This post is the result of my research on the duties of a director of a Delaware corporation that is located, and doing much of its business, in California. Specifically, I wanted to confirm that California law governed those duties, because it is a so-called quasi-California corporation.
Quasi-California Corporation Criteria
Corporations Code Section 2115 addresses non-California corporations for which (a) most voting shares are held by shareholders in California and (b) the average of the following three factors exceeds 50%.
- The percentage of its property that is located in California.
- The percentage of its payroll that is paid in California.
- The percentage of its sales that take place in California.
(Many publicly-held corporations are excepted.)
Applicable Corporations Code Sections
Such a corporation is known as quasi-California corporation because, pursuant to Section 2115, it is subject to the following provisions of the California Corporations Code, even if these provisions conflict with the laws in the state of incorporation.
- Chapter 1 (general provisions and definitions), to the extent applicable to the following provisions.
- Section 301 (annual election of directors).
- Section 303 (removal of directors without cause).
- Section 304 (removal of directors by court proceedings).
- Section 305, subdivision (c) (filling of director vacancies where less than a majority in office elected by shareholders).
- Section 309 (directors’ standard of care).
- Section 316 (excluding paragraph (3) of subdivision (a) and paragraph (3) of subdivision (f)) (liability of directors for unlawful distributions).
- Section 317 (indemnification of directors, officers, and others).
- Sections 500 to 505, inclusive (limitations on corporate distributions in cash or property).
- Section 506 (liability of shareholder who receives unlawful distribution).
- Section 600, subdivisions (b) and (c) (requirement for annual shareholders’ meeting and remedy if same not timely held).
- Section 708, subdivisions (a), (b), and (c) (shareholder’s right to cumulate votes at any election of directors).
- Section 710 (supermajority vote requirement).
- Section 1001, subdivision (d) (limitations on sale of assets).
- Section 1101 (provisions following subdivision (e)) (limitations on mergers).
- Section 1151 (first sentence only) (limitations on conversions).
- Section 1152 (requirements of conversions).
- Chapter 12 (commencing with Section 1200) (reorganizations).
- Chapter 13 (commencing with Section 1300) (dissenters’ rights).
- Sections 1500 and 1501 (records and reports).
- Section 1508 (action by Attorney General).
- Chapter 16 (commencing with Section 1600) (rights of inspection).
Note: California courts will enforce these provisions against a quasi-California corporation, but courts in other states may not.
Dana H. Shultz, Attorney at Law +1 510 547-0545 dana [at] danashultz [dot] com
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