Amended in Assembly March 17, 2016

California Legislature—2015–16 Regular Session

Assembly BillNo. 1686

Introduced by Assembly Member Travis Allen

January 20, 2016

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


AB 1686, as amended, Travis Allen. begin deleteBanking. end deletebegin insertClose 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:

P2    1begin insert

begin insertSECTION 1.end insert  

end insert

begin insertSection 158 of the end insertbegin insertCorporations Codeend insertbegin insert is amended
2to read:end insert



(a) “Close corporation” means a corporation, including
4a close social purpose corporation, whose articles contain, in
5addition to the provisions required by Section 202, a provision that
6all of the corporation’s issued shares of all classes shall be held of
7record by not more than a specified number of persons, not
8exceedingbegin delete 35,end deletebegin insert 40,end insert and a statement “This corporation is a close

10(b) The special provisions referred to in subdivision (a) may be
11included in the articles by amendment, but if such amendment is
12adopted after the issuance of shares only by the affirmative vote
13of all of the issued and outstanding shares of all classes.

14(c) The special provisions referred to in subdivision (a) may be
15deleted from the articles by amendment, or the number of
16shareholders specified may be changed by amendment, but if such
17amendment is adopted after the issuance of shares only by the
18affirmative vote of at least two-thirds of each class of the
19outstanding shares; provided, however, that the articles may
20provide for a lesser vote, but not less than a majority of the
21outstanding shares, or may deny a vote to any class, or both.

22(d) In determining the number of shareholders for the purposes
23of the provision in the articles authorized by this section, a husband
24and wife and the personal representative of either shall be counted
25as one regardless of how shares may be held by either or both of
26them, a trust or personal representative of a decedent holding shares
27shall be counted as one regardless of the number of trustees or
28beneficiaries and a partnership or corporation or business
29association holding shares shall be counted as one (except that any
30such trust or entity the primary purpose of which was the
31acquisition or voting of the shares shall be counted according to
32the number of beneficial interests therein).

33(e) A corporation shall cease to be a close corporation upon the
34filing of an amendment to its articles pursuant to subdivision (c)
35or if it shall have more than the maximum number of holders of
36record of its shares specified in its articles as a result of an inter
37vivos transfer of shares which is not void under subdivision (d) of
38Section 418, the transfer of shares on distribution by will or
P3    1pursuant to the laws of descent and distribution, the dissolution of
2a partnership or corporation or business association or the
3termination of a trust which holds shares, by court decree upon
4dissolution of a marriage or otherwise by operation of law.
5Promptly upon acquiring more than the specified number of holders
6of record of its shares, a close corporation shall execute and file
7an amendment to its articles deleting the special provisions referred
8to in subdivision (a) and deleting any other provisions not
9permissible for a corporation which is not a close corporation,
10which amendment shall be promptly approved and filed by the
11board and need not be approved by the outstanding shares.

12(f) Nothing contained in this section shall invalidate any
13agreement among the shareholders to vote for the deletion from
14the articles of the special provisions referred to in subdivision (a)
15upon the lapse of a specified period of time or upon the occurrence
16of a certain event or condition or otherwise.

17(g) The following sections contain specific references to close
18 corporations: Sections 186, 202, 204, 300, 418, 421, 1111, 1201,
191800, and 1904.

begin delete20


Section 1002 of the Financial Code is amended
21to read:



A bank shall not be a close corporation, as defined in
23Section 158 of the Corporations Code.

end delete