BILL NUMBER: AB 1741 CHAPTERED
BILL TEXT
CHAPTER 298
FILED WITH SECRETARY OF STATE AUGUST 17, 1998
APPROVED BY GOVERNOR AUGUST 17, 1998
PASSED THE ASSEMBLY JULY 30, 1998
PASSED THE SENATE JULY 23, 1998
AMENDED IN SENATE JUNE 29, 1998
AMENDED IN ASSEMBLY MAY 11, 1998
AMENDED IN ASSEMBLY APRIL 30, 1998
INTRODUCED BY Assembly Member Scott
FEBRUARY 3, 1998
An act to add and repeal Section 14302.1 of the Corporations Code,
relating to mutual water companies.
LEGISLATIVE COUNSEL'S DIGEST
AB 1741, Scott. Mutual water companies.
Existing law, known as the General Corporation Law, provides that
certain corporate actions, including actions taken by mutual water
companies, may only be approved by the affirmative vote of a
specified number of shares entitled to vote and that certain
corporate actions, including actions taken by mutual water companies,
may only be taken when a quorum, comprised of a specified number of
the shares entitled to vote, is present at a meeting of the
shareholders.
Existing law governing mutual water companies, in particular,
requires that, under certain circumstances, the stock of a water
company shall become appurtenant to real property within the service
area of the mutual water company.
This bill would provide that, until July 1, 2001, certain shares
of stock that were issued by a mutual water company formed on or
before May 14, 1983, that have not been rendered appurtenant to land
within the mutual water company's service area, that remain on the
company's share registry, and whose owners cannot be located, shall
be deemed canceled by operation of law if the mutual water company
satisfies specified prior notification requirements and the holders
of those shares fail to act to prevent that cancellation, as
specified.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. (a) The Legislature hereby finds and declares all of
the following:
(1) Mutual water companies in California are corporations subject
to the California General Corporation Law. Mutual water companies
issue shares of stock to property owners within their respective
service areas, which shares entitle the owners thereof to receive
water on that property.
(2) Existing law requires that shares issued by mutual water
companies be rendered appurtenant to the land within the service area
of the respective mutual water company. Appurtenance is
accomplished by means of a provision within a mutual water company's
articles of incorporation or bylaws. Ownership of appurtenant shares
is tied to the ownership of the underlying real property. When real
property is transferred through sale, foreclosure, or other means,
the related shares are transferred to the new property owners.
(3) Older mutual water companies issued shares before the
requirement of appurtenance was enacted under the Corporations Code.
Accordingly, these older mutual water companies frequently have
difficulty regulating the transfer of shares to property owners
entitled to water service. Certain shares have been lost, forgotten,
destroyed, or otherwise mislaid as a result of property transfers,
foreclosures, estate sales, and the like, and therefore are owned of
record by people who no longer own property in the service area.
These shareholders remain on the registry of the older mutual water
companies, thus hindering the ability of these older mutual water
companies to obtain a quorum of shareholders for corporate governance
purposes.
(4) Lost shares present a governance problem for older mutual
water companies which, as corporations, must have a quorum of the
outstanding shares present to transact certain business and which, in
certain circumstances, must obtain the vote of the majority of the
outstanding shares.
(b) It is the intent of the Legislature to provide mutual water
companies formed on or prior to May 14, 1983, the opportunity to
cancel lost shares which are unclaimed after reasonable efforts have
been made by the mutual water companies to locate the recordholders
of those lost shares, in order that those mutual water companies can
muster the shareholder representation necessary to effectively
conduct business.
SEC. 2. Section 14302.1 is added to the Corporations Code, to
read:
14302.1. (a) For the purpose of this section, "lost shares" is
defined as shares which satisfy all of the following conditions:
(1) They were issued by a mutual water company formed on or before
May 14, 1983.
(2) They have not been rendered appurtenant to land within that
mutual water company's service area.
(3) They remain on the company's share registry.
(4) The owners of the shares cannot be located by the mutual water
company pursuant to this section.
(b) Lost shares shall be deemed canceled by operation of law if
both of the following requirements are met:
(1) The mutual water company sends a written notice by certified
mail to the last known address of the recordholder of lost shares
stating that the lost shares will be canceled and deemed to be of no
force or effect unless the recordholder responds to the mutual water
company in writing and the response is received by the mutual water
company within six months of the certified mailing date of the
notice.
(2) The mutual water company posts notice in not less than three
daily newspapers with circulation in the company's service area, or
if there are less than three daily newspapers with circulation in the
company's service area, in all daily newspapers with circulation
within the service area, once a month for six months stating that
unclaimed lost shares will be canceled and deemed to be of no force
or effect unless the holders of those lost shares request otherwise.
(c) This section shall become inoperative on July 1, 2001, and, as
of January 1, 2002, is repealed, unless a later enacted statute,
which becomes effective on or before January 1, 2002, deletes or
extends the dates on which it becomes inoperative and is repealed.
SEC. 3. Nothing in Section 14302.1 of the Corporations Code shall
prevent a shareholder from bringing an action for issuance of
duplicative lost shares pursuant to existing law, including, but not
limited to, Section 419 of the Corporation Code.