BILL ANALYSIS
AB 161
Page 1
Date of Hearing: March 23, 2009
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Pedro Nava, Chair
AB 161 (Adams) - As Introduced: January 27, 2009
SUBJECT : Corporations: notices and reports.
SUMMARY : Allows a corporation, where two or more shareholders
have the same address on the books of the corporation, to send a
single written notice or report to the address of the
shareholders. Specifically, this bill :
1)Permits a shareholder to consent or request a single notice or
report.
2)Specifies that a shareholder who fails to object in writing or
by telephone to the corporation within 60 days shall be deemed
to have consented to receive a single notice or report.
3)Allows a shareholder to revoke a consent or request by a
written or telephonic notice to the corporation.
EXISTING STATE LAW :
1)Specifies how notices and reports shall be delivered to a
shareholder by the corporation, more specifically, requires
that a corporation give notice of a shareholders meeting or
any report by various means, addressed to the shareholder at
the address of the shareholder appearing on the corporation's
books or given by the shareholder to the corporation for the
purpose of the notice.[Corporations Code, Section 601]
2)Requires the board of directors of a corporation and a foreign
corporation having its principal executive office in
California or customarily holding meets of its board of
directors in California to cause an annual report to be sent
to shareholders. [Corporations Code, Section 1501]
3)Defines a "shareholder" as a holder of record of shares.
[Corporations Code, Section 185]
EXISTING FEDERAL LAW : establishes the Securities Exchange Act
of 1934 (the "Act") which created the Securities and Exchange
Commission (the "SEC"). The Act empowers the SEC with broad
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authority over all aspects of the securities industry. This
includes the power to register, regulate, and oversee brokerage
firms, transfer agents, and clearing agencies as well as the
nation's securities self regulatory organizations (SROs). The
various stock exchanges, such as the New York Stock Exchange,
and American Stock Exchange are SROs. The Financial Industry
Regulatory Authority, which operates the NASDAQ system, is also
an SRO. The SEC governs over proxy materials including materials
used to solicit shareholders' votes in annual or special
meetings held for the election of directors and the approval of
other corporate action. (17 C.F.R. Section 240. 14a-1 et seq.)
FISCAL EFFECT : None.
COMMENTS :
AB 161 would essentially allow householding to take place in
California. According to the Model Business Corporation Act,
householding is defined federally as, "(a) A Corporation has
delivered written notice or any other report or statement under
this Act, the articles of incorporation of the bylaws to all
shareholders who share a common address if: (1) The corporation
delivers one copy of the notice, report or statement to the
common address; (2) The corporation addresses the notice, report
or statement to those shareholders either as a group or to each
of those shareholder individually or the shareholders in a form
to which each of those shareholders has consented, and (3) Each
of those shareholders consents to delivery of a single copy of
such notice, report, or statement to the shareholder's common
address. Any such consent shall be revocable by any such
shareholders who deliver written notice of revocation to the
corporation. If such written notice of revocation is delivered,
the corporation shall begin providing individual notice, report
or other statement to the revoking shareholder no later than 30
days after delivery of the written notice of revocation. (b)
Any shareholder who fails to object by written notice to the
corporation within 60 days of written notice by the corporation
of its intention to send single copies of notices, reports or
statements to shareholder who share a common address as
permitted by subsection (a) shall be deems to have consented to
receiving such single copy at the common address."
As stated in a book titled Meetings of Stockholders by R.
Franklin Balotti et al., companies can cut their postage and
printing bills by 30% or more by householding proxies and other
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shareholder materials. The SEC estimates that the incremental
benefit from each eliminated mailing is $6.00. During, 2001,
General Electric saved nearly $2.4 million by mailing fewer sets
of proxy materials, eliminating, 21% of its total shareholder
addresses.
According to the Sponsor, the Business Law Section of the
California State Bar:
The Securities and Exchange Commission (the " SEC ")
has adopted proxy rules that allow issuers to
furnish one set of proxy materials, including the
meeting notice and annual report, to record
shareholders who share an address (" householding ")
and consent to householding. Consent may be in
writing or implied and must be revocable.
In California, many corporations routinely mail
hundreds of thousands of shareholder notice packages
annually at great cost because the Corporations Code
lacks the clarity of the federal rules. The SEC's
proxy rules allow corporations to reduce the volume
of duplicate information sent to a single household
and thereby the cost of preparing and mailing
duplicate materials. Sending one set of materials to
a consenting record shareholder's household address
shared with other consenting record shareholders
would appear to meet the requirement of Section
601(b) that the materials be addressed to the
shareholder at the shareholder's address appearing
on the corporation's books and of Section 1501(a)
that the annual report be sent to record
shareholders.
Absent the proposed amendments to Sections 601(b)
and 1501(a), the lack of express authority for
householding in Sections 601(b) and 1501(a) of the
Code leads corporations that might otherwise avail
themselves of the SEC's householding rules to print
greater numbers of shareholder communications, which
imposes unnecessary costs on corporations and the
needless waste of natural resources. This lack of
express authority may deter persons from
incorporating their businesses in California or
foreign corporations from establishing headquarters
in California. The Code should be clarified to
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provide clear guidance that such sections permit
householding.
Corporations that are not covered by the SEC's proxy
rules but are covered by Sections 601(b) and 1501(a)
also would benefit from householding by reducing the
volume of duplicate information sent to a household
and thereby the cost of preparing and mailing
duplicate materials and waste of natural resources.
Although, the SEC decided in 2000 to permit householding, in
this case, federal law does not preempt state law. Each state
has the authority to determine whether or not householding
should be allowed. Various other states have already enacted
"householding" such as Washington, Michigan, Virginia and Maine.
REGISTERED SUPPORT / OPPOSITION :
Support
Business Law Section of the Stare Bar of California
California Bankers Association
Opposition
None on file.
Analysis Prepared by : Kathleen O'Malley / B. & F. / (916)
319-3081