costs and time for the implementation of the  
          SOS automation project and that the bill "will provide much  
          needed clarity for certain filing procedures and, in doing so,  
          will help ensure that paper or online filing forms will be  
          consistently user friendly for all types of businesses." 
                                    
          3.  Suggested technical amendments
           
          Staff notes that existing law, the General Corporation Law,  
          provides that "[i]f a corporation qualified under Section 1505  
          is designated [as the agent], no address for it shall be set  
          forth" in the certificate of conversion.  (See Corp. Code Sec.  
          1155.)   Similar, but not wholly identical, provisions exist  
          under the Uniform Partnership Act.  (See Section 16906(a)(3),  
          (b)(4).)  The Uniform Limited Partnership Act, in contrast,  
          provides "[i]f a corporation that has complied with Section 1505  
          is designated as the agent, no address for it shall be set  
          forth" in the certificate of conversion.  (See Corp. Code Sec.  
          15911.06.)  This bill would now add similar language to the  
          correlating provision governing certificates of conversation  







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          under the Uniform LLC Act.   The following technical amendment  
          is suggested to bring uniformity throughout each of these  
          provisions. 

             Technical amendments  : 

            On page 4, line 37, after "designated" insert "as the agent"

            On page 7, line 33, strike "that has complied with" and insert  
            "qualified under" 
            On page 8, line 27, after "designated" insert "as the agent"


           Support  :  California Chamber of Commerce

           Opposition  :  None Known 
                                        HISTORY
           
           Source  :  Secretary of State 

           Related Pending Legislation  :  None Known

           Prior Legislation  :

          SB 1041 (Jackson, Ch. 834, Stats. 2014) See Background.  

          SB 1532 (Pavley, Ch. 494, Stats. 2012) See Background.

           Prior Vote  :

          Senate Banking and Financial Institutions Committee (Ayes 7,  
          Noes 0)
          Assembly Floor (Ayes 78, Noes 0)
          Assembly Banking and Finance Committee (Ayes 12, Noes 0)

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