BILL ANALYSIS �
SENATE JUDICIARY COMMITTEE
Senator Noreen Evans, Chair
2011-2012 Regular Session
SB 1532 (Pavley)
As Amended March 29, 2012
Hearing Date: April 17, 2012
Fiscal: Yes
Urgency: No
RD
SUBJECT
Business Filings
DESCRIPTION
This bill, sponsored by the Secretary of State (SOS), would make
legislative findings, including that the current business filing
system with the SOS is manual, very-time consuming, and
paper-intensive for both the Secretary and businesses, and that
existing law needs to be updated and standardized to more
efficiently facilitate the development of California Business
Connect (a 24 hour, online business filing program). This bill
would specify that the required address information in business
filings is the street address and would also require the
business entity to provide a mailing address if not the same as
the street address. The bill would also revise requirements with
respect to the maintenance of forms filed with the SOS, and
revise provisions relating to the assignment of filing dates and
fees by the SOS. The bill would also repeal specified
provisions relating to special purpose
corporations-specifically, bridge, ferry, wharf, chute, and pier
corporations, as well as water and canal corporations-and make
other technical changes.
BACKGROUND
The California Corporations Code provides for the formation and
governance of various business entities, including corporations,
associations, partnerships, limited partnerships, limited
liability companies, limited liability partnerships, and more.
Each of these businesses must file certain documents with the
SOS in order to form and stay in good standing with the state.
(more)
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These include articles of incorporation, annual statements, and
more. Accordingly, the SOS office administers the numerous
filings of business entities pursuant to statutory requirements.
The California Business Connect Project is a project set to
automate current processes within the SOS office, and allow for
all business instruments to be filed and accessed online, on an
around the clock basis.
The California Business Connect Feasibility Study Report,
approved by the California Technology Agency in April of 2011,
provides an overview of the problem faced by California with
respect to its current business filings system. The reliance on
manual labor and hard copies makes it not only increasingly
difficult to comply with current mandates and new mandates that
are created by law, but it also makes these vital business
records prone to human error and at risk of irreparable
destruction. (California Business Connect Feasibility Study
Report, March 2011, page 4.) "SOS staff pointed out that the
filing systems are so archaic, that in many cases, there is no
backup. The systems contain only a single paper copy of each
recording for Limited Liability Companies (LLCs), Limited
Partnerships (LPs), and general partnerships for the generations
of filings that make up much of the state's legally organized
small businesses. This means that in the event of a disaster,
such as a fire, the permanent records of hundreds of thousands
of California businesses may be wiped out." (Id.) In addition
to such concerns, the report outlines concerns for the time it
takes to process and file documents-all of which has already led
to an extensive backlog. (Id.)
Sponsored by the Secretary of State, Debra Bowen, this bill
would make numerous technical, non-substantive or clarifying
changes throughout existing law to assist in the development of
this automation project. Existing law requires the filing of
specified documents disclosing information regarding the
business entity with the Secretary of State, including the
address of the business entity, their principal office,
executive officers, initial agent for service of process, and
more. This bill would specify when the address is to be a street
address, mailing address, or both. This bill would also repeal
specified divisions of the Corporation Code relating to bridge,
ferry, wharf, chute, and pier special purpose corporations, and
water and canal special purpose corporations.
CHANGES TO EXISTING LAW
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1. Existing law , in relevant part, requires that the Secretary
of State, upon receipt of specified lien notice filings or
specified certificates, cause those filings or certificates to
be marked, held, and indexed upon receipt, as specified.
(Civ. Proc. Code Secs. 2103(a)-(b).)
This bill would require instead that the Secretary shall cause
the notice filing or certificate to be filed, indexed, and
marked, as specified. (Emphasis added.)
2. Existing law , in relevant part, requires that the Secretary
of State file specified instruments on the date it is
received, unless the submitting party requests a later date
or, in the judgment of the Secretary of State, the filing is
intended to coordinate with the filing of another instrument
that cannot be filed. (Corp. Code Secs. 110(a), 5008(a),
12214(a).)
This bill would provide instead that the Secretary must file
the instrument on the date it is received, unless the
instrument provides that it is to be withheld from filing
until a future date or, in the judgment of the Secretary of
State, the filing is intended to coordinate with the filing of
another document that cannot be filed.
3. Existing law , in relevant part, requires that the Secretary
of State file specified instruments on the date it is
received, unless the instrument is withheld from filing for a
period of time not to exceed 90 days pursuant to a request
from the submitting party or, in the judgment of the Secretary
of State, the filing is intended to coordinate with the filing
of another instrument that cannot be filed. (Corp. Code Sec.
17062(d).)
This bill would provide instead that the Secretary of State
must file the instrument on the date it is received, unless
the instrument provides that it is to be withheld from filing
until a future date not to exceed 90 days or, in the judgment
of the Secretary of State, the filing is intended to
coordinate with the filing of another document that cannot be
filed.
4. Existing law requires business entities to file specified
documents with the Secretary of State, and to disclose, among
other things, specified contact information for the entity.
This contact information includes, in relevant part, the
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address of the entity's agent for service of process, or
address of the principal (or other specified) office, or both.
(Corp. Code Secs. 202(c), 1505(a)(1), 1505(a)(1),
2105(a)(2)-(3), 2602(c), 5130(c), 7130(c), 9130(c), 12310(c),
12570(c), 13226, 15901.16(d)(1), 15092.01(a)(2)-(3),
15909.02(a)(3)-(4), 16303(a)(1), 16309(a), 16953(a)(2)-(3),
16959(a)(1), 17051(a), 17051(a)(4), 17060(a)(2), 17060(d),
17451(a), 17451(a)(3), 17451(a)(5), 18200(a)(1)-(2), and
18200(b).)
This bill would specify that the address required is the
street address. (Emphasis added.)
This bill would require the business entity to disclose the
mailing address of its principal office (or other specified
office), if different from the street address.
This bill would require that the business entity disclose both
its street address and its mailing address, if different from
the street address, wherever this information is not
specifically required to be disclosed in the sections listed
above.
This bill would, with respect to Section 13226 of the
Corporations Code, specifically, also add that the articles of
incorporation shall also disclose the name and street address
of the entity's initial agent for service of process, as
specified.
5. Existing law requires that a credit union specify in its
articles of incorporation, among other things, the name and
address of its initial agent for service of process, as
specified. (Fin. Code Sec. 14101(c).)
This bill would amend the above subdivisions to state that the
articles shall include the name and street address. (Emphasis
added.)
The bill would also add to the information required to be
provided in the articles of incorporation the street address
of the corporation, and the mailing address of the corporation
if different from the street address.
6. Existing law , in relevant part, provides that the articles
of organization of a Limited Liability Company (LLC) may be
amended at any time, and in any manner as the members may
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determine, as specified. Existing law also specifies that a
certificate of amendment to the articles must be filed to
effect specified changes. (Corp. Code Sec. 17054.)
Existing law , in relevant part, requires an LLC to file a
statement containing specified information on a biennial
basis, starting within 90 days of filing its original articles
of incorporation, and that whenever that information changes,
the LLC may file a current statement with the information
required, as specified. (Corp. Code Sec. 17060.)
This bill would provide that an LLC shall not amend its
articles of organization to amend any statement that may
appear in the original articles of organization of the street
address, mailing address, or name and address of the initial
agent for service of process, except as specified.
7. Existing law provides for what constitutes the completion
of filing, including that the Secretary of State has accepted
the statement, a copy of the statement, and the filing fee.
Existing law then requires the Secretary of State to return a
copy to the filing entity with notations that indicate the
file number and filing date of the original. (Corp. Code Sec.
18200(c).)
This bill would provide that completion of filing is reached
upon acceptance by the Secretary of State of the statement and
the filing fee.
This bill would add that whenever the street address, mailing
address, or electronic mail address of an LLC changes, it may
file a current statement, as specified.
This bill would amend the above to specify that the address
that these documents shall include is the street address.
(Emphasis added.)
This bill would amend the above to require that it also
specify the street address of the corporation, as well as its
mailing address, if different from the street address.
8. Existing law allows for the Secretary of State to collect a
fee for comparing a copy of any law, resolution, record or
other document or paper with the original, or the certified
copy of the original, on file with the Secretary of State.
(Gov. Code Sec. 12178.1(c).)
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This bill would delete that provision.
9. Existing law provides, that upon the filing of any document
pursuant to any provision of the Corporations Code for which
there is a filing fee of twenty-five dollars ($25) or more,
the Secretary of State shall compare and certify up to two
copies without charge, provided that the copies are submitted
to the Secretary of State with the original to be filed.
(Gov. Code Sec. 12185.)
This bill , with respect to such filings, would instead provide
that the Secretary of State shall provide a copy without
charge at the time of the filing.
10. Existing law provides for special purpose corporations,
including bridge, ferry, wharf, chute, and pier corporations,
as well as water and canal corporations.
This bill would repeal those provisions.
This bill would also state legislative findings, declarations
and the intent of the Legislature, including that:
businesses file many documents with the Secretary of
State;
the current filing process is manual, very
time-consuming, and paper-intensive for the Secretary of
State and businesses;
California Business Connect will replace the manual,
time-consuming, and paper-intensive process with a program
that will allow businesses to file documents and request
records via the Internet at any time of day;
existing law needs to be updated and standardized to
more efficiently facilitate the development of California
business Connect; and
it is the intent of the Legislature to amend applicable
provisions of law to make it easier and less expensive for
the Secretary of State's office to design and build
California Business Connect.
This bill would update and add various cross-references.
This bill would make other technical or non-substantive
changes.
COMMENT
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1. Stated need for the bill
The author writes:
SB 1532 updates and standardizes current law to prepare for
the creation of California Business Connect, slated to
automate business and other SOS filings online by 2016.
�California Business Connect is] a program to modernize the
Secretary of State's antiquated paper-based business filing
processes allowing customers to file documents and request
records online 24 hours a day, 7 days a week. Specifically,
among several changes, SB 1532:
Requires businesses to include the mailing, street and
physical addresses in their initial filings with the SOS.
Modernizes the statutes to allow the SOS to supply a
free copy of filed documents in lieu of physically
comparing two documents to ensure they are identical.
Require that any request for a future file date be
included in the document to be filed.
According to the sponsor, the Secretary of State, Debra Bowen,
the SOS "relies on two separately developed legacy information
technology systems implemented in the 1980s to serve as
databases for most of California's business entities. There are
23 total applications to support the processes of tracking,
recording, and retrieving the records that �the SOS] office
oversees. The current process is very manual and
paper-intensive. The new automated system will provide the
foundation to expedite the way California does business and
provide a means to preserve the business and special filing
records of the state. . . . By (standardizing and) updating
these laws now, it will be less expensive and easier to design
and build California Business Connect."
2. Changes to existing law are in preparation for an automated
filing system
This bill would make numerous minor changes throughout the
Corporations Code, many of which are appear technical in nature,
but are geared at streamlining, clarifying and updating existing
law in order to prepare for an automated filing system.
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a. Streamlining and clarifying current law requirements
This bill would make many technical changes, as well as many
changes that would streamline or clarify existing law
requirements for the various business entities. Since the
development of the system depends in part on the information
required to be entered (as mandated under law), such changes are
necessary to enable the SOS to efficiently and effectively move
to an automated system.
For example, this bill clarifies what existing law means when it
requires business entities to disclose the "address" of
specified persons or offices in specified document filings -
street or mailing address both being possible. This bill
clarifies and makes consistent throughout the filing
requirements of the various business entities that a street
address is needed both for an agent for service of process for
the entity, as well as for the entity itself. But with respect
to the latter, the relevant address information includes also a
mailing address, if different from the street address. This
type of streamlining appears to facilitate the efficient
development of an automated filing system.
To further illustrate, Committee staff notes the provisions of
this bill that amend existing law guidelines on the assignment
of filing dates. Section 110 of the Corporations Code currently
states, in relevant part, that the Secretary of State must file
specified documents that conform to the law on the same date the
Secretary receives the filing, "unless withheld from filing for
a period of time pursuant to a request by the party submitting
it for filing . . . ." This bill would amend that language to
read instead: "unless the instrument provides that it is to be
withheld from filing until a future date . . . ." This change,
while subtle, results in a clear mandate that the instrument
itself contain a future filing date, whereas the existing law
language arguably appears only to suggest that that information
is somehow provided, either orally or by separate document, to
the SOS staff who receives the document and manually assigns its
filing date. If a party is filing a document, however, through
an automated form online, that form would need to be able to
collect information on the future filing date. By amending
current law to allow for that future date to be designated in
the instrument, this bill appears to assist in the move toward
the automated system, as intended by proponents of this bill.
The bill would make other similar changes throughout existing
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law to assist in the streamlining of statutory requirements upon
which the automated system will be built. Committee staff also
notes that the author and sponsor removed other portions of the
prior version of this bill, which had raised concerns or
objections from other stakeholders, in an effort to maintain the
non-substantive nature of this bill. (See SB 1532, as introduced
February 24,, 2012.)
b. Updates to current law
This bill would also make necessary updates to provisions that
are changing as a result of moving toward an automated filing
system-chiefly, provisions relating to filing processes based in
part on the manually-based aspects of the current system.
For example, existing law provides for the SOS to collect a fee
for comparing copies of records with the original -something
that would not be necessary with an automated system. Thus,
this bill would remove that provision. In another section,
because of the nature of manual filing, current law defines the
completion of filing for specified statements as the acceptance
by the SOS of the statement, a copy of the statement, and the
filing fee. At that time, existing law requires the Secretary
to return the physical copy to the filer, with "notations" that
indicate the file number and filing date of the original. In
contrast, that the completion of online filing is presumably
indicated by the click of a button, a printout, and a
confirmation receipt. Accordingly, this bill would provide
instead that filing would be deemed complete upon acceptance by
the SOS of the statement, and the filing fee.
3. Repeal of various special purpose corporations
This bill would repeal those provisions in existing law relating
to bridge, ferry, wharf, chute, and pier corporations, and water
and canal corporations. The bill's sponsor indicates that these
sections are effectively rendered obsolete as, in practice,
these entities are currently formed as Special Districts.
4. Author's amendments
The author accepts the following clarifying amendments:
On page 41, line 26, after "mailing address" strike "," and
insert "of the limited liability company,"
On page 42, line 19, after "street address" strike "," and
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insert "and"
On page 41, line 20, after mailing address" strike "," and
insert "of the limited liability company,"
Support : None Known
Opposition : None Known
HISTORY
Source : Secretary of State
Related Pending Legislation : None Known
Prior Legislation : None Known
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