Amended in Assembly March 17, 2016

California Legislature—2015–16 Regular Session

Assembly Bill No. 1686

Introduced by Assembly Member Travis Allen

January 20, 2016

An act to amend begin delete Section 1002 of the Financial Code, relating to banking. end delete begin insert Section 158 of the Corporations Code, relating to corporations. end insert

LEGISLATIVE COUNSEL’S DIGEST

AB 1686, as amended, Travis Allen. begin delete Banking. end delete begin insert Close corporations. end insert

begin insert

Existing law, the General Corporation Law, defines different types of business entities and corporations and prescribes their powers and duties. Existing law defines a close corporation as a corporation the articles of which contain, in addition to other things, a provision requiring that all of the corporation’s issued shares of all classes be held of record by a specified number of people, not to exceed 35.

end insert begin insert

This bill would raise the maximum number of people who can hold shares in a close corporation, as described above, to 40.

end insert begin delete

Existing law regulates the practice of banking in California and classifies these institutions as commercial banks, industrial banks, and trust companies. Existing law prohibits a bank from being a close corporation, as defined.

end delete begin delete

This bill would make nonsubstantive changes to the prohibition on banks as close corporations.

end delete

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

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

begin insert

begin insert SECTION 1. end insert   

end insert

begin insert Section 158 of the end insert begin insert Corporations Code end insert begin insert is amended
to read: end insert

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 begin delete 35, end delete begin insert 40, end insert 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.

begin delete

SECTION 1.  

Section 1002 of the Financial Code is amended
to read:

1002.  

A bank shall not be a close corporation, as defined in
Section 158 of the Corporations Code.

end delete