Corporate Practice Series Portfolio No. 31-3rd, The California Corporation: Legal Aspects of Organization and Operation, analyzes the application of California's General Corporation Law (the “GCL”) and Corporate Securities Law (the “CSL”) to the organization and operation of domestic corporations, “pseudo-foreign”; corporations incorporated elsewhere but doing most of their business in California, and other foreign corporations with activities in the state.

Portfolio 31-3rd: The California Corporation: Legal Aspects of Organization and Operation

I. Choosing California as a Corporate Domicile
    . Introductory Material
    A. California Requirements Unrelated to Domicile
    B. California Requirements Imposed on ‘Pseudo-Foreign’ Corporations
    C. Advantages of California Incorporation
    D. Disadvantages of California Incorporation
    . The Benefit Corporation
    . The Flexible Purpose Corporation
    . The Path Ahead

II. Organizing the Corporation
    A. Advance Planning
         1. Selecting a corporate name
         2. Selecting an agent for service of process
         3. Special statutory requirements
         4. Preliminary tax questions
         5. Pre-incorporation subscription agreements
         6. Shareholder or buy-and-sell agreements
    B. Preparing the Articles of Incorporation
    C. Incorporation
         1. Filing the articles of incorporation
         2. Organizational proceedings
         3. Bylaws
         4. Filing the initial statement with the Secretary of State
    D. Incorporating a Business Trust
    E. Forming a Limited Liability Company

III. Corporation Finance
    A. Issuance of Stock
         1. Consideration for shares
         2. Compliance with Corporate Securities Law requirements
         3. Required and permissible characteristics of shares
              a. Voting rights
              b. Dividend and liquidation rights
              c. Redemption
              d. Convertibility and option rights
              e. Assessability
              f. Preemptive rights
              g. Restrictions on transfer
              h. Par value
              i. Fractional shares
         4. Employee purchase and option agreements and plans
         5. Stock certificates
         6. Certificates of determination
    B. Dividends and Other Distributions to Shareholders
         1. Validity of distributions
         2. Exempt redemptions
         3. Liabilities for invalid distributions
    C. Reacquisitions of Issued Shares
    D. Debt Securities

IV. Operating the Corporation
    A. Directors and Officers
         1. Number and term of directors
         2. Board vacancies and removal of directors
         3. Directors' duties and standards of care
         4. Directors' conflicts of interest
         5. Directors' proceedings
         6. Corporate officers
        7. Indemnification of directors, officers, and others
        8. Loans and guarantees
         9. Corporate authority
    B. Shareholders
         1. Electronic communication with shareholders
         2. Shareholder meetings
         3. Shareholder voting
         4. Proxies, voting trusts, and pooling agreements
         5. Derivative actions
         6. Duties of controlling shareholders
    C. Corporate Records and Reports
         1. Annual statements filed with the Secretary of State
         2. Annual reports to shareholders
         3. Corporate recordkeeping
         4. Rights of inspection
         5. Liability for nondisclosure
    D. Sale and Hypothecation of Assets
    E. Unclaimed Property Under California Law
    F. Deadlocks Among Directors or Shareholders
    G. Franchise Tax Delinquencies

V. Close Corporations
    A. The Statutory Close Corporation
        1. Articles and stock certificate provisions
        2. The shareholder agreement
        3. Reorganization and dissolution
    B. Planning to Use the Close Corporation Device
    C. Potential Disadvantages of the Close Corporation Device

VI. Organic Corporate Changes and Reorganizations
    A. Amending the Articles of Incorporation
         1. Shareholder approval requirements
         2. Filing amendments to the articles
         3. Restated articles
         4. Changing corporate status by amending the articles
         5. Corporate Securities Law considerations
    B. Dissolution and Winding Up
         1. Voluntary dissolution
         2. Involuntary dissolution
         3. Escheat of distributive shares
         4. Avoiding dissolution
         5. Shareholders' transferee liability
    C. Mergers and Other Forms of Corporate Reorganization
         1. The generic reorganization
         2. Board approval
         3. Shareholder approval
         4. Fairness opinion requirement
         5. Mergers
         6. Short-form mergers
         7. Mergers with foreign corporations
         8. Dissenters' rights and remedies
         9. Share-exchange tender offers
         10. `Going private' transactions
         11. Bankruptcy reorganizations
         12. Transferee liability
         13. California Corporate Securities Law issues
         14. Interspecies mergers
    D. Tender Offer Regulation
    E. Conversions
         1. Conversion of domestic corporations into other domestic entities
              a. General requirements
              b. Board approval
              c. Shareholder approval and dissenters’ rights
         2. Conversion of other entities into domestic corporations
         3. Effect of conversion
         4. Filing
         5. Notice

VII. Foreign Corporations
    A. Registration of Names
    B. Transaction of Intrastate Business
    C. Procedures for Qualification
    D. Agents for Service of Process
    E. The Pseudo-Foreign Corporation
    F. General Application of California Law to Foreign Corporations
    G. Jurisdiction over Foreign Corporations
    
VIII. Application of the Corporate Securities Law
    A. General Concepts
    B. Qualification Procedures
    C. Regulatory Standards
    D. Common Exemptions
    E. Changes in Outstanding Securities     

Portfolio 31-3rd: The California Corporation: Legal Aspects of Organization and Operation

Wks. 1 Sample Pre-Incorporation Subscription Agreement

Wks. 2 Sample Shareholder Buy-and-Sell Agreement

Wks. 3 Articles of Incorporation: One Class of Stock

Wks. 4 Articles of Incorporation: Two Classes of Stock

Wks. 5 Filing Fees Applicable to California Corporations for Profit

Wks. 6 Proceedings of Incorporator(s) by Written Consent

Wks. 7 Sample Form of Bylaws

Wks. 8 Statement of Information (Domestic Stock Corporation) Corporate Disclosure Statement (Domestic Stock and Foreign Corporations)

Wks. 9 Directors' Resolutions Authorizing Issuance of Shares

Wks. 10 Shareholder Action by Written Consent

Wks. 11 Close Corporation Shareholders' Agreement

Wks. 12 Certificate of Amendment of Articles of Incorporation After Issuance of Shares

Wks. 13 Certificate of Amendment of Articles of Incorporation Before Issuance of Shares

Wks. 14 Certificate of Correction

Wks. 15 Certificate of Election to Wind Up and Dissolve

Wks. 16 Certificate of Dissolution

Wks. 17 Agreement of Merger

Wks. 18 Officers' Certificate Regarding Merger

Wks. 19 Certificate of Ownership for Short-Form Merger of 100 Percent Owned Subsidiary

Wks. 20 Certificate of Ownership for Upstream Short-Form Merger of Less Than 100 Percent Owned Subsidiary with Name Change of Parent

Wks. 21 Certificate of Conversion

Wks. 22 Limited Liability Company, Articles of Organization—Conversion

Wks. 23 Certificate of Limited Partnership—Conversion

Wks. 24 General Partnership, Statement of Partnership Authority—Conversion

Wks. 25 Excerpts from the California Corporate Securities Law

Wks. 26 Excerpts from the California Code of Regulations, Title 10

Wks. 27 California Corporate Disclosure Act

Wks. 28 Excerpts from the California Corporations Code Concerning Foreign Corporations

Philip W. Peters
Farella Braun & Martel LLP
San Francisco, California