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Counseling California Corporations

Delivers a thorough understanding of matters relevant to corporate governance, regulatory compliance, and internal affairs.

 

Delivers a thorough understanding of matters relevant to corporate governance, regulatory compliance, and internal affairs.

  • Operating problems
  • Ethical considerations
  • Obligations and liabilities of directors
  • Derivative suits and securities litigation
  • Rights and liabilities of shareholders
  • Amendments to articles and changes to capital structure
  • Dividends and other distributions
  • Corporate compliance programs
  • Sarbanes-Oxley and the private company
  • Dissolution
OnLAW BU94810

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3d edition, 2 looseleaf volumes, updated 4/19

 

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Delivers a thorough understanding of matters relevant to corporate governance, regulatory compliance, and internal affairs.

  • Operating problems
  • Ethical considerations
  • Obligations and liabilities of directors
  • Derivative suits and securities litigation
  • Rights and liabilities of shareholders
  • Amendments to articles and changes to capital structure
  • Dividends and other distributions
  • Corporate compliance programs
  • Sarbanes-Oxley and the private company
  • Dissolution

1

Operating Problems

Bruce D. Whitley

  • I.  ROLE OF COUNSEL IN CORPORATE ACTIVITIES AND TRANSACTIONS
    • A.  Advisor and Advocate  1.1
    • B.  Attorney Fees  1.2
  • II.  DETERMINING APPLICABLE LAW
    • A.  Corporations  1.3
    • B.  Limited Liability Companies [Deleted]  1.4
  • III.  TABLE: COMMON ACTIVITIES AND TRANSACTIONS OF CONCERN TO COUNSEL  1.5
  • IV.  OFFICERS  1.6
  • V.  ACTIONS BY SHAREHOLDERS
    • A.  Shareholder Approval of Corporate Transactions  1.7
      • 1.  General Rule: Two Types of Approval  1.8
        • a.  Approval by Shareholders  1.9
        • b.  Approval by Outstanding Shares  1.10
      • 2.  List of Common Transactions and Type of Approval Required  1.11
      • 3.  Variations Based on Provisions in Articles or Bylaws  1.12
      • 4.  Variations for Close Corporations  1.13
    • B.  Shareholder Meetings  1.14
      • 1.  Preliminary Procedures
        • a.  Annual Meeting  1.15
          • (1)  Form: Counsel’s Reminder Letter to Client  1.16
          • (2)  Form: Agenda for Annual Shareholders’ Meeting  1.17
          • (3)  Meeting Conducted by Electronic Transmission  1.18
        • b.  Special Meeting  1.19
          • (1)  Form: Letter to Client Regarding Proposed Action Requiring Special Meeting  1.20
          • (2)  Form: Letter to Client Regarding Shareholder Demand for Special Meeting  1.21
          • (3)  Form: Agenda for Special Shareholders’ Meeting  1.22
      • 2.  Notification to Shareholders
        • a.  Record Date for Identifying Shareholders Entitled to Vote  1.23
        • b.  Notice of Meeting  1.24
          • (1)  Required Contents of Notice  1.25
          • (2)  Procedural Requirements for Notice  1.26
            • (a)  Form: Notice of Shareholders’ Meeting  1.27
            • (b)  Form: Shareholder’s Consent to Receipt of Electronic Notices and Other Communications  1.28
            • (c)  Form: Declaration of Mailing  1.29
        • c.  Informally Noticed Meetings
          • (1)  Statutory Requirements  1.30
          • (2)  Form: Waiver of Notice and Consent  1.31
        • d.  Unanimous Approval Required When Nature of Proposal Not Stated in Notice or Waiver  1.32
      • 3.  Proxies
        • a.  Use of Proxies  1.33
        • b.  Revocation of Proxies  1.34
        • c.  Irrevocable Proxies  1.35
        • d.  Proxies for Corporations Subject to Federal Securities Regulation  1.36
        • e.  Proxies for Corporations With 100 or More Shareholders Not Subject to Federal Securities Regulation  1.37
          • (1)  Form: Proxy for Corporation With Fewer Than 100 Shareholders  1.38
          • (2)  Form: Proxy for Corporation With 100 or More Shareholders if Proxy Distributed to Ten or More Shareholders  1.39
      • 4.  Meeting Procedure
        • a.  Conducting Meeting  1.40
        • b.  Quorum  1.41
        • c.  Voting  1.42
          • (1)  Voting Procedure (Noncumulative Voting)  1.43
          • (2)  Form: Written Ballot for Noncumulative Voting  1.44
          • (3)  Cumulative Voting for Directors  1.45
          • (4)  Form: Written Ballot for Cumulative Voting  1.46
        • d.  Recording Proceedings  1.47
          • (1)  Form: Checklist for Preparation of Minutes  1.48
          • (2)  Minutes of Shareholders’ Meeting
            • (a)  Form: Introduction to Minutes  1.49
            • (b)  Form: Persons Present  1.50
            • (c)  Form: Notice of Meeting Given or Waived  1.51
            • (d)  Form: Minutes Approved or Dispensed With  1.52
            • (e)  Form: Election of Directors  1.53
            • (f)  Form: Other Business  1.54
            • (g)  Form: Adjournment  1.55
    • C.  Shareholders’ Action by Consent Without Meeting  1.56
      • 1.  Form: Solicitation of Written Consent  1.57
      • 2.  Form: Shareholders’ Consent for Corporation With Fewer Than 100 Shareholders  1.58
      • 3.  Form: Shareholders’ Consent for Corporation With 100 or More Shareholders if Consent Distributed to Ten or More Shareholders  1.59
  • VI.  TRANSFERRING SHARES
    • A.  Introduction  1.60
    • B.  Checklist: Pretransfer  1.61
    • C.  Compliance With California Securities Law
      • 1.  Qualification and Exemptions of Nonissuer Offers and Sales
        • a.  Qualification of Nonissuer Offers and Sales  1.62
        • b.  Exemptions of Nonissuer Offers and Sales  1.63
          • (1)  Private Sale Exemption  1.64
          • (2)  Listed Securities on National Markets  1.65
          • (3)  Covered Securities  1.66
          • (4)  Restricted Securities  1.67
          • (5)  Other Exemptions  1.68
        • c.  Small Corporate Offering Registration (SCOR)  1.69
      • 2.  Commissioner of Business Oversight’s Consent to Transfer
        • a.  Securities Subject to Legend Condition  1.70
        • b.  Legend and Notice Requirements  1.71
        • c.  Modifying or Removing Legend Conditions  1.72
          • (1)  Application for Removal of Conditions  1.73
          • (2)  Form: Application for Removal of Conditions (Department of Business Oversight)  1.74
        • d.  Obtaining Consent to Transfer Shares  1.75
          • (1)  Form: Application for Consent to Transfer Securities Under Corp C §25151 (Department of Business Oversight)  1.76
          • (2)  Form: Statement of Transferee to Accompany Application for Consent to Transfer Securities Subject to Legend or Escrow Condition  1.77
    • D.  Procedure for Transferring Shares
      • 1.  Checklist: Share Transfer  1.78
      • 2.  Addition or Removal of Legends and Notices  1.79
      • 3.  Form: Assignment Separate From Certificate  1.80
      • 4.  Form: Sample Share Journal and Ledger Entries  1.81
      • 5.  Form: Transmittal Letter  1.82
  • VII.  CORPORATE BORROWING AND LENDING
    • A.  Borrowing From Outsiders  1.83
      • 1.  Procedure for Borrowing  1.84
      • 2.  Form: Resolution Authorizing Borrowing  1.85
    • B.  Transactions With Insiders and Affiliates
      • 1.  Borrowing  1.86
        • a.  Borrowing From Shareholders  1.87
        • b.  Borrowing From Directors  1.88
        • c.  Safe Harbor for Interested Director Transactions  1.89
      • 2.  Loans, Guaranties, and Use of Shares as Security
        • a.  Restrictions  1.90
          • (1)  Loans to Directors and Officers  1.91
          • (2)  Loans Secured by Shares  1.92
        • b.  Directors’ Liability for Violations  1.93
        • c.  Shareholder Consent to Transaction  1.94
        • d.  Form: Shareholders’ Resolution Consenting to Loan  1.95
  • VIII.  RECORDS AND REPORTS
    • A.  Role of Attorney  1.96
    • B.  Tax and Accounting
      • 1.  Taxable Year  1.97
      • 2.  Accounting Method  1.98
      • 3.  Payment of Estimated Income Tax  1.99
      • 4.  Suspension for Failure to File Tax Returns  1.100
    • C.  Maintaining and Inspecting Records
      • 1.  Accounting Records  1.101
        • a.  Director’s Right to Inspect  1.102
        • b.  Shareholders’ Right to Inspect  1.103
        • c.  Enforcement of Right to Inspect  1.104
      • 2.  Minutes  1.105
      • 3.  Record of Shareholders  1.106
        • a.  Director’s Right to Inspect  1.107
        • b.  Shareholders’ Right to Inspect  1.108
        • c.  Enforcement of Right to Inspect  1.109
    • D.  Annual Statement Filed With Secretary of State
      • 1.  Procedure  1.110
      • 2.  Penalties for Failure to File  1.111
      • 3.  Form: Statement of Information (California Stock, Agricultural Cooperative and Foreign Corporations) (Secretary of State Form SI-500)  1.112
      • 4.  Form: Statement of No Change (California Stock, Agricultural Cooperative and Foreign Corporations) (Secretary of State Form SI-500 NC)  1.113
      • 5.  Corporate Disclosure Statement  1.114
      • 6.  Form: Corporate Disclosure Statement (Secretary of State Form SI-PT)  1.115
    • E.  Reports to Shareholders
      • 1.  Annual Report
        • a.  Contents of Annual Report  1.116
        • b.  Timing of Annual Report  1.117
      • 2.  Quarterly Reports Requested by Shareholders  1.118
  • IX.  SPECIAL RULES FOR CLOSE CORPORATIONS
    • A.  Introduction  1.119
    • B.  Close Corporation Defined  1.120
      • 1.  Name Requirement  1.121
      • 2.  Certificate Legend Requirement  1.122
    • C.  Advantages and Disadvantages  1.123
    • D.  Procedure
      • 1.  Electing Close Corporation Status  1.124
      • 2.  Shareholders’ Agreement  1.125
      • 3.  Bylaws of Close Corporations  1.126
        • a.  Form: Bylaw Expanding Directors’ Powers  1.127
        • b.  Form: Bylaw Requiring Share Certificate Legend  1.128
      • 4.  Terminating Close Corporation Status  1.129
  • X.  OPINION AND AUDIT LETTERS
    • A.  Opinion Letters  1.130
      • 1.  Preliminary Considerations  1.131
      • 2.  Checklist: Preparation  1.132
        • a.  Form: Opinion Limited to California Law  1.133
        • b.  Form: Reliance on Opinion Letter Restricted  1.134
    • B.  Counsel’s Response to Accountants’ Inquiries  1.135
      • 1.  ABA Statement of Policy  1.136
      • 2.  Checklist: Responding to Audit Inquiry Letter  1.137
  • XI.   EMERGENCY OPERATIONS
    • A.  Application of Emergency Rules  1.138
    • B.  Definition of Emergency  1.139
    • C.  Scope of Provisions  1.140
    • D.  Special Emergency Rules  1.141

2

Advising the Board

William M. McKenzie, Jr.

Ellis G. Wasson

  • I.  INTRODUCTION  2.1
  • II.  ROLE OF COUNSEL
    • A.  Applicable Rules  2.2
    • B.  Identifying the Client
      • 1.  General Rule: Corporation Is Client  2.3
      • 2.  Dual Representation
        • a.  Written Consent Required  2.4
        • b.  Previous Clients; Start-Up Corporations  2.5
        • c.  Handling Transactions Between Corporation and Its Officers or Directors  2.6
      • 3.  Drafting Buyout Agreements  2.7
      • 4.  Counsel’s Conflicts During Litigation
        • a.  Shareholder Derivative Suits  2.8
        • b.  Third Party’s Suit Against Corporation and Individual Directors or Officers  2.9
        • c.  Failure to Indemnify  2.10
        • d.  Criminal Proceedings  2.11
        • e.  Corporate Counsel as Witness  2.12
      • 5.  Counsel’s Conflicts in Proxy Contests  2.13
      • 6.  Giving Personal Advice to Members of Management  2.14
    • C.  Protecting Confidential Communications  2.15
      • 1.  Attorney-Client Privilege
        • a.  Scope of Privilege
          • (1)  Federal Actions  2.16
          • (2)  California Actions  2.17
        • b.  Waiver of Privilege  2.18
      • 2.  Work Product Privilege
        • a.  Federal Actions  2.19
        • b.  California Actions  2.20
        • c.  Loss of Privilege  2.21
  • III.  Before Becoming a Director: Practical Advice
    • A.  Evaluate the Company  2.22
      • 1.  Ownership  2.23
      • 2.  Nature of Company’s Business  2.24
      • 3.  Quality of Management and Directors  2.25
      • 4.  Financial Condition  2.26
      • 5.  Litigation  2.27
      • 6.  Future Plans  2.28
    • B.  Evaluate Ability to Perform Director’s Duties  2.29
      • 1.  Experience and Knowledge of Directors’ Responsibilities  2.30
      • 2.  Adequate Time  2.31
      • 3.  Independence and Objectivity  2.32
    • C.  Evaluate Terms of Engagement
      • 1.  Compensation  2.33
      • 2.  Board Composition  2.34
      • 3.  Board Committees  2.35
    • D.  Evaluate Director Protections  2.36
      • 1.  Articles of Incorporation: When Liability Limited  2.37
      • 2.  Articles of Incorporation: When Liability Not Limited  2.38
      • 3.  Indemnification  2.39
      • 4.  Liability Insurance  2.40
    • E.  Consider Timing  2.41
    • F.  Attorney as Prospective Director  2.42
      • 1.  Insurance Issues  2.43
      • 2.  Deputization Issues  2.44
      • 3.  Agency Issues  2.45
  • IV.  After Becoming a Director: Practical Advice
    • A.  Understand Company Policies  2.46
    • B.  Learn Nature of Business  2.47
      • 1.  Obtain Documents  2.48
      • 2.  Meet With Other Directors and Management  2.49
      • 3.  If Company Is Public  2.50
      • 4.  If Joining the Audit Committee  2.51
    • C.  Practice Due Diligence  2.52
      • 1.  Prepare for Meetings  2.53
      • 2.  Attend Meetings  2.54
      • 3.  Ask for Information  2.55
        • a.  Satisfy Duty of Inquiry  2.56
        • b.  Request Expert Advice  2.57
      • 4.  Take Active Role  2.58
      • 5.  Work Between Meetings  2.59
      • 6.  Obtain Written Opinion When Necessary  2.60
      • 7.  Implement Board Rules and Procedures  2.61
      • 8.  Remedy Mismanagement  2.62
        • a.  Conducting Investigation  2.63
        • b.  Taking Action  2.64
  • V.  ELECTION, APPOINTMENT, AND REMOVAL OF DIRECTORS AND OFFICERS
    • A.  Election of Directors
      • 1.  Generally  2.65
      • 2.  Cumulative Voting  2.66
      • 3.  Division of Board Into Classes  2.67
      • 4.  Filling Vacancies  2.68
      • 5.  Determining Validity of Election or Appointment  2.69
    • B.  Appointment and Removal of Officers  2.70
    • C.  Removal of Directors
      • 1.  Removal Without Cause  2.71
      • 2.  Other Methods of Removal  2.72
  • VI.  RIGHTS OF DIRECTORS  2.73
  • VII.  DIRECTORS’ DUTIES AND OBLIGATIONS
    • A.  General Responsibilities of Board  2.74
    • B.  Practical Rules of Governance  2.75
    • C.  Public Versus Private Company Boards  2.76
    • D.  Directors’ Duties of Loyalty and Care
      • 1.  Duty of Loyalty  2.77
      • 2.  Duty of Care  2.78
        • a.  Business Judgment Rule  2.79
        • b.  Model Business Corporation Act  2.80
      • 3.  Right to Rely on Information From Others  2.81
      • 4.  Effect of Compliance With Standards  2.82
      • 5.  Statute of Limitations; Right to Jury Trial  2.83
      • 6.  Insolvency Issues   2.84
    • E.  Corporate Opportunities  2.85
    • F.  Transactions Between the Corporation and Its Directors (Insider Transactions)
      • 1.  General Rule  2.86
        • a.  Statutory Requirements  2.87
        • b.  Fairness Test  2.88
        • c.  Disclosure of Material Facts  2.89
        • d.  Approval by Disinterested Directors  2.90
      • 2.  Loans and Guaranties of Obligations  2.91
        • a.  Exemptions From Prohibition Against Loans  2.92
        • b.  Liability of Approving Directors  2.93
        • c.  Directors of Public Companies  2.94
  • VIII.  ACTION BY DIRECTORS
    • A.  Need for Directors’ Action  2.95
    • B.  Directors’ Action Taken at Meetings  2.96
      • 1.  Committees of Directors  2.97
        • a.  Executive Committee  2.98
        • b.  Compensation Committee  2.99
        • c.  Stock Option Committee  2.100
        • d.  Nominating Committee  2.101
        • e.  Audit Committee
          • (1)  Necessary for Public Companies  2.102
          • (2)  SEC Rules  2.103
          • (3)  Composition of Audit Committee  2.104
          • (4)  Disclosure of Financial Expertise  2.105
          • (5)  Meetings  2.106
          • (6)  Functions  2.107
          • (7)  Checklist: Sample Audit Committee Meeting Agenda Topics  2.108
        • f.  Special Committees  2.109
      • 2.  Meetings of Directors
        • a.  Frequency of Meetings  2.110
        • b.  Calling Meetings  2.111
          • (1)  Form: Call of Meeting  2.112
          • (2)  Form: Notice of Meeting  2.113
          • (3)  Form: Agenda for Meeting  2.114
          • (4)  Form: Waiver of Notice and Consent to Meeting  2.115
        • c.  Meeting Procedure
          • (1)  Presence of Members  2.116
          • (2)  Quorum Requirement  2.117
          • (3)  Conducting Meeting  2.118
          • (4)  Voting at Meetings  2.119
        • d.  Record of Meeting
          • (1)  Use of Minutes  2.120
          • (2)  Form: Checklist for Preparation of Minutes  2.121
          • (3)  Minutes of Board of Directors’ Meeting
            • (a)  Form: Introduction to Minutes  2.122
            • (b)  Form: Persons Present  2.123
            • (c)  Form: Notice Given or Waived  2.124
            • (d)  Form: Minutes of Last Meeting  2.125
            • (e)  Form: Election of Officers  2.126
            • (f)  Form: Establishment of Committee  2.127
            • (g)  Form: Adoption of Share Purchase Agreement  2.128
            • (h)  Form: Indemnification Agreements  2.129
            • (i)  Form: Approval of Employment Agreement  2.130
            • (j)  Form: Corporate Consent to Stock Transfer  2.131
            • (k)  Form: Adjournment  2.132
    • C.  Directors’ Action Taken Without Meeting
      • 1.  Requirements for Action Without Meeting  2.133
      • 2.  Form: Written Consent to Action Without Meeting  2.134

3

Avoiding Management Liability

  • I.  PREVENTIVE COUNSELING
    • A.  Table: Common Areas of Management Exposure  3.1
    • B.  Issuing Securities
      • 1.  Federal Regulation  3.2
        • a.  Exemptions and Short Form Registrations  3.3
        • b.  Defense of Nonmateriality  3.4
        • c.  Defense of Due Diligence  3.5
        • d.  Reliance on Opinions of Accountants  3.6
      • 2.  State Regulation  3.7
        • a.  Liability for Securities Law Violations  3.8
        • b.  Improper or Inadequate Consideration  3.9
        • c.  Overissues  3.10
        • d.  Blue Sky Laws  3.11
    • C.  Trading in Corporate Stock  3.12
      • 1.  Section 16(b) Liability
        • a.  When §16(b) Liability Attaches  3.13
        • b.  Exemptions From §16(b) Liability  3.14
        • c.  SEC Form 3: Initial Statement of Beneficial Ownership of Securities  3.15
        • d.  SEC Form 4: Statement of Changes in Beneficial Ownership  3.16
        • e.  SEC Form 5: Annual Statement of Changes in Beneficial Ownership of Securities  3.17
      • 2.  Rule 10b–5 Liability  3.18
        • a.  Material Nonpublic Information  3.19
          • (1)  Use Requirement  3.20
          • (2)  Privately Held Corporations  3.21
        • b.  Aider and Abettor Liability  3.22
        • c.  Direct Liability of Attorneys and Accountants  3.23
        • d.  Contribution for Joint Liability  3.24
      • 3.  Common Law Liability  3.25
    • D.  Form: Sample Statement of Policy on Securities Trading  3.26
    • E.  Tender Offers  3.27
    • F.  Distributions and Dividends
      • 1.  Distributions
        • a.  Limitations on Distributions  3.28
        • b.  Liability for Unlawful Distributions  3.29
      • 2.  Dividends in Cash or Property
        • a.  When Dividends May Be Paid  3.30
        • b.  Liability for Improper Dividends  3.31
      • 3.  Stock Dividends  3.32
      • 4.  Share Repurchases and Redemptions  3.33
    • G.  Acquiring or Selling Business
      • 1.  Types of Acquisitions  3.34
      • 2.  Federal Securities Laws
        • a.  Registration Requirement for Acquiring Corporation  3.35
        • b.  Exchange Act  3.36
      • 3.  California Corporate Securities Laws  3.37
        • a.  Exemption From Qualification  3.38
        • b.  Notice of Exchange Transaction  3.39
      • 4.  Representations and Warranties Made in Acquisition Agreement  3.40
    • H.  Antitrust Violations  3.41
      • 1.  Monopolistic Practices  3.42
      • 2.  Price Fixing  3.43
      • 3.  Price Discrimination Under Robinson-Patman Act and California Law  3.44
      • 4.  Acquisition of Patents  3.45
    • I.  Employment Practices  3.46
      • 1.  Payment of Workers  3.47
      • 2.  Withholding Taxes  3.48
      • 3.  Safety Violations  3.49
      • 4.  Union Activity; Unfair Labor Practices  3.50
      • 5.  Discriminatory Practices  3.51
        • a.  Burden of Proof  3.52
        • b.  Remedies  3.53
      • 6.  Required Leaves
        • a.  Medical Leaves
          • (1)  Under the CFRA and FMLA  3.54
          • (2)  Pregnancy Disability Leave  3.55
          • (3)  Leave Required by Other State and Federal Laws  3.56
        • b.  Leaves for Civic Responsibilities  3.57
        • c.  Other Statutorily Required Leaves  3.58
      • 7.  Wrongful Termination  3.59
        • a.  Wrongful Termination in Violation of Public Policy  3.60
        • b.  Breach of Covenant of Good Faith and Fair Dealing  3.61
        • c.  Breach of Express or Implied Agreement  3.62
        • d.  Damages Available  3.63
        • e.  Waiver of Claims Against Directors  3.64
    • J.  Public Welfare and the Responsible Corporate Officer Doctrine  3.65
  • II.  COMPENSATION ISSUES
    • A.  Limitation by Commissioner of Business Oversight  3.66
    • B.  Tax Deduction for Reasonable Compensation  3.67
    • C.  Employment Agreements  3.68
      • 1.  Clause Requiring Repayment of Excess Compensation  3.69
      • 2.  “Golden Parachute” Provisions  3.70
    • D.  Compensation Planning  3.71
    • E.  Employment Taxes  3.72
  • III.  LIMITING OR ELIMINATING DIRECTORS’ LIABILITY
    • A.  Exculpation Provision in Articles of Incorporation  3.73
    • B.  Restrictions on Corporation’s Right to Exculpate
      • 1.  Duty of Loyalty Violations  3.74
      • 2.  Directors Acting as Officers  3.75
      • 3.  Personal Liability  3.76
      • 4.  Certain Specified Acts (“Seven Deadly Sins”)  3.77
  • IV.  INDEMNIFICATION OF DIRECTORS, OFFICERS, AND OTHER AGENTS
    • A.  Indemnification Under Corp C §317  3.78
      • 1.  Definitions  3.79
      • 2.  Third Party and Derivative Actions  3.80
      • 3.  Successful Defense on Merits  3.81
      • 4.  Agent’s Required Standard of Conduct  3.82
      • 5.  Authorization of Indemnification  3.83
      • 6.  Advancement of Expenses  3.84
    • B.  “Excess” Indemnification Under Corp C §204(a)(11)
      • 1.  Provision in Articles of Incorporation  3.85
      • 2.  Restrictions on Excess Indemnification
        • a.  “Seven Deadly Sins”  3.86
        • b.  Express Prohibitions Under Corp C §317  3.87
    • C.  Indemnification Agreements  3.88
      • 1.  Moderate Alternative  3.89
      • 2.  Aggressive Alternative  3.90
      • 3.  Shareholder Approval  3.91
    • D.  Insurance (D&O Insurance)  3.92
      • 1.  Gaps in Coverage  3.93
      • 2.  Self-Insurance  3.94
      • 3.  Allocation of Defense and Settlement Costs Under D&O Policy  3.95

4

Internal Investigations

Nell K. Clement

Jessica K. Nall

Ann-Catherine Padian

Janice W. Reicher

  • I.  ADVISING THE BOARD IN AN INTERNAL INVESTIGATION
    • A.  Background   4.1
    • B.  Who Is the Client?   4.2
      • 1.  Joint Representation Issues   4.3
      • 2.  Payment of Fees   4.4
        • a.  Advancement of Fees and Indemnification   4.5
        • b.  Directors’ and Officers’ Liability Insurance   4.6
    • C.  Will an Investigation or Charges Ensue?   4.7
    • D.  Parallel Proceedings   4.8
    • E.  Initial Steps in an Internal Investigation   4.9
      • 1.  Beginning Internal Investigations   4.10
      • 2.  Crisis Management   4.11
      • 3.  Roles of In-House, Outside, and Individual Counsel When an Investigation Begins   4.12
      • 4.  Preserving Documents and Preventing Destruction of Evidence   4.13
      • 5.  “Cleaning House” and Severance Packages   4.14
    • F.  Obstruction of Justice and False Statements   4.15
    • G.  Grand Jury Subpoenas   4.16
    • H.  Key Consideration for Corporate Counsel: Corporation’s Cooperation With Government   4.17
      • 1.   Maximizing Cooperation to Limit Exposure   4.18
      • 2.  Cooperation Agreements   4.19
      • 3.  The Ten Factors   4.20
    • I.  Key Consideration for Individual Criminal Counsel: Fifth Amendment Privilege Against Self-Incrimination
      • 1.  Scope   4.21
      • 2.  Avoiding Waiver of the Fifth Amendment Privilege  4.22
      • 3.  Stays of Parallel Proceedings   4.23
      • 4.  Fifth Amendment and Depositions   4.24
      • 5.  Fifth Amendment and Discovery   4.25
      • 6.  Consequences of Asserting Fifth Amendment Privilege in Civil Proceedings   4.26
      • 7.  Fifth Amendment Privilege and Corporations   4.27
      • 8.  Fifth Amendment Privilege and Corporate Officers   4.28
      • 9.  Fifth Amendment Privilege and Grand Jury   4.29
      • 10.  Immunity   4.30
        • a.  Statutory Use Immunity   4.31
        • b.  Informal (“Queen for a Day”) Immunity   4.32
    • J.  Key Consideration for Corporate Counsel: Attorney-Client Privilege   4.33
      • 1.  Joint Defense Agreements   4.34
      • 2.  Waiver of Privilege   4.35
      • 3.  Government’s Consideration of Privilege Waiver   4.36
    • K.  Individual Accountability and the Yates Memorandum  4.36A
    • L.  Whistleblower Issues   4.37
      • 1.  The Sarbanes-Oxley Act of 2002   4.38
      • 2.  Lab C §1102.5   4.39
      • 3.  Whistleblowers Under Dodd-Frank  4.40
    • M.  Criminal Implications of Sarbanes-Oxley Act   4.41
      • 1.  Altering Corporate Documents   4.42
      • 2.  Periodic SEC Reports   4.43
      • 3.  Securities Fraud   4.44
    • N.  California’s Corporate Disclosure Act   4.45
    • O.  Forfeiture and Seizure of Assets   4.46

5

Shareholders’ Rights and Liabilities

George Grellas

Jeffrey W. Kramer

Pooja S. Nair

  • I.  SHAREHOLDERS’ RIGHTS
    • A.  Introduction  5.1
    • B.  Right to Obtain Information About Corporation
      • 1.  General Rules  5.2
        • a.  Rights of All Shareholders; Purpose Not Stated  5.3
        • b.  Rights of Shareholders Holding at Least 5 Percent of Shares; Purpose Not Stated  5.4
        • c.  Rights of All Shareholders; Purpose Reasonably Related  5.5
        • d.  Corporation’s Response to Request for Inspection  5.6
        • e.  Related Rules  5.7
      • 2.  Sources of Information  5.8
      • 3.  Specific Types of Information Shareholders Can Obtain
        • a.  Annual Report
          • (1)  General Rule  5.9
          • (2)  Form: Request for Copy of Annual Report  5.10
        • b.  Annual Financial Statements
          • (1)  General Rule  5.11
          • (2)  Form: Request for Annual Financial Statement  5.12
        • c.  Quarterly Financial Information
          • (1)  General Rule  5.13
          • (2)  Forms
            • (a)  Form: Request for Quarterly Financial Information (5-Percent Interest Required)  5.14
            • (b)  Form: Request for Quarterly Financial Information (Not Limited to 5-Percent Shareholders)  5.15
        • d.  Shareholder Lists and Records
          • (1)  Available to Any Shareholder for “Reasonably Related” Purpose
            • (a)  General Rule  5.16
            • (b)  Form: Request to Inspect and Copy Shareholder Records (Purpose Required)  5.17
          • (2)  Available to Percentage Shareholders Without Showing Purpose
            • (a)  General Rule  5.18
            • (b)  Form: Demand for Shareholder Records by Percentage Shareholders  5.19
        • e.  Accounting Books and Records
          • (1)  General Rule  5.20
          • (2)  Form: Request to Inspect and Copy Accounting Books and Records (Purpose Required)  5.21
        • f.  Minute Books
          • (1)  General Rule  5.22
          • (2)  Form: Request to Inspect and Copy Minutes of Corporate Proceedings (Purpose Required)  5.23
        • g.  Bylaws: Right to Inspect  5.24
        • h.  Results of Shareholder Vote
          • (1)  General Rule  5.25
          • (2)  Form: Request for Results of Shareholder Vote  5.26
      • 4.  Penalties to Enforce Shareholder Rights to Obtain Corporate Information
        • a.  Failure to Maintain Records  5.27
        • b.  Refusal to Allow Shareholder Inspection of Records  5.28
        • c.  False Statements in Reports or Documents  5.29
    • C.  Right to Participate in Corporate Affairs
      • 1.  Shareholders’ Meetings
        • a.  General Rules  5.30
        • b.  Annual Meeting  5.31
        • c.  Special Meetings  5.32
        • d.  Shareholders’ Right to Call or Compel Meetings
          • (1)  Annual Meeting
            • (a)  General Rule  5.33
            • (b)  Form: Demand for Annual Meeting  5.34
          • (2)  Special Meeting
            • (a)  General Rule  5.35
            • (b)  Request for Call of Special Meeting  5.36
            • (c)  Form: Call of Special Shareholders’ Meeting  5.37
        • e.  Shareholder Proposals  5.38
        • f.  Voting
          • (1)  General Rules  5.39
          • (2)  Cumulative Voting for Directors  5.40
        • g.  Proxies
          • (1)  Granting of Proxies  5.41
          • (2)  Irrevocable Proxies  5.42
          • (3)  Termination of Proxies  5.43
          • (4)  Form: Revocation of Proxy  5.44
          • (5)  Proxy Contests  5.45
        • h.  Voting Agreements and Voting Trusts
          • (1)  Voting Agreements
            • (a)  General Rules  5.46
            • (b)  Form: Agreement to Pool Votes  5.47
          • (2)  Voting Trusts
            • (a)  General Rules  5.48
            • (b)  Form: Voting Trust Agreement  5.49
            • (c)  Additional Provisions  5.50
            • (d)  Form: Voting Trust Certificate  5.51
            • (e)  Form: Extension Agreement  5.52
      • 2.  Shareholders’ Consent to Action Without Meeting  5.53
      • 3.  Using Corp C §2000 to Resolve 50-50 Shareholder Deadlocks
        • a.  Circumstances Leading to Deadlock  5.54
        • b.  Strategies and Remedies of Owners  5.55
      • 4.  Less Active Owner’s Strategic Choices  5.56
      • 5.  Active Owner’s Strategic Choices  5.57
        • a.  Active Owner’s Purchase Advantage in Dissolution Sale  5.58
        • b.  Risks and Complications of Bargain Purchase by Active Owner  5.59
        • c.  Possibility of Negotiated Sale Between Shareholders During Selling Process  5.60
    • D.  Property Rights of Shareholders
      • 1.  Right to Receive Dividends and Other Distributions  5.61
      • 2.  Right to Transfer; Transfer Restrictions  5.62
      • 3.  Shares With Special Rights  5.63
        • a.  Redeemable Shares  5.64
        • b.  Convertible Shares  5.65
        • c.  Preemptive Rights  5.66
      • 4.  Dissenters’ Rights  5.67
    • E.  Shareholders’ Suits  5.68
      • 1.  Individual Suits by Shareholders  5.69
      • 2.  Derivative Suits  5.70
        • a.  Contemporaneous Ownership Requirement  5.71
        • b.  Continuous Ownership Requirement  5.72
        • c.  Demand Requirement  5.73
        • d.  Security Bond  5.74
        • e.  Business Judgment Rule  5.75
        • f.  Exculpation of Directors; Indemnification of Agents  5.76
      • 3.  Class Actions
        • a.  Generally  5.77
        • b.  Effect of Reform Act  5.78
  • II.  SHAREHOLDERS’ LIABILITIES AND OBLIGATIONS
    • A.  Liability Under Alter Ego Doctrine
      • 1.  When Is Alter Ego Invoked?  5.79
      • 2.  Reasons for Invoking Alter Ego Doctrine  5.80
      • 3.  Two-Pronged Test  5.81
      • 4.  Typical Fact Patterns  5.82
      • 5.  Source and Adequacy of Corporate Funding  5.83
      • 6.  Segregation of Personal and Corporate Affairs  5.84
      • 7.  Observation of Corporate Formalities  5.85
      • 8.  Special Rule for Statutory Close Corporations  5.86
      • 9.  Form: Client’s Checklist for Avoiding Alter Ego Liability  5.87
    • B.  Liability of Shareholders for Further Payments or Assessments
      • 1.  Partly Paid Shares  5.88
      • 2.  Assessments on Shares  5.89
    • C.  Liability for Return of Improper Distributions
      • 1.  Corporate Distributions Generally  5.90
      • 2.  Repurchase or Redemption of Shares as Improper Distribution  5.91
    • D.  Majority’s Duty to Minority Shareholders  5.92
    • E.  Disclosure Obligations When Buying or Selling Securities  5.93
    • F.  Shareholder Liability After Dissolution of Corporation
      • 1.  Liability for Known Claims Not Paid or Provided For  5.94
      • 2.  Liability for Other Claims Asserted After Dissolution of Corporation  5.95

6

Derivative Suits and Securities Litigation

Russell I. Glazer

Hon. Derek W. Hunt

Kenneth J. MacArthur

  • I.  INTRODUCTION  6.1
  • II.  DERIVATIVE ACTIONS
    • A.  Overview  6.2
    • B.  Prelitigation Procedures  6.3
      • 1.  Demand on Board  6.4
        • a.  “Futility” Exception  6.5
        • b.  Written Notification  6.6
        • c.  Adequacy of Demand  6.7
      • 2.  Board Response  6.8
        • a.  Refusal to Act  6.9
        • b.  Use of Committee to Review Demand  6.10
          • (1)  Privilege Considerations  6.11
            • (a)  Attorney-Client Privilege  6.12
            • (b)  Work Product Privilege  6.13
          • (2)  Committee Report  6.14
          • (3)  Business Judgment Doctrine  6.15
        • c.  Choosing to Litigate  6.16
    • C.  Litigation Considerations
      • 1.  Plaintiff’s Prefiling Considerations  6.17
        • a.  Standing to Sue
          • (1)  Shareholder Status  6.18
          • (2)  Injury to Corporation  6.19
        • b.  Proper Parties  6.20
        • c.  Choice of Forum; Venue  6.21
        • d.  Choice of Law  6.22
        • e.  Causes of Action  6.23
        • f.  Verification  6.24
      • 2.  Defensive Considerations  6.25
        • a.  Conflicts of Interest  6.26
        • b.  Litigation Expenses; Derivative Action Bond  6.27
        • c.  Insurance  6.28
        • d.  Defenses  6.29
        • e.  Aiding, Abetting, and Third Party Claims  6.30
      • 3.  Dismissal by Motion  6.31
      • 4.  Voluntary Dismissals and Settlement
        • a.  Settlement Negotiations  6.32
        • b.  Court Approval  6.33
        • c.  Settlement Procedures  6.34
        • d.  Settlement Objectors  6.35
    • D.  Attorney Fees  6.36
    • E.  Trial and Evidentiary Considerations  6.37
    • F.  Appeals  6.38
  • III.  DERIVATIVE ACTIONS BY DIRECTORS OR OFFICERS  6.39
  • IV.  SECURITIES LITIGATION
    • A.  Introduction  6.40
    • B.  Class Actions
      • 1.  Overview  6.41
      • 2.  Class Actions Distinguished From Derivative Actions  6.42
      • 3.  Class Actions Brought in Conjunction with Derivative Actions  6.43
      • 4.  Private Securities Litigation Reform Act of 1995
        • a.  Requirements for Bringing Securities Class Actions  6.44
        • b.  Discovery  6.45
        • c.  Choice of Lead Plaintiff  6.46
        • d.  Selection of Counsel  6.47
        • e.  Damages Limitations  6.48
        • f.  Sanctions for Bad Faith Filing  6.49
      • 5.  Securities Litigation Uniform Standards Act of 1998
        • a.  Goal Is Use of Federal Courts in Securities Class Actions  6.50
        • b.  Exceptions  6.51

7

Amending the Articles and Changing the Capital Structure

Michael J. Halloran

  • I.  INTRODUCTION
    • A.  Scope of Chapter  7.1
    • B.  Attorney’s Role  7.2
  • II.  POWER TO AMEND
    • A.  Basic Authority: Corp C §900  7.3
    • B.  Limitations on Power to Amend
      • 1.  Legality  7.4
      • 2.  Constitutional Limitations
        • a.  Impairment of Contracts  7.5
        • b.  Interference With “Vested Rights”  7.6
        • c.  Taking Property Without Just Compensation  7.7
      • 3.  Fundamental Change Doctrine  7.8
      • 4.  Equitable Limitations
        • a.  Fairness Test  7.9
        • b.  Fairness Factors  7.10
          • (1)  Corporate Necessity  7.11
          • (2)  Discrimination Among or Disparate Treatment of Classes or Groups of Shareholders  7.12
          • (3)  Size of Vote Approving Amendment and Percentage of Objecting Shares  7.13
          • (4)  Available Alternatives That Do Less Harm to Minority Shareholders  7.14
          • (5)  Compensation to Minority Shareholders  7.15
          • (6)  Full Disclosure to Shareholders  7.16
          • (7)  Market Prices and Financial Analysis  7.17
          • (8)  Hindsight Success of Business Since Adoption of Amendment  7.18
  • III.  ALTERNATIVES TO AMENDMENT  7.19
    • A.  Agreements Among Shareholders  7.20
    • B.  Bylaws  7.21
  • IV.  ACTS THAT REQUIRE AMENDMENT
    • A.  Stock Assessment  7.22
    • B.  Change in Number of Authorized Shares  7.23
      • 1.  Capital Reduction  7.24
      • 2.  Mandatory Amendment to Provide Shares for Options  7.25
    • C.  Change in Number of Outstanding Shares
      • 1.  Stock Split or Reverse Stock Split  7.26
      • 2.  Stock Split Versus Stock Dividend  7.27
      • 3.  Examples of Stock Split and Stock Dividend
        • a.  One-Class Structure  7.28
        • b.  Two-Class Structure
          • (1)  Both Classes Affected  7.29
          • (2)  One Class Affected  7.30
          • (3)  One Series Affected  7.31
          • (4)  Tax Risk of Stock Dividend  7.32
      • 4.  Accounting Definitions and Treatment  7.33
    • D.  Change in or Deletion of Par Value  7.34
    • E.  Reclassifications  7.35
    • F.  Creation of Senior Class or Series  7.36
    • G.  Shareholder Qualifications  7.37
    • H.  Supermajority Vote Provisions  7.38
    • I.  Debt-Holder Voting Rights  7.39
    • J.  Shareholder Rights to Fix Consideration for Shares  7.40
    • K.  Change in Certain Dividend Rights
      • 1.  Change in Accrued Dividend Arrearages  7.41
        • a.  Alternatives to Amendment for Elimination of Dividend Arrearages  7.42
          • (1)  Mergers  7.43
          • (2)  Exchange Plan  7.44
          • (3)  Repurchase of Shares  7.45
        • b.  Evaluation of Alternatives; Equitable Limitations  7.46
      • 2.  Change in Future Dividend Rights or Rates  7.47
    • L.  Change in Redemption Provisions
      • 1.  Compulsory Redemption  7.48
      • 2.  Redemption of Single Class or Series  7.49
      • 3.  Making Outstanding Nonredeemable Shares Redeemable  7.50
      • 4.  Change in Redemption Price  7.51
      • 5.  Change in Date for Redemption  7.52
      • 6.  Removal of Redemption Provision  7.53
      • 7.  Removal of Sinking Fund Provision  7.54
    • M.  Change in Preemptive Rights
      • 1.  Grant or Enlargement  7.55
      • 2.  Restriction or Revocation  7.56
    • N.  Creation of or Change in Conversion Rights
      • 1.  Creation of Conversion Right  7.57
      • 2.  Alteration of Conversion Rights  7.58
    • O.  Change in Liquidation Preferences  7.59
    • P.  Change in Term of Corporate Existence
      • 1.  Shortening Term  7.60
      • 2.  Extending Term or Reviving Corporation  7.61
    • Q.  Change in Voting Rights  7.62
      • 1.  Statutory Limitations  7.63
      • 2.  Limitations by Commissioner of Business Oversight  7.64
      • 3.  Limitations by Stock Exchanges  7.65
      • 4.  Judicial Limitations  7.66
      • 5.  Alternatives to Amendment on Voting Rights  7.67
    • R.  Change in Corporate Powers or Purposes; Election to Be Governed by Corp C §202(b)(1)  7.68
    • S.  Change of Corporate Name  7.69
      • 1.  Choice of New Name  7.70
        • a.  Objection by Corporation With Similar Name  7.71
        • b.  Formation of Nameholder Corporation  7.72
      • 2.  Procedural Considerations in Changing Corporate Name
        • a.  Name Check and Reservation of Name
          • (1)  Name Check  7.73
          • (2)  Reservation of Name  7.74
          • (3)  Form: Name Reservation Request (Secretary of State)  7.75
        • b.  Amendment of Articles of Incorporation  7.76
        • c.  Form: Certificate of Amendment—Corporate Name Change Only (Secretary of State AMDT-STK-NA)  7.76A
        • d.  Notification of Third Parties  7.77
        • e.  Change of Share Certificates  7.78
        • f.  Use of New Name When Transferring Property  7.79
      • 3.  Change of Name on Merger  7.80
    • T.  Indemnification and Exculpation  7.81
      • 1.  Limitation of Liability for Breach of Duty Not Allowed for Certain Acts  7.82
      • 2.  Indemnity Agreements Authorized  7.83
    • U.  Amendment in Connection With Plan of Reorganization Under Bankruptcy Law  7.84
  • V.  ACTS THAT DO NOT REQUIRE AMENDMENT
    • A.  Change in Authorized Number or Classification of Directors (When Not Specified in Articles)  7.85
      • 1.  Pre-1977 Corporations  7.86
      • 2.  Listed Corporations  7.87
    • B.  Change of Office Location (When Not Specified in Articles)  7.88
    • C.  Blank Stock; Filing Certificate of Determination  7.89
    • D.  Change in Bylaw Restrictions on Transfer of Shares  7.90
  • VI.  AMENDMENTS THAT REQUIRE QUALIFICATION WITH COMMISSIONER OF BUSINESS OVERSIGHT
    • A.  Requirement of Qualification by Permit  7.91
      • 1.  Agreements Among Shareholders  7.92
      • 2.  Amendments Eliminating or Limiting Personal Liability or Providing for Indemnity  7.93
    • B.  Exempted Amendments
      • 1.  Changes in Rights Set Forth in Corp C §25103(e)  7.94
        • a.  Material Adverse Effect  7.95
        • b.  Close Corporation Status; Shareholders’ Agreement  7.96
        • c.  Interpretive Opinions  7.97
        • d.  Transfer Restrictions; Supermajority Provisions  7.98
      • 2.  Stock Split or Reverse Stock Split  7.99
        • a.  Substantial Alteration  7.100
        • b.  Stock Split Versus Stock Dividend  7.101
        • c.  Exemption for Stock Dividend  7.102
      • 3.  Changes in Debt Securities  7.103
      • 4.  Fewer Than 25 Percent California Residents  7.104
      • 5.  Securities of Certain Organizations  7.105
        • a.  Listed Securities  7.106
        • b.  New Securities  7.107
        • c.  Securities Issued Under Stock Purchase or Option Plan Exempt Under Rule 701  7.108
        • d.  Securities Issued by Industrial Loan Company  7.109
        • e.  Securities Issued by Capital Access Company  7.110
      • 6.  Certain Securities Transactions Exempted by Commissioner’s Rule  7.111
        • a.  Nonpublic Offerings  7.112
          • (1)  Nonpublic Offerings of Debt Securities  7.113
          • (2)  Nonpublic Offerings of Equity Securities  7.114
          • (3)  Institutional Investors  7.115
        • b.  Bankruptcy Reorganizations  7.116
        • c.  Pension and Profit-Sharing Plans  7.117
      • 7.  Common Stock of Quality Corporations  7.118
    • C.  Application for Permit to Issue Securities in Connection With Amendment
      • 1.  When to Apply  7.119
      • 2.  Proxy Material  7.120
      • 3.  Contents of Application for Permit  7.121
      • 4.  Form: Department of Business Oversight Form 260.110—Facing Page  7.122
    • D.  Department Hearings on Proposed Amendments  7.123
    • E.  Judicial Review  7.124
  • VII.  FILING REQUIREMENTS IN SPECIAL CASES  7.125
    • A.  Filings in Other States Where Corporation Is Qualified  7.126
    • B.  Securities Law Filing Where Shareholders Reside  7.127
    • C.  Filing for Particular Business  7.128
    • D.  Professional Corporations  7.129
    • E.  Tax-Exempt Corporations  7.130
    • F.  Fictitious Business Name  7.131
    • G.  Securities Exchange and NASD Requirements  7.132
    • H.  Advance Tax Ruling  7.133
    • I.  SEC Registration, Proxy, and Other Requirements  7.134
  • VIII.  DIRECTOR AND SHAREHOLDER ACTION TO AMEND
    • A.  Before Shares Issued  7.135
    • B.  After Shares Issued
      • 1.  General Requirement of Shareholder and Director Approval  7.136
      • 2.  Additional Approval of Class or Series Affected  7.137
        • a.  Requirements of Corp C §903  7.138
        • b.  Separate Approval by a Series of a Class  7.139
        • c.  Amendment Changing Authorized Number of Shares of a Class  7.140
        • d.  Amendment Changing Share Rights or Restrictions of a Class  7.141
        • e.  Amendment Creating Senior Class or Increasing Its Rights  7.142
        • f.  Reclassification of Shares  7.143
        • g.  Change to Add One or More Series of Preferred When Preferred Class Already Outstanding  7.144
        • h.  Other Amendments Affecting Outstanding Shares  7.145
      • 3.  Stock Splits; Reverse Stock Splits  7.146
      • 4.  Amendments Regarding Share Assessments  7.147
      • 5.  Amendment Changing Number of Directors or Classifying Board  7.148
      • 6.  Requirement of Greater Than Statutory Vote
        • a.  By Commissioner of Business Oversight  7.149
        • b.  In Articles of Incorporation or Agreements Among Shareholders  7.150
      • 7.  Amendments in Connection With Merger  7.151
      • 8.  Amendments to Extend Corporate Existence  7.152
      • 9.  When Shareholder Vote Not Required
        • a.  Mandatory Reduction of Authorized Shares  7.153
        • b.  Miscellaneous Amendments That Do Not Require Shareholder Vote  7.154
    • C.  Amendment Procedures
      • 1.  Shareholder Action: By Written Consent or by Resolution Adopted at Meeting  7.155
        • a.  Form: Resolution Adopting Amendment  7.156
        • b.  Form: Shareholder Consent to Amendment  7.157
      • 2.  Directors’ Action: By Written Consent or at Meeting  7.158
        • a.  Form: Directors’ Written Consent  7.159
        • b.  Form: Directors’ Resolution  7.160
        • c.  Additional Director Resolutions in Connection With Amendment  7.161
          • (1)  Form: Directors’ Resolution to Authorize Seeking Permit  7.162
          • (2)  Form: Directors’ Resolution to Authorize Submission to Shareholders  7.163
          • (3)  Form: Omnibus Resolution  7.164
          • (4)  Form: Directors’ Resolution to Eliminate Fractional Shares  7.165
          • (5)  Form: Directors’ Resolution Authorizing Corp C §507 Notice [Deleted]  7.166
          • (6)  Form: Directors’ Resolution Ordering Surrender and Exchange of Share Certificates  7.167
        • d.  Other Board Resolutions  7.168
      • 3.  Drafting Amendments  7.169
        • a.  Wording Requirements  7.170
        • b.  Statement of Effect  7.171
        • c.  Status of Outstanding Shares  7.172
        • d.  Amendment Changing Par Value  7.173
        • e.  Examples of Amendment Rules  7.174
          • (1)  Form: Amendment Changing Article Provision  7.175
          • (2)  Form: Amendment Striking Out Article Provision  7.176
          • (3)  Form: Changing Paragraph of Article  7.177
          • (4)  Form: Changing Portion of Combined Paragraph  7.178
          • (5)  Form: Adding New Article  7.179
        • f.  Restating Articles
          • (1)  Restating Entire Articles of Incorporation  7.180
          • (2)  Form: Restated Articles of Incorporation (Sample) (Secretary of State)   7.181
        • g.  Amendments Affecting Outstanding Shares
          • (1)  Stock Split
            • (a)  Increase in Authorized Shares; Statement of Effect  7.182
            • (b)  Effective Date of Amendment  7.183
            • (c)  Form: Stock Split; Increase in Authorized Shares  7.184
          • (2)  Reverse Stock Split
            • (a)  Resulting Fractional Shares  7.185
            • (b)  Form: Reverse Stock Split  7.186
          • (3)  Creation of Senior Class
            • (a)  Requirements for Amendment of Statement of Authorized Shares  7.187
            • (b)  Form: Amendment of Statement of Authorized Shares  7.188
          • (4)  Reclassification of Shares
            • (a)  Substantive Effect on Outstanding Shares  7.189
            • (b)  Equality of Effect of Amendment Within Class or Series  7.190
            • (c)  Form: Reclassification of Shares  7.191
          • (5)  Eliminating Accrued Dividends
            • (a)  Alternative to Amendment: Elimination by Reclassifying Shares  7.192
            • (b)  Form: Amendment Eliminating Accrued Dividends  7.193
        • h.  Amendments Electing to Be Governed by General Corporation Law
          • (1)  Considerations in Making Election  7.194
          • (2)  Form: Election Under Corp C §2302  7.195
        • i.  Limitation on Directors’ Liability
          • (1)  Limitation on Liability Under Corp C §204.5(a)  7.196
          • (2)  Form: Limitation on Directors’ Liability  7.197
        • j.  Indemnification of Agents
          • (1)  Indemnification of Agents Under Corp C §317(a)  7.198
          • (2)  Form: Indemnification of Officers and Directors (Articles of Incorporation)  7.199
          • (3)  Form: Indemnification of Agents (Bylaws)—Short Form  7.200
          • (4)  Form: Indemnification of Agents (Bylaws)—Long Form  7.201
          • (5)  Form: Indemnification of Agents (Indemnification Agreement)  7.202
      • 4.  Certificate of Amendment
        • a.  Before Shares Issued
          • (1)  Contents of Certificate  7.203
          • (2)  Form: Certificate of Amendment of Articles of Incorporation Before Shares Issued   7.204
        • b.  After Shares Issued
          • (1)  Contents of Certificate  7.205
          • (2)  Form: Certificate of Amendment, After Shares Issued  7.206
        • c.  Form: Secretary of State Sample Certificate of Amendment of Articles of Incorporation  7.207
        • d.  Filing Requirements  7.208
        • e.  Fees of Secretary of State  7.209
      • 5.  Certificate of Correction
        • a.  When Used  7.210
        • b.  Form: Certificate of Correction  7.211
    • D.  Postamendment Procedures
      • 1.  Exchange of Certificates  7.212
      • 2.  Statements on New Certificates  7.213
        • a.  Form: Summary Statement of Rights, Preferences, Privileges, and Restrictions Under Corp C §417(b)  7.214
        • b.  Form: Alternative Statement of Place Where Statement Can Be Obtained  7.215
        • c.  Form: Statement on Face of Certificate Referring to Statement on Reverse  7.216
      • 3.  Fractional Shares
        • a.  Difficulties of Fractional Shares  7.217
        • b.  Alternatives to Fractional Shares  7.218
        • c.  Buy-Sell Order Form  7.219
        • d.  Form: Instructions to Shareholders When Buy-Sell Form Used  7.220
        • e.  Form: Letter of Transmittal  7.221

8

Declaring and Paying Dividends and Other Distributions

William A. Hines

Victor Hsu

Laura E. Watts

  • I.  INTRODUCTION
    • A.  Scope of Chapter  8.1
    • B.  Attorney’s Role  8.2
    • C.  Definition of Terms
      • 1.  Dividends  8.3
      • 2.  Distributions to Shareholders
        • a.  Definition  8.4
        • b.  Exclusions From Definition  8.5
      • 3.  Time of Distribution
        • a.  Payment of Dividend  8.6
        • b.  Redemption of Shares  8.7
        • c.  Exchange of Debt Security for Shares  8.8
        • d.  Sinking Fund Payments  8.9
      • 4.  Amount of Distribution Payable in Property [Deleted]  8.10
      • 5.  Cumulative Dividends in Arrears  8.11
      • 6.  Preferential Dividends Arrears Amount  8.12
      • 7.  Preferential Rights Amount  8.13
  • II.  IS THE CONTEMPLATED DISTRIBUTION PERMISSIBLE?  8.14
    • A.  Limitations on Corporation’s Right to Make Distributions
      • 1.  Insolvency Test  8.15
      • 2.  Retained Earnings Test  8.16
      • 3.  Assets/Liabilities Test  8.17
      • 4.  Restrictions on Distributions to Junior Shareholders
        • a.  Distributions Affecting Liquidation Preferences of Senior Shareholders [Deleted]  8.18
        • b.  Distributions Affecting Cumulative Dividends on Senior Shares [Deleted]  8.19
        • c.  Possible Nonapplicability of Corp C §§502–503 [Deleted]  8.20
      • 5.  Limitations Set Forth in Charter Documents or Corporate Contracts  8.21
    • B.  Rules for Redemptions, Stock Dividends, and Stock Splits
      • 1.  Redemptions  8.22
      • 2.  Stock Dividends  8.23
      • 3.  Stock Splits  8.24
    • C.  Nonapplicability of Specific Limitations
      • 1.  Redemption of Deceased Shareholder’s Shares  8.25
      • 2.  Redemption of Disabled Shareholder’s Shares  8.26
      • 3.  Distributions on Dissolution  8.27
    • D.  Limitations on Shareholders’ Right to Receive Distributions  8.28
      • 1.  Dividend or Liquidation Rights  8.29
      • 2.  Redemption and Other Rights  8.30
  • III.  TAX CONSIDERATIONS  8.31
    • A.  Distributions Treated as Dividends  8.32
      • 1.  Property  8.33
      • 2.  Earnings and Profits  8.34
      • 3.  Constructive Dividends  8.35
        • a.  Loans to Shareholders  8.36
        • b.  Unreasonable Compensation  8.37
        • c.  Corporate Payments for Shareholder’s Benefit  8.38
        • d.  Bargain Purchases or Rentals by Shareholders  8.39
    • B.  Property Distributions
      • 1.  Shareholder Tax Consequences
        • a.  Amount of Distribution  8.40
        • b.  Amount Taxable  8.41
        • c.  Basis of Property Distributed  8.42
      • 2.  Corporate Tax Consequences of Property Distributions
        • a.  Effect on Corporation’s Taxable Income  8.43
        • b.  Effect on Earnings and Profits  8.44
    • C.  Distributions of Stock and Stock Rights
      • 1.  General Rule: Nontaxability to Shareholder  8.45
      • 2.  Exceptions to General Rule  8.46
        • a.  Distributions in Place of Money  8.47
        • b.  Disproportionate Distributions  8.48
        • c.  Distributions of Common and Preferred Stock  8.49
        • d.  Distributions of Preferred Stock  8.50
        • e.  Distributions of Convertible Preferred Stock  8.51
        • f.  Constructive Distribution Under Regulations  8.52
      • 3.  Section 306 Stock  8.53
      • 4.  Basis of Stock and Stock Rights Acquired in Distributions  8.54
    • D.  Redemptions  8.55
      • 1.  Redemptions Treated as Exchanges
        • a.  Redemptions Not Equivalent to Dividends  8.56
        • b.  Substantially Disproportionate Redemptions  8.57
        • c.  Complete Termination of Shareholder’s Interest  8.58
        • d.  Partial Liquidation  8.59
      • 2.  Redemptions Treated as Distributions  8.60
      • 3.  Redemption of Deceased Shareholder’s Stock Under IRC §303  8.61
  • IV.  PROCEDURE FOR DECLARING AND PAYING DIVIDENDS AND DISTRIBUTIONS
    • A.  Authorization by Board of Directors  8.62
    • B.  Record Date for Distribution Purposes  8.63
    • C.  Notice of Source of Dividend [Deleted]  8.64
  • V.  LIABILITY FOR IMPROPER DISTRIBUTIONS
    • A.  Directors’ Liabilities
      • 1.  Who Is Liable  8.65
      • 2.  Who May Bring Suit  8.66
      • 3.  Damages Available  8.67
      • 4.  Impleading, Contribution, Subrogation, and Cross-Complaints  8.68
      • 5.  Directors’ Defenses  8.69
      • 6.  Fraudulent Intent  8.70
    • B.  Shareholders’ Liabilities
      • 1.  Who Is Liable  8.71
      • 2.  Who May Bring Suit  8.72
      • 3.  Damages Available  8.73
      • 4.  Impleading and Contribution  8.74
      • 5.  Statute of Limitations  8.75

9

Establishing a Corporate Compliance Program

Gregory S. Gomez

Ellis G. Wasson

  • I.  OVERVIEW
    • A.  Purpose of Compliance Programs  9.1
    • B.  Benefits of Compliance Programs
      • 1.  Avoiding Prosecution for Employee Offenses  9.2
      • 2.  Reduced Fines Under Federal Sentencing Guidelines  9.3
      • 3.  Avoiding Court-Ordered Supervision  9.4
      • 4.  More Favorable Treatment in State Enforcement Actions  9.5
      • 5.  Avoiding Liability or Punitive Damages in Discrimination Cases  9.6
      • 6.  Avoiding Personal Liability for Board Directors  9.7
      • 7.  Other Benefits  9.8
  • II.  ESTABLISHING A COMPLIANCE PROGRAM
    • A.  Risk Analysis  9.9
    • B.  Desirable Program Characteristics
      • 1.  Reflects Company Culture  9.10
      • 2.  Tailored to Likely Risks  9.11
      • 3.  Broad Participation in Design  9.12
      • 4.  Fairness  9.13
      • 5.  Flexibility  9.14
    • C.  Compliance Officer  9.15
    • D.  Compliance Committee  9.16
    • E.  Oversight by Board of Directors  9.17
    • F.  Employment Practices  9.18
    • G.  Recordkeeping  9.19
  • III.  CRITICAL AREAS  9.20
    • A.  Foreign Ownership  9.20A
    • B.  CFIUS  9.20B
  • IV.  METHODS FOR COMMUNICATING COMPLIANCE PROGRAMS
    • A.  Major Considerations  9.21
    • B.  Sarbanes-Oxley Requirements  9.22
    • C.  Form: Code of Ethics  9.23
    • D.  Training Courses  9.24
    • E.  Corporate Agents and Contractors  9.25
  • V.  ENFORCEMENT PROCEDURES
    • A.  Investigations  9.26
    • B.  Employee Advocate  9.27
    • C.  Disciplinary Measures  9.28
    • D.  Whistleblower Protections  9.29
    • E.  Self-Reporting Issues  9.30
  • VI.  COMPLIANCE PROGRAM AUDITS  9.31
  • VII.  PROGRAM OVERSIGHT  9.32
  • VIII.  RECORDS MANAGEMENT
    • A.  Record Retention Policy  9.33
    • B.  Form: Record Retention and Destruction Policy  9.34

10

Corporate Governance for Private Companies

James E. Topinka

Dan Hardin

Nicole-Marie Giuntoli

David A. Taylor

  • I.  SETTING GOVERNANCE STANDARDS  10.1
  • II.  GENERAL OVERVIEW OF CORPORATE GOVERNANCE RULES AFFECTING PUBLIC COMPANIES
    • A.  Sarbanes-Oxley Act of 2002  10.2
    • B.  Securities and Exchange Commission  10.3
    • C.  Listing Standards  10.4
    • D.  California’s Response to Sarbanes-Oxley  10.5
    • E.  Dodd-Frank Act of 2010  10.6
    • F.  What the Sarbanes-Oxley and Dodd-Frank Acts Did Not Change  10.7
  • III.  APPLICABILITY OF PUBLIC CORPORATE GOVERNANCE STANDARDS TO PRIVATE COMPANIES
    • A.  New Standards Represent “Best Practices”  10.8
    • B.  Proactive Implementation Adds Value to Private Companies  10.9
      • 1.  Minimizing Risk and Maintaining Value for Shareholders  10.10
      • 2.  Financing  10.11
      • 3.  Attracting Opportunities  10.12
      • 4.  Exit Strategies  10.13
  • IV.  CORPORATE GOVERNANCE PRACTICES THAT PRIVATE COMPANIES SHOULD ADOPT  10.14
    • A.  Board of Directors  10.15
      • 1.  Composition  10.16
      • 2.  Independence  10.17
      • 3.  Committees of the Board of Directors  10.18
        • a.  Audit Committee  10.19
          • (1)  Audit Committee Financial Expert  10.20
          • (2)  Financial Literacy  10.21
        • b.  Compensation Committee  10.22
          • (1)  Long-Term Considerations  10.23
          • (2)  Loans to Management  10.24
          • (3)  Independence  10.25
        • c.  Nominating or Corporate Governance Committee  10.26
        • d.  Compliance Committee  10.26A
    • B.  Communication Between the Board of Directors and Shareholders  10.27
    • C.  Importance of Process  10.28

11

Dissolving the Corporation

William T. Manierre

David C. Ulich

  • I.  INTRODUCTION
    • A.  General Principles of Dissolution  11.1
    • B.  Decision to Dissolve; Conflicts of Interest  11.2
    • C.  Methods  11.3
    • D.  Checklist: Predissolution  11.4
  • II.  TAX CONSIDERATIONS  11.5
    • A.  Double Taxation on Dissolution  11.6
    • B.  “Liquidation-Reincorporation” Doctrine  11.7
    • C.  Use of Liquidating Trust  11.8
    • D.  Taxation at Shareholder Level  11.9
      • 1.  Shareholder’s Use of Installment Reporting  11.10
      • 2.  Parent-Subsidiary Exception  11.11
    • E.  Taxation at Corporate Level
      • 1.  When Gain or Loss Is Recognized  11.12
      • 2.  When Gain or Loss Is Not Recognized  11.13
    • F.  S Corporations: Tax on Built-In Gains  11.14
    • G.  Filing of Federal Tax Forms  11.15
      • 1.  Form: Corporate Dissolution or Liquidation (IRS Form 966)  11.16
      • 2.  Form: Dividends and Distributions (IRS Form 1099-DIV)  11.17
      • 3.  Form: Annual Summary and Transmittal of U.S. Information Returns (IRS Form 1096)  11.18
      • 4.  Form: Request for Prompt Assessment Under IRC §6501(d) (IRS Form 4810)  11.19
  • III.  VOLUNTARY PROCEEDINGS WITHOUT COURT SUPERVISION
    • A.  Commencement of Proceedings
      • 1.  Procedure; Effect of Commencement  11.20
      • 2.  Authorization by Board of Directors Alone
        • a.  General Rule  11.21
        • b.  Form: Directors’ Resolutions Authorizing Dissolution Before Issuance of Shares  11.22
        • c.  Form: Directors’ Resolution Appointing Representative to Act After Dissolution  11.23
      • 3.  Authorization by Shareholders
        • a.  General Rule  11.24
        • b.  Form: Shareholders’ Election and Consent to Wind Up and Dissolve  11.25
        • c.  Form: Certificate of Election to Wind Up and Dissolve (Secretary of State Form ELEC STK)  11.26
      • 4.  Notice to Creditors
        • a.  General Rule  11.27
        • b.  Form: Notice of Commencement of Proceedings to Wind Up and Dissolve  11.28
      • 5.  Avoiding Dissolution by Buyout of Shares  11.29
      • 6.  Revocation of Election to Dissolve
        • a.  General Rule  11.30
        • b.  Form: Revocation of Election to Wind Up and Dissolve  11.31
        • c.  Form: Certificate of Revocation of Election to Wind Up and Dissolve  11.32
    • B.  Winding Up Process
      • 1.  Powers and Authority of Board  11.33
      • 2.  Vacancies on Board  11.34
      • 3.  Adoption of Plan of Distribution  11.35
        • a.  Varying Liquidation Rights and Preferences  11.36
        • b.  Form: Directors’ Resolution Adopting Plan of Distribution  11.37
        • c.  Form: Written Consent of Shareholders to Plan of Distribution  11.38
    • C.  Distribution Phase
      • 1.  Paying or Providing for Debts and Liabilities
        • a.  General Rule  11.39
        • b.  Form: Shareholders’ Assumption of Debts and Liabilities  11.40
        • c.  Liability for Debts Not Paid or Provided for
          • (1)  Known Debts and Liabilities
            • (a)  Directors’ Liability  11.41
            • (b)  Recovery From Recipient Shareholder  11.42
          • (2)  Unknown Debts and Claims  11.43
        • d.  Payment of State Taxes  11.44
      • 2.  Distributions to Shareholders  11.45
        • a.  General Rule: Prorata Distribution  11.46
        • b.  Treatment of Preferred Stock  11.47
        • c.  Trust Agreement
          • (1)  When to Use  11.48
          • (2)  Form: Trust Agreement  11.49
      • 3.  Final Distribution  11.50
        • a.  Form: Corporation’s Conveyance and Assignment to Shareholders or to Liquidating Trust  11.51
        • b.  Form: Corporation’s Receipt for Shareholders’ Stock Certificates  11.52
    • D.  Procedure for Completing Unsupervised Dissolution
      • 1.  Certificate of Dissolution Requirement
        • a.  Contents of Certificate  11.53
        • b.  Filing Certificate  11.54
        • c.  When Dissolution Is Final  11.55
      • 2.  Form: Certificate of Dissolution (Secretary of State Form DISS STK)  11.56
      • 3.  Short Form Certificate of Dissolution  11.57
      • 4.  Form: Short Form Certificate of Dissolution (Secretary of State Form DSF STK)  11.58
  • IV.  COURT-SUPERVISED VOLUNTARY PROCEEDINGS
    • A.  When Court Supervision Is Available  11.59
    • B.  Superior Court Jurisdiction and Powers  11.60
    • C.  Petition and Orders for Court Supervision
      • 1.  Who May Petition  11.61
      • 2.  Form: Shareholder Petition for Court Supervision of Voluntary Winding Up  11.62
      • 3.  Form: Order Approving Petition for Court Supervision of Winding Up of Corporation  11.63
      • 4.  Form: Order for Notice to Creditors  11.64
    • D.  Claims Procedure
      • 1.  Presentation and Payment of Claims  11.65
      • 2.  Rejected Claims  11.66
      • 3.  Form: Notice for Presentation of Claims Against Corporation  11.67
    • E.  Court Approval of Plan of Distribution
      • 1.  Form: Petition for Order Approving Plan of Distribution  11.68
      • 2.  Form: Order Fixing Time and Place of Hearing  11.69
      • 3.  Form: Notice of Hearing on Petition for Order Approving Plan of Distribution  11.70
      • 4.  Form: Order Approving Plan of Distribution  11.71
    • F.  Court Approval of Accounting and Order of Dissolution  11.72
      • 1.  Form: Directors’ Account and Petition  11.73
      • 2.  Form: Order Fixing Time and Place of Hearing  11.74
      • 3.  Form: Notice of Hearing  11.75
      • 4.  Form: Order Approving Accounts and Declaring Corporation Dissolved  11.76
  • V.  INVOLUNTARY PROCEEDINGS
    • A.  Grounds  11.77
    • B.  Initiating Proceedings  11.78
    • C.  Who May File  11.79
    • D.  Administrative Dissolution  11.79A
    • E.  Attorney General Action  11.80
    • F.  Appointment of Provisional Director  11.81
    • G.  Appointment of Receiver  11.82
    • H.  Effect of Beginning Involuntary Proceeding  11.83
    • I.  Complaint and Orders for Involuntary Dissolution
      • 1.  Form: Complaint for Involuntary Winding Up and Dissolution  11.84
      • 2.  Form: Court Order Directing That Corporation Be Wound Up and Dissolved  11.85
      • 3.  Form: Notice of Commencement of Proceedings for Involuntary Winding Up and Dissolution  11.86
    • J.  Buyout of Plaintiff Shareholder to Avoid Dissolution  11.87
      • 1.  Form: Notice of Motion to Stay Proceedings and Ascertain Value of Plaintiffs’ Shares  11.88
      • 2.  Form: Declaration in Support of Motion to Stay Proceedings  11.89
      • 3.  Form: Order Staying Proceedings and Appointing Commissioners  11.90
      • 4.  Form: Order Confirming Award for Purchase of Plaintiffs’ Shares  11.91
  • VI.  DISSOLUTION IN BANKRUPTCY  11.92
  • VII.  CONTINUED EXISTENCE OF DISSOLVED CORPORATION
    • A.  General Rule; Corp C §2010  11.93
    • B.  Shareholder Liability for Future Claims  11.94

COUNSELING CALIFORNIA CORPORATIONS

(3d Edition)

April 2018

TABLE OF CONTENTS

 

File Name

Book Section

Title

CH01

Chapter 1

Operating Problems

01-016

§1.16

Counsel’s Reminder Letter to Client

01-017

§1.17

Agenda for Annual Shareholders’ Meeting

01-020

§1.20

Letter to Client Regarding Proposed Action Requiring Special Meeting

01-021

§1.21

Letter to Client Regarding Shareholder Demand for Special Meeting

01-022

§1.22

Agenda for Special Shareholders’ Meeting

01-027

§1.27

Notice of Shareholders’ Meeting

01-028

§1.28

Shareholder’s Consent to Receipt of Electronic Notices and Other Communications

01-029

§1.29

Declaration of Mailing

01-031

§1.31

Waiver of Notice and Consent

01-038

§1.38

Proxy for Corporation With Fewer Than 100 Shareholders

01-039

§1.39

Proxy for Corporation With 100 or More Shareholders if Proxy Distributed to Ten or More Shareholders

01-044

§1.44

Written Ballot for Noncumulative Voting

01-046

§1.46

Written Ballot for Cumulative Voting

01-048

§1.48

Checklist for Preparation of Minutes

01-049

§1.49

Introduction to Minutes

01-050

§1.50

Persons Present

01-051

§1.51

Notice of Meeting Given or Waived

01-052

§1.52

Minutes Approved or Dispensed With

01-053

§1.53

Election of Directors

01-054

§1.54

Other Business

01-055

§1.55

Adjournment

01-057

§1.57

Solicitation of Written Consent

01-058

§1.58

Shareholders’ Consent for Corporation With Fewer Than 100 Shareholders

01-059

§1.59

Shareholders’ Consent for Corporation With 100 or More Shareholders if Consent Distributed to Ten or More Shareholders

01-061

§1.61

Checklist: Pretransfer

01-078

§1.78

Checklist: Share Transfer

01-080

§1.80

Assignment Separate From Certificate

01-081

§1.81

Sample Share Journal and Ledger Entries

01-082

§1.82

Transmittal Letter

01-085

§1.85

Resolution Authorizing Borrowing

01-095

§1.95

Shareholders’ Resolution Consenting to Loan

01-127

§1.127

Bylaw Expanding Directors’ Powers

01-128

§1.128

Bylaw Requiring Share Certificate Legend

01-132

§1.132

Checklist: Preparation

01-133

§1.133

Opinion Limited to California Law

01-134

§1.134

Reliance on Opinion Letter Restricted

01-137

§1.137

Checklist: Responding to Audit Inquiry Letter

CH02

Chapter 2

Advising the Board

02-108

§2.108

Checklist: Sample Audit Committee Meeting Agenda Topics

02-112

§2.112

Call of Meeting

02-113

§2.113

Notice of Meeting

02-114

§2.114

Agenda for Meeting

02-115

§2.115

Waiver of Notice and Consent to Meeting

02-121

§2.121

Checklist for Preparation of Minutes

02-122

§2.122

Introduction to Minutes

02-123

§2.123

Persons Present

02-124

§2.124

Notice Given or Waived

02-125

§2.125

Minutes of Last Meeting

02-126

§2.126

Election of Officers

02-127

§2.127

Establishment of Committee

02-128

§2.128

Adoption of Share Purchase Agreement

02-129

§2.129

Indemnification Agreements

02-130

§2.130

Approval of Employment Agreement

02-131

§2.131

Corporate Consent to Stock Transfer

02-132

§2.132

Adjournment

02-134

§2.134

Written Consent to Action Without Meeting

CH03

Chapter 3

Avoiding Management Liability

03-026

§3.26

Sample Statement of Policy on Securities Trading

CH05

Chapter 5

Shareholders’ Rights and Liabilities

05-010

§5.10

Request for Copy of Annual Report

05-012

§5.12

Request for Annual Financial Statement

05-014

§5.14

Request for Quarterly Financial Information (5-Percent Interest Required)

05-015

§5.15

Request for Quarterly Financial Information (Not Limited to 5-Percent Shareholders)

05-017

§5.17

Request to Inspect and Copy Shareholder Records (Purpose Required)

05-019

§5.19

Demand for Shareholder Records by Percentage Shareholders

05-021

§5.21

Request to Inspect and Copy Accounting Books and Records (Purpose Required)

05-023

§5.23

Request to Inspect and Copy Minutes of Corporate Proceedings (Purpose Required)

05-026

§5.26

Request for Results of Shareholder Vote

05-034

§5.34

Demand for Annual Meeting

05-037

§5.37

Call of Special Shareholders’ Meeting

05-044

§5.44

Revocation of Proxy

05-047

§5.47

Agreement to Pool Votes

05-049

§5.49

Voting Trust Agreement

05-051

§5.51

Voting Trust Certificate

05-052

§5.52

Extension Agreement

05-087

§5.87

Client’s Checklist for Avoiding Alter Ego Liability

CH07

Chapter 7

Amending the Articles and Changing the Capital Structure

07-156

§7.156

Resolution Adopting Amendment

07-157

§7.157

Shareholder Consent to Amendment

07-159

§7.159

Directors’ Written Consent

07-160

§7.160

Directors’ Resolution

07-162

§7.162

Directors’ Resolution to Authorize Seeking Permit

07-163

§7.163

Directors’ Resolution to Authorize Submission to Shareholders

07-164

§7.164

Omnibus Resolution

07-165

§7.165

Directors’ Resolution to Eliminate Fractional Shares

07-167

§7.167

Directors’ Resolution Ordering Surrender and Exchange of Share Certificates

07-175

§7.175

Amendment Changing Article Provision

07-176

§7.176

Amendment Striking Out Article Provision

07-177

§7.177

Changing Paragraph of Article

07-178

§7.178

Changing Portion of Combined Paragraph

07-179

§7.179

Adding New Article

07-184

§7.184

Stock Split; Increase in Authorized Shares

07-186

§7.186

Reverse Stock Split

07-188

§7.188

Amendment of Statement of Authorized Shares

07-191

§7.191

Reclassification of Shares

07-193

§7.193

Amendment Eliminating Accrued Dividends

07-195

§7.195

Election Under Corp C §2302

07-197

§7.197

Limitation on Directors’ Liability

07-199

§7.199

Indemnification of Officers and Directors (Articles of Incorporation)

07-200

§7.200

Indemnification of Agents (Bylaws)—Short Form

07-201

§7.201

Indemnification of Agents (Bylaws)—Long Form

07-202

§7.202

Indemnification of Agents (Indemnification Agreement)

07-204

§7.204

Certificate of Amendment of Articles of Incorporation Before Shares Issued

07-206

§7.206

Certificate of Amendment, After Shares Issued

07-211

§7.211

Certificate of Correction

07-214

§7.214

Summary Statement of Rights, Preferences, Privileges, and Restrictions Under Corp C §417(b)

07-215

§7.215

Alternative Statement of Place Where Statement Can Be Obtained

07-216

§7.216

Statement on Face of Certificate Referring to Statement on Reverse

07-220

§7.220

Instructions to Shareholders When Buy-Sell Form Used

07-221

§7.221

Letter of Transmittal

CH09

Chapter 9

Establishing a Corporate Compliance Program

09-023

§9.23

Code of Ethics

09-034

§9.34

Record Retention and Destruction Policy

CH11

Chapter 11

Dissolving the Corporation

11-004

§11.4

Checklist: Predissolution

11-022

§11.22

Directors’ Resolutions Authorizing Dissolution Before Issuance of Shares

11-023

§11.23

Directors’ Resolution Appointing Representative to Act After Dissolution

11-025

§11.25

Shareholders’ Election and Consent to Wind Up and Dissolve

11-028

§11.28

Notice of Commencement of Proceedings to Wind Up and Dissolve

11-031

§11.31

Revocation of Election to Wind Up and Dissolve

11-032

§11.32

Certificate of Revocation of Election to Wind Up and Dissolve

11-037

§11.37

Directors’ Resolution Adopting Plan of Distribution

11-038

§11.38

Written Consent of Shareholders to Plan of Distribution

11-040

§11.40

Shareholders’ Assumption of Debts and Liabilities

11-049

§11.49

Trust Agreement

11-051

§11.51

Corporation’s Conveyance and Assignment to Shareholders or to Liquidating Trust

11-052

§11.52

Corporation’s Receipt for Shareholders’ Stock Certificates

11-062

§11.62

Shareholder Petition for Court Supervision of Voluntary Winding Up

11-063

§11.63

Order Approving Petition for Court Supervision of Winding Up of Corporation

11-064

§11.64

Order for Notice to Creditors

11-067

§11.67

Notice for Presentation of Claims Against Corporation

11-068

§11.68

Petition for Order Approving Plan of Distribution

11-069

§11.69

Order Fixing Time and Place of Hearing

11-070

§11.70

Notice of Hearing on Petition for Order Approving Plan of Distribution

11-071

§11.71

Order Approving Plan of Distribution

11-073

§11.73

Directors’ Account and Petition

11-074

§11.74

Order Fixing Time and Place of Hearing

11-075

§11.75

Notice of Hearing

11-076

§11.76

Order Approving Accounts and Declaring Corporation Dissolved

11-084

§11.84

Complaint for Involuntary Winding Up and Dissolution

11-085

§11.85

Court Order Directing That Corporation Be Wound Up and Dissolved

11-086

§11.86

Notice of Commencement of Proceedings for Involuntary Winding Up and Dissolution

11-088

§11.88

Notice of Motion to Stay Proceedings and Ascertain Value of Plaintiffs’ Shares

11-089

§11.89

Declaration in Support of Motion to Stay Proceedings

11-090

§11.90

Order Staying Proceedings and Appointing Commissioners

11-091

§11.91

Order Confirming Award for Purchase of Plaintiffs’ Shares

 

Selected Developments

April 2019 Update

On May 10, 2018, the California Supreme Court issued an order approving new Rules of Professional Conduct for attorneys, which went into effect November 1, 2018. All references to the former rules in the text have been updated.

C corporations (i.e., corporations that are not S corporations) and partnerships that have a C corporation as a partner are prohibited from using the cash method of accounting unless the entity is a qualified personal service corporation, is a farming business, or has average annual gross receipts not exceeding $25 million (as adjusted for inflation after 2018). The average annual gross receipts amount was previously $5 million. IRC §448. See §1.98.

On written demand and “for a purpose reasonably related to such holder’s interests as a shareholder or as the holder of such voting trust certificate,” any shareholder or holder of a voting trust certificate may inspect and copy the accounting records, in person or by agent or attorney. Corp C §1601(a). Effective January 1, 2019, such records must be made available to the shareholder at either the corporation’s principal place of business in California, or if none, at the physical location for the corporation’s California registered agent for service of process. A shareholder may require that such records be made available in electronic format if the shareholder pays for the reasonable costs of converting such records into electronic format. See §1.103.

Publicly held domestic corporations, and publicly held foreign corporations with their principal executive offices being located in California (as reported on Form 10-K), must have a minimum of one female director on their boards. By January 1, 2022, such corporations must have three female directors if the number of total directors of the corporation is six or more, and two female directors if the number of total directors is five. See Corp C §§301.3, 2115.5. See §2.34.

To plead falsity of an opinion statement under Rule 10b–5, a plaintiff must allege that the defendant (1) made an objectively false statement it subjectively knew was false; (2) made a materially misleading statement of fact supporting its opinion; or (3) omitted material facts that would conflict with a reasonable investor’s interpretation of the statement. City of Dearborn Heights Act 345 Police & Fire Retirement Sys. v Align Technol., Inc. (9th Cir 2017) 856 F3d 605. See §3.18.

In Abed v Western Dental Servs., Inc. (2018) 23 CA5th 726, the court held that a plaintiff had sufficiently shown discriminatory animus by presenting evidence that a supervisor told her there were no open positions, that this representation was false, and that the supervisor had made remarks suggesting that she would not be considered for a position while she was pregnant. See §3.52.

In May 2018, the DOJ announced a new policy further encouraging coordination among DOJ components and other enforcement agencies when imposing multiple penalties for the same conduct. See §§4.7–4.8.

The United States Sentencing Guidelines were revised effective November 1, 2018. All references to the Guidelines in the text of chap 4 have been updated. See §4.18.

In In re Twelve Grand Jury Subpoenas (9th Cir 2018) 908 F3d 525, a case of first impression in the Ninth Circuit, the court held that a custodian of records’ status as sole corporate shareholder or sole employee did not give him a Fifth Amendment privilege against the production of corporate records subpoenaed by a grand jury. See §§4.21, 4.27–4.28.

In November 2018, Deputy Attorney General Rod Rosenstein announced a new Department of Justice (DOJ) policy modifying that set forth in the September 2015 Yates Memorandum. See §4.36A.

The Supreme Court recently confirmed that Sarbanes-Oxley applies to all employees who report misconduct to the Securities and Exchange Commission, any other federal agency, Congress, or to an internal supervisor. Digital Realty Trust, Inc. v Somers (2018) 583 US ___, 138 S Ct 767. See §4.38.

In March 2018, the SEC awarded $50 million to a whistleblower (the largest Dodd-Frank whistleblower award to date), and in September 2018, the SEC issued the second highest whistleblower award of $39 million. In fiscal year 2018, the SEC under Dodd-Frank awarded more than $168 million to 13 whistleblowers. In total, as of November 2018, the SEC has issued more than $326 million in awards to 59 whistleblowers since the program was established. See §4.40.

As of 2018, a registrant is required to disclose in its Regulation S-K Item 10(a) the pay ratio of the CEO or equivalent position compared to the median of the annual total compensation of all employees. See §5.8.

In Tindall v First Solar (9th Cir 2018) 892 F3d 1043, the court dismissed a shareholder derivative action under Fed R Civ P 23.1 based on failure to show demand futility. The court found that approval of the financial statements and press releases at issue was not a board business decision. See §§5.73, 6.5.

If a plaintiff in a derivative action seeks to amend a complaint to cure defective demand futility allegations or to add new allegations of wrongdoing, then the amended complaint must set forth specific facts showing that it would be futile to demand action from the board as composed at the time of the proposed amendments. Apple Inc. v Superior Court (2017) 18 CA5th 222. See §6.5.

The California Supreme Court recently clarified, for certain specified purposes, that a worker should be classified as an independent contractor only where he or she: (A) is free from the control and direction of the employer; (B) performs work that is outside the usual course of the employer’s business; and (C) is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed. Dynamex Operations W. v Superior Court (2018) 4 C5th 903, 964. See §9.18.

A new section has been added, discussing board compliance committees. See §10.26A.

A new section has been added, discussing reporting requirements of corporations with control over foreign bank accounts. See §9.20A.

A new section has been added, discussing the Committee on Foreign Investment in the United States (CFIUS). See §9.20B.

For law corporations, a dissolved law firm has no property interest in the fees or profits associated with unfinished hourly fee matters. The process of winding up a law corporation’s hourly fee matters extends no further than to certain acts. These include those acts necessary to: (1) preserve legal matters for transfer to the client’s new counsel or the client itself, (2) effectuate such a transfer, and (3) collect on work done pretransfer. The firm may bill and be paid for the time its lawyers spent filing motions for continuances, noticing parties and courts that it was withdrawing as counsel, packing up and shipping client files back to the clients or to new counsel, and getting new counsel up to speed on pending matters. Heller Ehrman LLP v Davis Wright Tremaine LLP (2018) 4 C5th 467. See §11.46.

Assembly Bill 2503 (2018 Stats, ch 679) created a new procedure by which the Franchise Tax Board may administratively dissolve a corporation that has been suspended for 60 continuous months for nonpayment of taxes. A new section has been added discussing this procedure. See §11.79A.

A Corp C §2000 shareholder buyout is a special proceeding that supplants an action for involuntary dissolution of a corporation. Ontiveros v Constable (2018) 27 CA5th 259, 267. See §11.87.

About the Authors

NELL K. CLEMENT (Chapter 4, Internal Investigations) received her B.A. degree in 2001 from Yale University, her M.A. degree in 2003 from Pace University, and her J.D. degree magna cum laude in 2008 from the University of California, Hastings College of the Law. She is a senior associate at the San Francisco office of Farella Braun + Martel LLP, where she represents individual executives and companies in a wide range of white collar defense matters, including antitrust conspiracies, securities fraud, insider trading, stock options backdating, corporate internal investigations, and off-label pharmaceutical promotion.

NICOLE-MARIE GIUNTOLI (Chapter 10, Corporate Governance for Private Companies) received her B.A. degree magna cum laude from Georgetown University in 2007, her J.D. degree from the University of Southern California Law School in 2012, and her LL.M. from New York University in 2013. She focuses on business and corporate matters, and counsels clients on regulatory compliance, corporate governance, and venture capital and private equity. She is an associate at the San Francisco office of Davis Wright Tremaine LLP.

RUSSELL I. GLAZER (Chapter 6, Derivative Suits and Securities Litigation) received his B.A. degree from Columbia College in 1988 and his J.D. degree in 1992 from the University of California, Los Angeles, School of Law, where he was Articles Editor for the UCLA Law Review and a member of the Order of the Coif. He served as a Law Clerk to the Honorable Robert J. Kelleher of the United States District Court for the Central District of California (1992–1993) and was an associate with the firm of Skadden, Arps, Slate, Meagher & Flom, LLP before joining Troy & Gould in 1997. Mr. Glazer is a member of the American Bar Association, State Bar of California, and the Los Angeles County Bar Association.

GEORGE GRELLAS (Chapter 5, Shareholders’ Rights and Liabilities) received his B.A. degree with highest honors in 1974 from the University of California, Santa Cruz, and his J.D. degree magna cum laude in 1978 from the University of Santa Clara Law School. He heads the firm George Grellas & Associates, in Cupertino, where he specializes in start-ups in technology, business, corporate, and commercial law and represents leading companies in the high tech field and traditional business owners in a broad array of industries. Details of his Silicon Valley practice may be found at http://www.grellas.com.

MICHAEL J. HALLORAN (Chapter 7, Amending the Articles and Changing the Capital Structure) received a B.S. degree from the University of California, Berkeley, in 1962 and an LL.B. degree from the University of California, Berkeley, School of Law in 1965. At the time of publication, Mr. Halloran is Deputy Chief of Staff and Counselor to SEC Chairman Christopher Cox. Prior to that, he was the Senior Partner of Pillsbury Winthrop Shaw Pittman’s Corporate and Securities practice group, practicing in San Francisco and Palo Alto. He was Group Executive Vice President and General Counsel for BankAmerica Corporation, San Francisco from 1990–96. He served as chief worldwide legal officer for BankAmerica, and was adviser to the board and senior management. He was also a member of the bank’s Senior Management Council, which consisted of the top 50 officers. Mr. Halloran is the lead author and editor of Venture Capital & Public Offering Negotiation (Aspen Law & Business), the leading text on the formation of venture funds, venture capital private placements, and initial public offerings. He is the author of several articles on corporate governance, going public, securities offerings domestically and abroad, investment companies, dispositions of restricted securities, duties of directors, and corporate restructuring. Additionally, Mr. Halloran serves on the Editorial Advisory Board of The M&A Lawyer (Thompson West) and The Corporate Accountability Report, a BNA publication. He is a member of the Corporate Laws Committee of the American Bar Association, which updates the Model Business Corporation Act. He is a former member of the New York Stock Exchange Legal Advisory Committee, the California Senate Commission of Corporate Governance, Shareholder Rights and Securities Transactions, and the former chair of several American Bar Association committees relating to securities and corporate matters. Mr. Halloran also served as President of the Board of Trustees of Boalt Hall School of Law and as a Member of the Board of Advisors of the Stanford Journal of Law, Business and Finance.

DAN HARDIN (Chapter 10, Corporate Governance for Private Companies) received his B.A. degree from the University of California, Santa Barbara, and his J.D. degree magna cum laude from the University of California, Hastings College of the Law, where he was elected to the Order of the Coif. He is a corporate associate in Winston & Strawn’s San Francisco office, where he concentrates on mergers and acquisitions, corporate governance, securities law, and financing transactions.

ANDREW E. HARLINE (Chapter 9, Establishing a Corporate Compliance Program) received dual B.A. degrees from Brigham Young University in economics and Chinese and a J.D. degree from Vanderbilt University Law School. Mr. Harline is a member of the Phi Delta Phi Legal Fraternity and the J. Reuben Clark Law Society. He is an associate in the corporate section of Rutan & Tucker, LLP, where he represents various business entities in all aspects of corporate and business law, venture capital financing, public and private placements of securities, securities regulation, joint venture transactions, licensing, and general representation.

WILLIAM A. HINES (Chapter 8, Declaring and Paying Dividends and Other Distributions) received a B.S. degree in engineering from Texas A&M University in 1988 and a J.D. degree in 1994 from Columbia University School of Law, where he was a Harlan Fiske Stone Scholar. At the time of publication, Mr. Hines is an attorney with the Securities and Exchange Commission, in Washington, D.C.

VICTOR HSU (Chapter 8, Declaring and Paying Dividends and Other Distributions) received his A.B. degree in 1983 from Princeton University, his M.B.A. degree in 1987 from the Yale School of Management, and his J.D. degree in 1987 from Yale Law School, where he was an editor of the Yale Law & Policy Review. He is a partner at the Los Angeles office of Norton Rose Fulbright, where he specializes in public finance, corporate finance, securities, mergers and acquisitions, and corporate governance matters. Mr. Hsu is a former vice-chair of the Corporations Committee of the Business Law Section of the State Bar of California.

HON. DEREK W. HUNT (Chapter 6, Derivative Suits and Securities Litigation) received his A.B. degree from Cornell University in 1965 and his J.D. degree in 1972 from Cornell University Law School, where he was Managing Editor of the Cornell Law Review. Mr. Hunt served as a 1st Lieutenant in the United States Army (1967–1969), with service in the Republic of Vietnam and the Federal Republic of Germany. He was also employed in the Congressional Liaison Office of the Department of the Air Force (1966–1967). Before joining Troy & Gould, Mr. Hunt was associated with Mitchell, Silberberg & Knupp in Los Angeles. In 1997, he was appointed as a judge of the California Superior Court in Orange County.

JEFFREY W. KRAMER (Chapter 5, Shareholders’ Rights and Liabilities) received a B.A. degree from Indiana University in 1973 and a J.D. degree from Stanford Law School in 1976. His Martindale-Hubbell Peer Review Rating is AV Preeminent 5.0 out of 5, and he has been named one of Southern California’s Super Lawyers every year from 2004 through 2012. Specializing in business litigation, Mr. Kramer is a shareholder and the chair of the Litigation Department at TroyGould in Los Angeles. He is the update author of Chapter 3.

KENNETH J. MacARTHUR (Chapter 6, Derivative Suits and Securities Litigation) received his B.S. degree from the University of California, Los Angeles, in 1984 and his J.D. degree in 1994 from the University of Southern California School of Law, where he was a member of the University of Southern California Law Review and the Order of the Coif. Mr. MacArthur joined Troy & Gould in 1994. His professional affiliations include the State Bar of California, Century City Bar Association, Association of Business Trial Lawyers, and the George McBurney Business Litigation Inn of Court.

WILLIAM T. MANIERRE (Chapter 11, Dissolving the Corporation) received a B.A. degree from Yale in 1970 and a J.D. degree in 1975 from the University of California, Hastings College of the Law, where he was Executive Editor of the Hastings Law Journal (1974–1975) and a member of the Order of the Coif. Mr. Manierre is a partner in the Corporate and Securities Department of Sheppard, Mullin, Richter & Hampton LLP and practices in that firm’s San Francisco office. Before joining the firm, he was a partner at the firm of Bronson, Bronson & McKinnon LLP. Mr. Manierre is engaged in a broad corporate and securities practice with special emphasis on corporate start-ups, venture capital financing, and mergers and acquisitions.

WILLIAM M. McKENZIE, JR. (Chapter 2, Advising the Board) received a B.A. degree from Yale University in 1953. He served for 3 years in the United States Navy aboard a destroyer in the Western Pacific before receiving his LL.B. degree from the University of Michigan Law School in 1959. After a year as law clerk to Federal District Court Judge James M. Carter, he joined Luce, Forward, Hamilton and Scripps in San Diego, where he continued as an active practitioner until 1996, when he retired as a Senior Partner. While at Luce, Forward, his practice included general corporate representation and business transactions, focusing on mergers and acquisitions, and corporate governance. He has served on the boards of nonprofit corporations, privately held companies, banks, and publicly held corporations. Mr. McKenzie was a member of the California State Bar Business Law Section’s Committee on Corporations from 1972 through 1977, participating in that committee’s 1976 revision of the General Corporation Law. In 1989 and 1990, he served on the Business Law Section’s Executive Committee. Mr. McKenzie has lectured and written on various subjects related to corporate transactions and corporate governance. In 1996, he wrote the chapter Directors, Officers and Agents in the Bancroft-Whitney series California Transactions Forms: Business Entities. Previously, he had been a consultant to Bancroft-Whitney for a chapter titled Actions Involving Officers and Directors in the series California Civil Practice: Business Litigation. Currently, Mr. McKenzie acts as an expert witness in litigation involving corporate governance, business transactions, and attorney-related issues.

JESSICA K. NALL (Chapter 4, Internal Investigations) received her B.A. degree in 1998 from the University of California, Berkeley, and her J.D. degree in 2001 from Harvard Law School. She is a partner at the San Francisco office of Farella Braun + Martel LLP, where she has conducted a multitude of internal investigations for corporate clients, boards of directors, and special committees, including in the areas of suspected financial reporting violations, environmental enforcement violations, False Claims Act violations, insider trading, and stock option backdating. Ms. Nall also represents individual executives and companies facing Securities and Exchange Commission investigations and enforcement actions, Department of Justice investigations and prosecutions, and related civil actions in a wide range of matters including insider trading, mortgage fraud, tax crimes, environmental crimes, FTP violations, off-label marketing of pharmaceuticals, immigration fraud, and all types of financial fraud.

ANN-CATHERINE PADIAN (Chapter 4, Internal Investigations) received her B.A. degree in 2000 from Yale University and her J.D. degree cum laude in 2007 from the University of California, Hastings College of the Law. Formerly a senior associate at the San Francisco office of Farella Braun + Martel LLP, she has represented individual executives facing Department of Justice antitrust investigations and shareholder derivative suits and also worked on a trial involving false statement charges. Her business litigation practice included contractual claims, consumer class actions, construction work, patent infringement cases, trademark and copyright claims, and land use cases.

JANICE W. REICHER (Chapter 4, Internal Investigations) received her B.A. degree cum laude in 2009 from Yale University and her J.D. degree in 2012 from the University of California, Berkeley, School of Law. She is an associate at the San Francisco office of Farella Braun + Martel LLP, where she represents individual executives and companies in a wide range of white collar defense matters, including corporate internal investigations and antitrust matters.

JAMES E. TOPINKA (Chapter 10, Corporate Governance for Private Companies) received a B.A. degree from Dartmouth College in 1968, a J.D. degree from Stanford Law School in 1974, and an LL.M. degree from Harvard University in 1976. Mr. Topinka is a partner in the San Francisco office of Davis Wright Tremaine LLP. He is a corporate securities lawyer with a focus on the representation of companies in technology, manufacturing, retail, and financial services. His current practice emphasizes the financing as well as the merger and acquisition of technology and financial service companies. He actively represents established and emerging companies, as well as venture capitalists and angel investors. Representative transactions include the merger of a leading wireless technology developer and the hostile takeover of a leading San Francisco financial institution. Mr. Topinka has taught at the University of California, Hastings College of the Law and the University of California, Berkeley, School of Law. He has also lectured and written extensively in the areas of securities regulation and mergers and acquisitions, including several articles for CEB’s California Business Law Reporter. Mr. Topinka serves on the board of directors of several technology companies, a venture capital company focusing on emerging companies, and the Edgewood Center for Children and Families.

DAVID C. ULICH (Chapter 11, Dissolving the Corporation) received a B.A. degree from Haverford College in 1981, a J.D. degree in 1984 from the University of California, Los Angeles, School of Law, where he was a Member of the UCLA Law Review, and an LL.M. degree from New York University in 1985. Mr. Ulich is a partner in the Los Angeles office of Sheppard, Mullin, Richter & Hampton LLP. He advises clients on matters ranging from family oriented businesses to multinational corporations in many diverse industries—financial, investment management, venture capital, entertainment, sports, health care, consumer goods, and aerospace. His primary areas of practice are general corporate and securities law, tax law, merger and acquisition transactions, business start-ups, contractual matters (including licensing and distribution agreements), and general business counseling. He specializes in the representation of hedge funds, providing advice on formation and structuring, compliance with Department of Corporation and SEC regulations, registered investment advisor issues, and broker-dealer matters. Mr. Ulich has substantial experience with private investments in public equity (PIPEs), as well as commodity pools, including postclosing stock registration, reporting, and notice issues. He also has extensive experience in the structuring of corporate reorganizations, including mergers, stock-for-stock exchanges, corporate spin-offs, and shareholder redemptions, as well as the tax treatment of “S” corporations. He has handled all aspects of partnership and limited liability company taxation, including formation and dissolution of partnerships and LLCs, drafting partnership and LLC agreements, merging of partnerships and tax treatment of partners, and LLC members in transactions with their companies. He is an authority in the area of tax-deferred exchanges of real estate. Mr. Ulich provides general business and tax advice to educational, public, and religious charities such as Childhelp USA, the American Film Institute, Aids Project Los Angeles, Mission Without Borders, Justice for Athletes, and others. He prepares applications on behalf of these not-for-profit entities for tax exemptions and non-profit status under federal and state tax guidelines, and gives ongoing advice to prevent jeopardizing their non-profit status. He has also helped non-profits to joint venture on projects with other non-profits as well as for-profit entities.

ELLIS G. WASSON (Chapter 9, Establishing a Corporate Compliance Program) received his B.S. degree in 1982 from the University of Southern California, his M.B.T. degree in 1989 from the University of Southern California, his J.D. degree in 1995 from Western State University, and his LL.M. degree in corporate law and international business in 2001 from the University of San Diego School of Law. Mr. Wasson, a partner with Rutan & Tucker, LLP, specializes in corporate transactions, securities and taxation. He is a member of the Tax and Corporate Law Sections of both the Los Angeles County Bar Association and the American Bar Association, a member of the Orange County Bar Association, and a member of the American Institute of Certified Public Accountants. He has taught national continuing education courses on partnership and limited liability company taxation as well as tax planning for closely held businesses.

LAURA E. WATTS (Chapter 8, Declaring and Paying Dividends and Other Distributions) received a B.A. degree from Wellesley College in 1988, a J.D. degree from the University of Georgia School of Law in 1981, and an LL.M. degree from Georgetown University Law Center in 1996. Ms. Watts is a former partner at Pillsbury Winthrop Shaw Pittman LLP in San Francisco, where she specialized in corporate tax, advising clients on mergers and acquisitions, and spin-off transactions. Before joining Pillsbury Winthrop Shaw Pittman LLP, Ms. Watts was an attorney-advisor in the Office of Chief Counsel, IRS National Office, Corporate Division. She has spoken extensively on tax-free acquisitions and spin-off transactions.

BRUCE D. WHITLEY (Chapter 1, Operating Problems) received a B.S. degree from the University of California, Berkeley, in 1982 and a J.D. degree in 1987 from the University of California, Hastings College of the Law, where he was a Director of the Moot Court Board and an Associate Managing Editor of the Hastings International and Comparative Law Review (1986–1987). Mr. Whitley is a partner at Silicon Edge Law Group LLP, in Pleasanton. He practices primarily in the area of corporate law.

About the 2019 Update Authors

RUSSELL I. GLAZER, with TroyGould PC in Los Angeles, is one of the update authors for chapter 6 (Derivative Suits and Securities Litigation). For biographical information, see About the Authors.

GREGORY GOMEZ, with Rutan & Tucker, LLP in Costa Mesa, is one of the update authors for chapter 2 (Advising the Board) and chapter 9 (Establishing a Corporate Compliance Program). Mr. Gomez’s practice focuses on mergers and acquisitions, commercial and corporate finance transactions, and other corporate and securities law matters. He primarily represents middle market buyers and sellers in strategic, private equity and other financing transactions. Mr. Gomez also serves as outside general counsel for a wide range of corporate clients, providing both private and public companies with day-to-day counseling on a broad range of transactional and governance matters in various industries, including construction, energy, engineering, financial services, and health/wellness. Prior to joining Rutan & Tucker, he worked as an associate at Ogletree, Deakins, Nash, Smoak & Stewart, P.C., and served as a judicial extern to the Honorable David O. Carter of United States District Court for the Central District of California. He received a B.A. from the University of California at Los Angeles in 2010, and a J.D. from the University of California, Irvine School of Law in 2015.

DAN HARDIN, with Davis Wright Tremaine LLP in San Francisco, is one of the update authors for chapter 10 (Corporate Governance for Private Companies). For biographical information, see About the Authors.

VICTOR HSU, with Norton Rose Fulbright US LLP in Los Angeles, is the update author for chapter 8 (Declaring and Paying Dividends and Other Distributions). For biographical information, see About the Authors.

KENNETH J. MacARTHUR, with TroyGould PC in Los Angeles, is one of the update authors for chapter 6 (Derivative Suits and Securities Litigation). For biographical information, see About the Authors.

POOJA S. NAIR, with TroyGould PC in Los Angeles, is the update author for chapter 5 (Shareholders’ Rights and Liabilities). Ms. Nair is a business litigator, handling a comprehensive range of employment issues including compliance and internal investigations. She also handles a comprehensive range of business issues in the food and beverage industry, including trade secrets, contract negotiations, intellectual property, licensing, and franchise disputes. Prior to joining TroyGould, Ms. Nair practiced at Foley & Lardner for 5 years, where she focused on white collar criminal defense and internal investigations. She has published extensively on various topics in the Daily Journal, Eater, California Lawyer, and Bloomberg BNA. She attended the University of California at San Diego for her undergraduate work and received a J.D. from Harvard Law School in 2011.

JESSICA K. NALL, with Farella Braun + Martel LLP in San Francisco, is one of the update authors for chapter 4 (Internal Investigations). For biographical information, see About the Authors.

JANICE W. REICHER, with Farella Braun + Martel LLP in San Francisco, is one of the update authors for chapter 4 (Internal Investigations). For biographical information, see About the Authors.

DAVID A. TAYLOR, with Taylor Strategic PC in San Mateo, is one of the update authors for chapter 10 (Corporate Governance for Private Companies). Taylor Strategic was founded by Mr. Taylor, who from 2016–2018 served as General Counsel (and ultimately CEO) of Theranos, Inc. Hired to address the tech company’s high-profile crisis, he led a turnaround team that worked to standardize corporate governance, repair investor relations, resolve enterprise-threatening litigation and investigations, and secure $100M in financing. He spent the 10 prior years litigating and negotiating complex civil and criminal matters at Munger, Tolles & Olson LLP, the Public Defender Service for the District of Columbia, and Williams & Connolly LLP. He is a graduate of Williams College and the University of California, Berkeley School of Law.

JAMES E. TOPINKA, with Davis Wright Tremaine LLP in San Francisco, is one of the update authors for chapter 10 (Corporate Governance for Private Companies). For biographical information, see About the Authors.

ELLIS G. WASSON, with Rutan & Tucker, LLP in Costa Mesa, is one of the update authors for chapter 2 (Advising the Board) and chapter 9 (Establishing a Corporate Compliance Program). For biographical information, see About the Authors.

BRUCE D. WHITLEY, with Silicon Edge Law Group LLP in Pleasanton, is the update author for chapter 1 (Operating Problems). For biographical information, see About the Authors.

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