BILL ANALYSIS Ó 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 AB 1471 (Perea) Page 2 of ? 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 AB 1471 (Perea) Page 3 of ? 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 AB 1471 (Perea) Page 4 of ? 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 AB 1471 (Perea) Page 5 of ? 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 AB 1471 (Perea) Page 6 of ? 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 AB 1471 (Perea) Page 7 of ? 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) ************** AB 1471 (Perea) Page 8 of ?