A couple of weeks ago a client emailed me with great concern. He received a letter that looked like a government demand for $225, lest a penalty of $250 be imposed by the state. It turns out that the letter was not from the state, but from Corporate Business Filings, the latest addition to my Hall of Shame.
Most of the way down the second page, the letter does have an oddly-worded disclaimer that there is no obligation to pay the amount requested. However, even though the disclaimer is upper-case, it is not nearly so prominent as the fear-inducing language in the rest of the letter – and it does not comply with a disclaimer that has been required by law since January 1, 2012.
I have written about shareholders’ rights to inspect corporate financial records and shareholder lists. This post discusses directors’ far greater inspection rights.
California Corporations Code Section 1602 states:
Every director shall have the absolute right at any reasonable time to inspect and copy all books, records and documents of every kind and to inspect the physical properties of the corporation of which such person is a director and also of its subsidiary corporations, domestic or foreign. Such inspection by a director may be made in person or by agent or attorney and the right of inspection includes the right to copy and make extracts. This section applies to a director of any foreign corporation having its principal executive office in this state or customarily holding meetings of its board in this state.
The founder of a closely-held corporate client, knowing that some employees soon would be shareholders, recently asked whether those employee-shareholders would have the right to find out how many shares he owns. Here is the information I provided.
Because the client is a California corporation, Corporations Code Section 1600(a) governs. That Section states, in relevant part (emphasis added):
A shareholder or shareholders holding at least 5 percent in the aggregate of the outstanding voting shares of a corporation…shall have an absolute right to…inspect and copy the record of shareholders’ names and addresses and shareholdings during usual business hours upon five business days’ prior written demand upon the corporation….
While working with one of my international clients several months ago, I re-learned a lesson that I already knew: The same word can mean different things under different countries’ legal systems.
The client is located in Vietnam and wanted to open a branch office in the Bay Area. It would be “doing business” in California, so it needed to qualify as a foreign corporation.
This post, which discusses legal terminology, is adapted from a Quora answer that I provided almost two years ago. Q. Why do you “incorporate” corporations but “form” LLCs? Why the differing terminology?
A. Corporations have existed for much longer than LLCs. “Incorporate” was chosen as the single word that denotes “forming a corporation” (the latter also a legitimate way of describing the process). The obvious tie between the words “corporation” and “Incorporate” is why “incorporate” applies only to corporations and is easily understood.
This post is based on and expands an answer I provided on Quora. Q. Which company suffix to choose: Inc, Corp, etc? What are the criteria?
Many states – notably including Delaware (General Corporation Law Section 102(a)(1)) but, under most circumstances, excluding California – require that the name of a corporation include a word or abbreviation designating corporate status. Those that are used commonly include Corporation (Corp.), Incorporated (Inc.) and Limited (Ltd.).
The choice is totally a matter of style – more a marketing issue than a legal issue.
In my experience, “Inc.” is most popular – typically without a preceding comma, nowadays, for a cleaner look. Indeed, most of my foreign clients say “an Inc.” when they mean “a corporation”!
Dana H. Shultz, Attorney at Law +1 510 547-0545 dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.
A client told me that she wants to include Class F shares in her Certificate of Incorporation for the Delaware corporation we were forming. This post describes how we concluded that – for this client, at any rate – Class F shares were not a good idea.
Class F shares were invented by the Founder Institute several years ago to protect founders (largely against investors, especially VCs – see If You Accept Venture Capital, You will Lose Control of Your Company). Class F shares provide 2:1 board votes per founder versus normal board members, and 10:1 share votes as compared to normal common shares.
This post is based on a question that I answered recently on Avvo. The question and answer – which pertain to adding a new co-founder to an existing corporation – are paraphrased below.
Q. I would like to add a third co-founder to an existing corporation. Does the Founder Agreement need to be changed? How can I make a co-founder designation?
A. The term “co-founder” has little or no significance in this context.
Officers of a corporation have a fiduciary duty to both the corporation and its shareholders. (See California Officers Need to Be More Careful than Directors.) I recently had to consider whether, in California, limited liability company (LLC) officers have a similar duty.
I was preparing the operating agreement for a client’s LLC. The client was to be the sole member (equity owner) and manager.
The client wanted his long-time colleague to be the LLC’s president. He asked how his responsibilities, as manager, would compare to those of the president.
This post’s title question about a one-partner partnership might seem silly: The common-sense answer is “No”, because one cannot be one’s own partner. As I learned recently working with a client who wants to dissolve a partnership, this is one situation where the law (in California, at least) and common sense agree.
To start, Corporations Code Section 16101(9) states that a partnership requires two or more partners.
Last year, in Corrales v. Corrales, the Court of Appeal for the Fourth District, Division 3 (courthouse pictured) answered an interesting question: What happens to a two-person partnership when one partner withdraws?