BILL ANALYSIS
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|SENATE RULES COMMITTEE | AB 2158|
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CONSENT
Bill No: AB 2158
Author: Hagman (R)
Amended: 5/18/10 in Assembly
Vote: 21
SENATE JUDICIARY COMMITTEE : 4-0, 6/22/10
AYES: Corbett, Harman, Hancock, Leno
NO VOTE RECORDED: Walters
ASSEMBLY FLOOR : 77-0, 6/1/10 - See last page for vote
SUBJECT : Corporations: bylaws: board of director
meetings
SOURCE : Business Law Section Corporations Committee of
the State
Bar of California
DIGEST : This bill removes the sunset on existing
provisions of law requiring an interested or common
director of a corporation to disclose all material facts in
transactions in which the interested or common director has
a self-interest, thereby making these provisions of law
permanent.
ANALYSIS : Existing law provides that a transaction
involving an interested director is not void or voidable
due to the presence of the interested director during the
vote on the transaction as long as the self-interested
director discloses his or her interest in the transaction.
CONTINUED
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(Sections 310, 5233, 7233, 9243, and 12373 of the
Corporations Code [CORP])
Existing law permits a board of directors to take any
action without a formal meeting, provided all the members
of the board consent in writing. The action taken by
written consent is given the force and effect as if it was
unanimously approved by the directors. (CORP Sections 307,
5211, 7211, 9211, and 12351)
Existing law, until December 31, 2010, provides that for
actions by written consent involving an interested or
common director, the interested or common director must
disclose his or her interest in the transaction pursuant to
the requirements under CORP Section 310. (CORP Section
307(b))
Existing law, until December 31, 2010, requires the
interested or common director to disclose his or her
interest to the noninterested or noncommon directors prior
to the execution of written consents regarding the
transaction. (CORP Section 307(b))
Existing law, until December 31, 2010, requires the written
consent to conspicuously state the required disclosure of
interest by the interested or common director. (CORP
Section 307(b))
Existing law, until December 31, 2010, requires that in
order for the transaction to be approved by the board of
directors, there must be sufficient written consents
excluding those submitted by the interested or common
directors. (CORP Section 307(b))
This bill deletes the December 31, 2010 sunset, thereby
making permanent existing laws regulating written consents
regarding interested or common directors.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
SUPPORT : (Verified 6/23/10)
Business Law Section - Corporations Committee of the State
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Bar of California (source)
Secretary of State
ARGUMENTS IN SUPPORT : The author writes:
"A 'close corporation,' also known as 'closely held
corporation,' is a corporation with no established market
for shares and restrictions on the transfer of shares.
It is characterized by having few shareholders (a maximum
of 35) who are active in the management of their
business.
Current law, under Section 307 of the Corporations Code,
allows board members and shareholders of a closely held
corporation to decide on a transaction without a board
meeting if all board members consent in writing to that
action. The written consents in order to be effective
must be unanimous.
"However, under Section 310 of the Corporations Code a
transaction could be considered void or voidable if one
of the directors has a financial interest in the
transaction or is a board member of a corporation with
which this corporation was involved in a transaction. If
either of these scenarios apply the board director would
be considered an 'interested' director and would need to
disclose his/her interest.
"Since a transaction could be contested or impaired as a
result of an interested director approving it, interested
directors are reluctant to sign on to a written consent.
Without their approval, however, the written consents
cannot be effective.
"Code Section 307(b) was enacted to resolve this issue.
According to it the interested director can disclose
his/her interest in the transaction (as required by
Section 310) and also abstain from approving the
transaction, with the written consents being effective if
the majority of the non-interested directors approved the
transaction."
The sponsor of this bill, the Business Law Section -
Corporation Committee of the State Bar, discusses the need
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for this bill as follows:
"Section 307(b) allows an interested director to sign on
to a written consent so it can be effective - written
consents must be unanimous. The interested director,
however, can also disclose her interest in the
transaction and also abstain from the approval of the
transaction. The provision is a helpful tool for
corporations to allow for written consents otherwise to
be used in connection with the approval of interested
director transactions. Otherwise, directors sometimes
are unwilling to sign on to a written consent if they
have an interest in the transaction. This provision was
introduced from input by the Corporations Committee. [SB
119] was amended to include a sunset of December 31,
2010. Practitioners continue to believe that this is a
helpful provision and hope that it does not disappear
from the code at the end of this year. When the sunset
was discussed by the Corporations Committee at its last
meeting, no member of the Committee was aware of any
negative impacts of keeping Section 307(b) as currently
in effect."
ASSEMBLY FLOOR :
AYES: Adams, Ammiano, Anderson, Arambula, Bass, Beall,
Bill Berryhill, Blakeslee, Block, Blumenfield, Bradford,
Brownley, Buchanan, Caballero, Charles Calderon, Carter,
Chesbro, Conway, Cook, Coto, Davis, De La Torre, De Leon,
DeVore, Emmerson, Eng, Evans, Feuer, Fletcher, Fong,
Fuentes, Fuller, Furutani, Gaines, Galgiani, Garrick,
Gilmore, Hagman, Hall, Harkey, Hayashi, Hernandez, Hill,
Huber, Huffman, Jeffries, Jones, Knight, Lieu, Logue,
Bonnie Lowenthal, Ma, Mendoza, Miller, Monning, Nava,
Nestande, Niello, Nielsen, Norby, V. Manuel Perez,
Portantino, Ruskin, Salas, Saldana, Silva, Skinner,
Smyth, Solorio, Swanson, Torlakson, Torres, Torrico,
Tran, Villines, Yamada, John A. Perez
NO VOTE RECORDED: Tom Berryhill, Audra Strickland, Vacancy
RJG:mw 6/24/10 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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