May 2020 Update
An exemplar of the Department of Business Oversight’s new form, Application for Removal of Conditions (Form DBO 260.141.50), has been added. See §1.74.
An exemplar of the Department of Business Oversight’s new form, Application for Consent to Transfer Securities Under Corp C §25151 (Form DBO 260.151(a)), has been added. See §1.76.
An exemplar of the Department of Business Oversight’s new form, Statement of Transferee to Accompany Application for Consent to Transfer Securities Subject to Legend or Escrow Condition (Form DBO 260.151(b)) has been added. See §1.77.
In Longview Int’l, Inc. v Stirling (2019) 35 CA5th 985, the court held that a suspended corporation's recording of an abstract of judgment and creation of a judgment lien, although unauthorized under Rev & T C §23301, was procedural in nature and therefore was validated retroactively on revivor of corporate powers, as provided in Rev & T C §23305). See §1.100.
An exemplar of the new Secretary of State’s Form SI-550, Statement of Information (California Stock, Agricultural Cooperative and Foreign Corporations), has been added. Note that if a corporation has more than one director, an attachment to Form SI-550, Attachment to Statement of Information (California Stock and Agricultural Cooperative Corporations) (Form SI-550A Attachment), available at https://bpd.cdn.sos.ca.gov/corp/pdf/so/si-550a.pdf, must also be filed. See §1.112.
An exemplar of the new Secretary of State’s Form SI-550 NC, Statement of No Change (California Stock, Agricultural Cooperative and Foreign Corporations), has been added. See §1.113.
Effective January 1, 2019, Corp C §§301.3 and 2115.5 require publicly held corporations with a principal executive office located in California to have a minimum number of female directors on their board of directors. See §§2.34, 10.16. A publicly held corporation may report compliance with the statutory female director requirements on its annual Corporate Disclosure Statement. A “publicly held corporation” is defined as a “corporation with outstanding shares listed on a major United States stock exchange.” Corp C §§301.3, 2115.5. See §§1.114, 2.34.
An exemplar of the new SEC Form 3, Initial Statement of Beneficial Ownership of Securities, has been added. See §3.15.
An exemplar of the new SEC Form 4, Statement of Changes in Beneficial Ownership, has been added. See §3.16.
An exemplar of the new SEC Form 5, Annual Statement of Changes in Beneficial Ownership of Securities, has been added. See §3.17.
In U.S. v Blaszczak (2d Cir 2019) 947 F3d 19, the Second Circuit held that the federal criminal wire fraud, securities fraud, and conversion statutes, codified at 18 USC §§1343, 1348, and 641, respectively, applied to the misappropriation of a government agency’s confidential nonpublic information relating to certain contemplated new agency rules. The four defendants were charged with violating these statutes as well as engaging in securities fraud in violation of Exchange Act §10(b) (15 USC §78j(b)) and SEC Rule 10b–5 (Title 15 securities fraud) by misappropriating confidential nonpublic information from the Centers for Medicare & Medicaid Services (CMS). The Second Circuit held that (1) confidential government information such as the CMS information at issue in this case may constitute “property” in the hands of the government for purposes of the wire fraud and Title 18 securities fraud statutes, and (2) the “personal benefit” test established in Dirks v SEC (1983) 463 US 646, 103 S Ct 3255 (see §3.19), does not apply to the Title 18 fraud statutes. In effect, the Second Circuit’s ruling in Blaszczak makes it easier for federal prosecutors to bring Title 18 securities fraud charges in conjunction with Title 15 securities fraud charges. See §3.24A.
Reverse veil piercing has been allowed in federal and state tax cases to recover a shareholder-taxpayer’s delinquent tax liability from the shareholder’s alter ego business entity. Postal Instant Press, Inc. v Kaswa Corp. (2008) 162 CA4th 1510, 1521 n3. See Brugnara Props. VI v IRS (In re Brugnara Props. VI) (Bankr ND Cal 2019) 606 BR 371. Moreover, reverse veil piercing of a limited liability company was allowed in Curci Invs., LLC v Baldwin (2017) 14 CA5th 214, 221, where the court stated that “a growing majority of courts across the country have adopted [reverse veil piercing] as a potential equitable remedy … . Its application, however, varies due to the different fact-driven analyses employed to determine whether piercing should occur in a given case.” See §5.81.
Courts in California will generally respect venue selection clauses contained in a corporation’s governing documents. See Drulias v 1st Century Bancshares, Inc. (2018) 30 CA5th 696 (upholding provision in bylaws of Delaware corporation designating Delaware as exclusive venue for shareholder actions). But see Handoush v Lease Fin. Group, LLC (2019) 41 CA5th 729 (holding that exclusive New York venue provision, which included jury trial waiver, violated California public policy and was therefore unenforceable). See §6.21.
In Noel v Thrifty Payless, Inc. (2019) 7 C5th 955, 968, the court held that the party advocating class treatment must show “existence of an ascertainable and sufficiently numerous class, a well-defined community of interest, and substantial benefits from certification that render proceeding as a class superior to the alternatives.” See §6.41.
In Northstar Fin. Advisors, Inc. v Schwab Invs. (9th Cir 2018) 904 F3d 821, 829, the Ninth Circuit reaffirmed that the Securities Litigation Uniform Standards Act of 1998 (SLUSA) (Pub L 105–353, 112 Stat 3227) “preclusion of a cause of action does not turn on the name or title given to a claim by the plaintiff.” Instead, the Ninth Circuit formulated a two-part test to determine whether SLUSA applies. First, a court must decide whether “the complaint’s description of a defendant’s conduct involves conduct specified in SLUSA” (i.e., a misrepresentation or omission in connection with the purchase or sale of securities). 904 F3d at 830. If so, then the court goes on to examine whether “the alleged conduct will be part of the proofs in support of the state law cause of action.” 904 F3d at 830. See §6.51.
An exemplar of the new Secretary of State form, AMDT-STK-NA, Certificate of Amendment of Articles of Incorporation—Corporate Name Change Only, has been added. See §7.76A.
On January 13, 2020, the U.S. Department of the Treasury issued two sets of new regulations to implement the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) (amending 50 USC §4565). The new regulations became effective on February 13, 2020, and are titled (i) Provisions Pertaining to Certain Investments in the United States by Foreign Persons (31 CFR pts 800 and 801) and (ii) Provisions Pertaining to Certain Transactions by Foreign Persons Involving Real Estate in the United States (31 CFR pt 802). Among other things, the new regulations (1) strengthen the Committee on Foreign Investment in the United States (CFIUS) jurisdiction over certain kinds of non-controlling investments involving critical infrastructure, technology, and sensitive data; (2) expand the CFIUS filing requirements for certain cases involving foreign governments; (3) create certain limited exemptions to CFIUS jurisdiction, including certain non-controlling transactions if the investors are from Australia, Canada, or the United Kingdom in certain circumstances; (4) introduce a new alternative to submit a short-form voluntary declaration to CFIUS instead of the lengthier notice; and (5) enable CFIUS to review certain foreign investments in U.S. real estate that previously were outside CFIUS’s jurisdiction because they did not involve U.S. businesses. See §§9.20B, 10.11.
Current SEC Chairman, Jay Clayton, has expressed support for expanding access by individual, “Main Street” investors to private company investments. Such “democratization” of private markets will assuredly come with increased oversight. “If growth opportunities have shifted—not all the way, but to [a] substantial extent into our private markets and ordinary investors don’t have access to them—that’s not good,” said Chairman Clayton, noting the trend of companies to stay private longer. Tellingly, he added, “who are we to judge … as long as the investors have access to fair information” (Jay Clayton, Chairman, SEC, CNBC Institutional Investor Delivering Alpha Conference, Sept. 19, 2019). See §10.1.
In May 2019, the SEC signaled an intent to soften the impact of the Sarbanes-Oxley Act of 2002 (15 USC §§7201–7266). The agency advanced a proposed rule that would exempt smaller reporting companies (SRCs) from outside audits of their internal controls for preventing accounting errors and fraud. The proposal comes as part of an effort to incentivize businesses to use the public capital markets. The goal is that smaller companies, especially in the biotech and healthcare sectors, “will be able to redirect the savings into growing their companies by investing in research and human capital.” (SEC Press Release, SEC Proposes Amendments to More Appropriately Tailor the Accelerated and Large Accelerated Filer Definitions, May 9, 2019). See §§10.1, 10.13.
In October 2019, California Governor Gavin Newsom signed a #MeToo bill that prevents employers from implementing “no-rehire” clauses in settlements for sexual-harassment victims. The law, AB 749, which is effective in January 2020, was signed just after Governor Newsom signed two other related bills: AB 9, which extends the deadline for victims of workplace sexual harassment or related offenses to file complaints from 1 year to 3 years; and AB 51, which protects victims who signed forced arbitration clauses that would require harassment claims to be settled in private. This trio of bills signals that corporations can no longer pay to make harassment complaints go away quickly or quietly. Increasingly, it will become an expectation of the board to facilitate a safe and accountable work environment. See §10.8.
A corporation that is a “qualified entity” within the meaning of Rev & T C §23310 can request that the Franchise Tax Board abate certain unpaid taxes, interest, and penalties by seeking voluntary administrative dissolution. The qualified entity must certify, under penalty of perjury, that it was not doing business within the meaning of Rev & T C §23101(a), has ceased doing business, and does not have any remaining assets in the business. Under Rev & T C §23310(e), the abatement is conditioned on the corporation’s dissolution with the Secretary of State. Volumary administrative dissolution can be requested by filing Form FTB 3715. See §11.44A. Notwithstanding this procedure, if a qualified entity continues to do business, or has remaining assets that were not disclosed, the unpaid taxes, interest, and penalties under Rev & T C §23310(b)(2) that were abated become immediately due and payable, together with a penalty and accrued interest. See Rev & T C §23311. See §11.44.
An exemplar of the new Franchise Tax Board Form FTB 3715, Domestic Corporation Request for Voluntary Administrative Dissolution, has been added. See §11.44A.
An exemplar of the new Secretary of State Form DSF STK, Short Form Dissolution Certificate, has been added. See §11.58.